Enbridge Energy Partners, L.P. (EEP), Genesis Energy, L.P. (GEL) – Inside the Alerian Mlp (AMLP): Petroleum Transport

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Enbridge Energy Partners, L.P. (NYSE:EEP)It seems that every other day there’s a new master limited partnership hitting the market. In fact, the energy MLP space has gotten to be downright cluttered. In this three-article series, I’m taking a closer look at the Alerian Mlp (NYSEMKT:AMLP), a tool that gives investors the opportunity to simplify MLP investing. I’ve already covered the natural gas transportation component, so today we’re looking at the gathering and processing MLPs that make up the fund. 

We’ve already covered the natural gas transportation component, and the gathering and processing component, so today we’re looking at the petroleum transportation MLPs that make up the fund.

The Alerian Mlp (NYSEMKT:AMLP) is up nearly 12% year to date, driven by the performance of the 25 MLPs that make up the index. At the end of the second quarter, approximately 41.6% of the index was composed of energy players whose main revenue driver comes from transporting oil and other petroleum products.


Source: Alerian.

Investors have renewed interest in petroleum pipeline MLPs because of the protection they offer from inflation, and, to a greater extent relative to other MLPs like gatherers and processors, commodity risk. The Federal Energy Regulatory Commission adjusts the otherwise-fixed tariff rates for pipelines every summer to account for inflation, to the relief of investors worried about value erosion.

Here is a breakdown of the eight petroleum transportation partnerships and their respective weight in the fund as of July 30 (holdings can vary day to day):

MLP Weight
Magellan Midstream Partners 7.33%
Plains All American Pipeline, L.P. (NYSE:PAA) 6.52%
Buckeye Partners, L.P. (NYSE:BPL) 4.96%
Enbridge Energy Partners, L.P. (NYSE:EEP) 4.64%
Sunoco Logistics Partners 3.10%
Genesis Energy, L.P. (NYSE:GEL) 2.40%
NuStar Energy 2.05%
Tesoro Logistics 1.10%

Source: Alerian.

Magellan Midstream is top on this list by weight, and third among all of the MLPs in the index. The partnership has a 9,600-mile pipeline network, which includes 49 storage terminals. Despite a strong fee-based business, Magellan has significant exposure to commodity risk as well, though in the second quarter that exposure drove a net income gain of about 10%. Magellan is up more than 26% this year.

Plains All American Pipeline, L.P. (NYSE:PAA) recently made news because its general partner is going to become a publicly traded MLP as well. More than 3.5 million barrels per day of oil and natural gas liquids flow through some part of the Plains system every day. Over the past year, Plains has benefited tremendously from outperformance in its supply and logistics segment. In the second quarter of this year, that segment returned to its baseline performance, however, resulting in a year-over-year drop in net income. Plains All American Pipeline, L.P. (NYSE:PAA) still increased its distribution and is on track to have distribution coverage of 130% for the full year, meaning a return to baseline performance in one segment does not spoil the potential for long-term success.

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