Miller/Howard Investments is among the most famous financial investment advisers in the U.S. with $4.27 billion in assets under management. The firm’s investment strategy includes investing in companies which are likely to grow by means of expanding their business, resulting in high dividends for investors. Moreover, it also believes in investing in Master limited partnerships that are traded on the stock exchange and are financially strong.
According to the recent 13F fillings, its top holdings are Enterprise Products Partners L.P. (NYSE:EPD), Kinder Morgan Inc (NYSE:KMI), and Plains All American Pipeline, L.P. (NYSE:PAA)’s . Let’s find out whether these companies provide good investment opportunities.
Business segments performing well
Enterprise Products Partners L.P. (NYSE:EPD) reported a gross operating margin of $1.19 billion in the first quarter compared $1.1 billion last year. It was mainly driven by the “onshore crude oil pipeline services” segment of the company, which posted an increase in its gross profit of 75% quarter over quarter to $236 million. The company observed the increase in this segment due to a 500% rise in volumes to 981,000 barrels per day against the first quarter of the previous year in the Seaway and South Texas pipelines.
This growth was driven by its increased Eagle Ford (South Texas) production. In the quarter, it started production from its assets including a processing train in South Texas and a part of the Eagle Ford crude oil pipeline. Enterprise is also expected to complete projects worth $2.2 billion, which will start production by the end of 2013.
Additionally, the company’s Natural Gas Liquids, or NGL, pipelines and storage business posted a gross operating profit of $232 million, an year over year growth of 38%. The company observed the growth due to daily volumes of 2.5 million barrels, as a new Eagle Ford NGL pipeline project was completed by the end of 2012 in the South Texas region. This new pipeline is 350 miles long and extends to the company’s processing unit in Eagle Ford. This pipeline contributed $22 million to the gross operating margin in 2012. Enterprise Products Partners L.P. (NYSE:EPD) is expecting to complete projects worth $5.3 billion by the end of 2014 and 2015 sourced through its newly installed pipelines.
As demand is rising, Enterprise Products is expected to attain large orders, which will result in high income opportunities in 2013 and 2014.
Company making acquisitions
Kinder Morgan Inc (NYSE:KMI) closed the acquisition of Copano Energy, L.L.C. (NASDAQ:CPNO) in May 2013, paying $5 billion. Copano Energy is an oil and natural gas pipeline company which owns 7,000 miles of pipelines in various parts of the U.S., including Texas. It has a capacity of 2.7 billion cubic feet. Copano Energy posted a gross profit of $74.3 million in the last quarter of 2012 from its nine processing units.
Kinder Morgan Inc (NYSE:KMI) is expecting synergies of $20 million by the end of 2013 and $60 million by the end of 2014 by using Copano Energy’s processing plants on the basis of rise in production capacity. Moreover, the company will invest $3 billion in 2013 to expand its pipeline network in the North American region due to the rise in demand for oil and gas exploration.
The company has also planned an expansion project of $11 billion in 2013 for all the business segments, which include the Trans mountain pipeline and Freedom pipeline, contributing $5.4 billion and $2 billion, respectively. Specifically, the Freedom pipeline construction, which is planned to start in June 2015, will be supplying crude oil to the western part of the U.S. The company is expected to spend around $2.9 billion on these expansion projects this year.
Taking into account Kinder Morgan Inc (NYSE:KMI)’s acquisition of Copano Energy and its plans to execute the expansion projects, the company can expect revenue growth in 2013 and 2014.
Plans to expand the business
Plains All American Pipeline, L.P. (NYSE:PAA) posted gross profit of $739 million in the first quarter, up from $609 million in the previous quarter because of good results in its transportation and facilities segment. Going forward, the company will increase its capital expenditure for increasing its pipeline network. It recently announced an increase in the capital expenditure budget for 2013 by $300 million to $1.4 billion.
Out of this $1.4 billion, the company will fund $350 million-375 million in its Cactus pipeline budget. This new pipeline will be 310 miles long and 20 inches wide which will carry crude oil from McCamey to Gardendale in Texas. The pipeline will serve the Houston, Three Rivers, and Corpus Christi market through its network. The Cactus pipeline will initially provide 200,000 barrels per day and the company’s initial base tariff rate will be $1.25 per barrel. It is expected to start service by the first quarter of 2015.
Plains All American Pipeline, L.P. (NYSE:PAA) presently has three pipelines under construction in the Mid-Continent areas, which include Northern Texas and some parts of Nebraska, Kansas, and Oklahoma. The three pipelines are the Mississippi Lime pipeline, the Western Oklahoma Extension, and the White Cliffs pipeline. The Mississippi Lime pipeline, which will carry 175,000 barrels per day, runs from Bryon to Cushing in Oklahoma and is expected to start its service in July 2013.
The Western Oklahoma pipeline will start its service in the first quarter of 2014 and will carry 75,000 barrels per day. The White Cliffs pipeline, in which the company is a 34% stake owner, will be extended to increase its capacity from 80,000 barrels per day to 150,000 barrels per day by the second quarter of 2014.
This expansion will increase its crude oil carrying capacity, resulting in higher profits in 2013 and 2014.