Keystone XL Pipeline: Which Stocks Will Win?
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The long-delayed and controversial Keystone XL pipeline is finally moving forward. It's got the financial and, finally, political backing for the extension through Nebraska to be completed. It's been rerouted around the environmentally sensitive Sand Hills region and is again under consideration. The U.S. Department of State has said that a final decision will be made sometime after March, 2013.
Trust me on this: it will be approved. President Obama has always indicated a willingness to approve it, but portions of his constituency are opposed to any new projects centered around oil and fossil fuels. So now that he's past his last election, and some efforts have been made by the backers to at least appear to be dealing with environmental concerns, the project will be going forward soon, perhaps as early as this summer.
So who's going to benefit from it? Sure, it will bring oil, in the form of synthetic crude and bitumen from the Athabasca oil sands in Canada, but did you know that it will also move American crude oil? Most people don't. Also, did you know that for all the complaining, most of the system is already built? Obama approved the southern portion, from Cushing, OK to the gulf coast, almost a year ago and the northern portion has been operating for a while. It's only the middle section that's in dispute.
We've got a pipeline to move oil from Canada and the Midwest and we've got a section to get it to the gulf. What can you, as an investor, due to make this little political tussle work in your favor? I'm glad you asked.
TransCanada (NYSE: TRP)
Most of my former clients at the brokerage didn't know that they could buy a piece of the company organizing and building the Keystone XL. TransCanada is a good, solid play for those interested in oil stocks. It's not as sexy as ExxonMobil or Royal Dutch Shell, but it's even better for that. The Keystone Pipeline system (which is more than just Keystone XL) is a TransCanada project. ConocoPhillips was in it for a while but TransCanada bought them out in 2009. When the project goes through, TransCanada stands to see its place in the oil world shoot upward as the oil sands become a powerhouse. The firm's stock is beginning to show it, in the last year it's climbed from almost 25% from below $40 to $49.10. It's my belief that's in part because of expectations concerning the final approve of the pipeline. Combine that with a 3.6% dividend and you should get while the getting's good – before the final approval comes in.
Valero Energy (NYSE: VLO)
Another bit of news hidden in the blather about Keystone XL is that Valero, which you should know about, has an option on acquiring up to 15% of the pipeline. Many of Valero's refineries along the coast are set up to handy the very heavy crude oil that will come from the Athabasca oil sands and Valero wants to ensure that it keeps most of that action. I would too, were I them. Valero is in position to best take advantage of the situation when the pipeline obtains final approval and comes online. Stock in the firm has climbed from a low of $20.37 June 2012 to $37.97. Nothing to sneer at. And the board has raised its dividend twice during that time, from 15 cents per share in June to 18 cents in August to 20 cents now. You should think hard about getting some.
Enterprise Products Partners (NYSE: EPD)
EPD is an interesting company, when it comes to the Keystone XL pipeline. The firm, along with Enbridge (NYSE: ENB) bought out ConocoPhillips stake in the Seaway pipeline that will take oil from Cushing, OK to the gulf. To do that they not only had to buy it but to reverse the direction of flow in the pipeline. Easier than turning back the tide, but still an undertaking. The firm is running oil right now through the pipeline but is really thinking about the time it can begin handling the heavier flow from the north. The firm's stock has been generally up this year, going from a low of $46.23 in June to $55.55. It's also raised its dividend three times in the last 12 months. That's a firm that expects to win.
So the whole mess about the Keystone XL pipeline is political theater. If it wasn't we wouldn't be looking at the Department of State needing to approve it, we'd be hearing from the Department of Commerce. That tells me that it will happen, and likely in the not too distant future. If you have the money, you should put some in a position where you can get a piece of the profits.
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