Rounding Out Some Top Pipeline MLPs

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Master Limited Partnerships that transport and store oil and natural gas appear to be solid investments at this juncture. Oil prices could be on the rise for some time. Plus, the long-term outlook is positive, based on the planned increase in energy production within the U.S. Furthermore, as many investors have benefited from in the past, the units are great for income accounts, as they distribute about 100% of earnings to shareholders.

Lets overview several that fall in the mid- to lower-large-cap market capitalization range.

On track for rapid growth this year

NuStar Energy (NYSE: NS) is one pipeline company poised for a strong increase in its cash flow and earnings this year. It cites several reasons, in particular, for this outlook:

1. Its pipeline segment is likely to realize gains from the recent completion of internal growth projects in the Eagle Ford Shale region.

2. The acquisition of crude oil assets from TexStar should also benefit the business.

3. Results in its storage segment are positioned to benefit from the completion of two rail car offloading projects at the St. James, Louisiana, terminal.

4. The recent completion of certain storage expansion projects.

5. Its fuels marketing operation should see gains from its bunkering and heavy fuel oil businesses.

Like most of the top pipeline companies, NuStar has a sizable capital budget of between $435 million and $470 million for this year, with the majority of this amount earmarked for projects in the Eagle Ford Shale, a region in South Texas.

Distributing around two-thirds of cash flows to unitholders, NuStar MLP units yield an outstanding 9.6% approximately at the current quotation. They are, thus, appealing for both capital appreciation and payout potential.

A 2012 IPO with near-term growth prospects

MPLX (NYSE: MPLX), a company that had its initial public offering in October last year, is composed 51% of product pipelines systems and related storage assets in the Midwest and Gulf Coast, and 49% of a network of pipeline systems, barge dock, and tank farms, as well as a butane cavern in West Virginia.

The company is pursuing organic growth opportunities and acquisitions. Moreover, for a company that just went public, its balance sheet is solid, with minimal long-term-debt. Also, it is solidly profitable, having earned $0.26 a unit in the March period.

Looking forward, it is likely that MPLX will probably achieve better earnings, partly owing to rising tariffs on crude oil volumes shipped. It will also pay out more than net income as distributions, and spend around $110 million on expansion projects. Such expenditures are the driving force behind the way that MLPs are positioning themselves to benefit from what might well be a very favorable market for pipeline transport in the years subsequent to this.

All considered, MPLX units are another good choice if the environment is positive. This year, the company is on pace to boost cash flows enormously as it utilized IPO proceeds for growth investments. The company also has a sound long-term strategy that may serve investors well.

Expansion by way of acquisition

In December 2012, Tesoro Logistics (NYSE: TLLP) agreed to purchase both Chevron Pipeline Company's and Northwest Terminalling Company's northwest products system for a total of $400 million. The acquisitions closed on June 3, and should support results.

Certainly, Tesoro's revenue and cash flows are already climbing at a rapid rate, with the per-unit totals limited by an increased unit count. The company derives the bulk of its revenue from terminalling, transportation, and storage, similar to most pipeline MLPs. It also operates a significant Crude Oil Gathering business that comprised about 40% of March-quarter revenue. Tesoro has a presence in the Bakken Shale in North Dakota, where it operates pipeline and trucking activities and is benefiting from higher demand.

The Bakken Shale could remain a growth driver for Tesoro in years beyond 2013. It will also increase its truck fleet and acquire terminals and pipelines, according to its strategy as stated in its annual report. Tesoro MLP units are a good selection for growth and income.

Foolish wrap up

I like each of these smaller pipeline Master Limited Partnerships' value as investments. The industry may see better-than-average returns if conditions hold and the intra-U.S. energy production boom persists as anticipated.

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Damon Churchwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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