Construction of TransCanada Corp’s (TRP) much-maligned Keystone XL pipeline passed a major hurdle this Thursday, when Senate Republicans passed a bill authorizing its construction. The pipeline was originally designed to carry oil sands produced heavy oil down into the Gulf Coast to be refined. TRP’s massive project has languished under a sea of red tape, lawsuits and committees for several years now.
However, TRP stock investors might not want to be cheering just yet.
That’s because President Obama has pledged to veto the bill and the construction of the Keystone XL outright. And given that fact, the Keystone XL mega-project may languish for a few more years.
But portfolios shouldn’t fret, there are plenty of other pipeline firms that have been successfully expanding — moving crude oil and processing natural gas. For investors, it may make sense to move on past TransCanada and its Keystone XL issues.
Here are three pipeline firms doing expansions right.
Keystone XL Alternatives — Enbridge Inc. (ENB)
While TRP has floundered on the Keystone XL, cross-town rival Enbridge (ENB) continues to laugh all the way to the bank and has managed to even get U.S. government approval on shipping oil-sands-produced crude over the border.
Through an underused natural gas pipeline, ENB has figured out a way of getting oil sands crude down into the states — by tapping its Alberta clipper pipeline into country. Better yet, ENB has been given the “OK” by the State Department to do so. The end result is that the Alberta Clipper will be able to increase its flow by around 120,000 barrels per day. Those steady cash flows will ultimately continue to pad ENB’s already fat bottom line.
But ENB isn’t done yet.
Enbridge has agreed to “drop-down” the Alberta Clipper into its MLP subsidiary Enbridge Energy Partners (EEP). That will make those cash flows even juicier when they flow back to ENB as tax advantaged distributions. Add in the rest of Enbridge’s vast pipeline network and you realize the value at the midstream firm.
All in all, ENB is a prime way for TRP investors to forget their Keystone XL worries and enjoy some real growth in pipelines.
Keystone XL Alternatives — ONEOK Inc. (OKE)
For midstream firm ONEOK Inc. (OKE), the name of the game hasn’t been oil sands crude oil, but moving and processing natural gas. The company’s focus has translated in great dividend and cash flow growth.
More importantly, OKE continues to add to its pipelines.
OKE continues to expand in the Bakken shale, where natural gas gathering is almost non-existent. Most recently, ONEOK — through its MLP, ONEOK Partners, L.P. (OKS) — paid $800 million for 2,600 miles of NGL gathering pipelines stemming from the Permian Basin down to the Gulf Coast. That addition — plus other projects about to come online during the beginning of 2015 — will help drive higher natural gas gathering and processing volumes.
Ultimately, those projects lead to higher earnings, and in the midstream business, higher earnings equal higher dividends.
Higher anticipated cash distributions from its ownership of OKS along with increased volumes/earnings will help OKE reach cash flows available for dividends in the range of $580 million to $660 million. Those cash flows should help the pipeline player increase its dividends pay around 14% in 2015. Until then, OKE still yields a hefty 5%.
Keystone XL Alternatives — Williams Companies, Inc. (WMB)
Midstream firm Williams Companies, Inc. (WMB) has plenty of new natural gas processing and pipeline projects on its docket, but its Keystone XL-sized “win” came from a mega-acquisition. WMB bought the controlling general partner interest in Access Midstream Partners, L.P. (ACMP).
WMB is already one of the biggest players in America’s natural gas hot bed, the Marcellus shale. However, with the ACMP buy, WMB gains access to the Barnett, Eagle Ford, Haynesville, Niobrara and Utica Shales as well as other holdings in the mid-continent region of the United States. Those 6,775 miles’ worth of gathering lines compliment and complete Williams’ own network of processing and pipeline assets.
The combo more than doubles the volume of natural gas Williams gathers each day to reach a whopping 11 billion cubic feet (Bcf).
It also provides WMB with plenty of cash flows for dividends.
Already, Williams has pledged a 15% dividend hike to reach $2.46 per share in 2015 on the back of the acquisition and increasing volumes. However, WMB expects to pay out $2.82 in 2016 and $3.25 in 2017, representing dividend yield of nearly 7.5% based on today’s prices.
As of this writing, Aaron Levitt held a position in the Vanguard Energy ETF (VDE), which holds WMB and OKE
