BreitBurn Energy Partners L.P. (BBEP), EV Energy Partners, L.P. (EVEP): Tempted By a Yield That’s Over 8%? Read This First!

Page 1 of 2

As an investor, you’ve likely found out the hard way that not all companies operating in the same sector offer similar risks or rewards. Sometimes your idea can be right, but you make the wrong stock selection, which can wreck your returns. That’s why it’s as important to pick the right stock not only to benefit from a long-term trend but also to fit within your risk tolerance.

One sector where there is a diversity of risk profiles is in the upstream oil and gas MLP space. While known for their high yields, it’s important that you don’t judge an upstream MLP by yield alone. That’s easy to do because as you can see from the chart below, these yields can vary significantly:

Company Yield
BreitBurn Energy Partners 10.50%
EV Energy Partners (NASDAQ:EVEP) 8.00%
LINN Energy (NASDAQ:LINE) 8.75%
Vanguard Natural Resources (NASDAQ:VNR) 8.75%
QR Energy (NYSE:QRE) 11.50%

What’s not obvious when looking at these yields is why there is any disparity at all. That’s why it’s important to drill down a little deeper into each company to see what sets them apart. Specifically, there are three important areas to look at in order to get a better idea of how safe and reliable those yields will be in the future.

Reserve mix
An oil and gas MLP is only as good as the reserves it has in the ground. These reserves play a key role in how much future margin each company can capture as its reserves are produced. As you can see in the chart below, reserve mix does vary significantly from one company to another:

Sources: Company Investor Presentations and Author Calculations

What’s pretty evident is that as an investor you have three choices. You could choose a liquids-focused company like QR Energy LP (NYSE:QRE), balanced producers like Linn Energy LLC(NASDAQ:LINE) and BreitBurn Energy Partners L.P.(NASDAQ:BBEP), or the natural-gas-heavy names like Vanguard Natural Resources, LLC (NASDAQ:VNR) or EV Energy Partners, L.P. (NASDAQ:EVEP). If you are of the opinion that natural gas price will be heading higher in the future, then you would enjoy more potential upside by investing in those companies with larger natural gas reserves. On the other hand, if you like balance in your life, then investing in a company with a balanced reserve mix makes sense.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!