M&A Boost: Good News for Oil Pipeline Companies?

Kinder Morgan (KMI) may have shocked some investors on Sunday when it announced plans to buy El Paso Corporation (EP) for $38 billion in a deal that includes $17 billion in debt. The deal is the year’s second largest acquisition and part of Kinder’s plan to create the largest natural-gas pipeline system in the United States.

At $26.87 per share, the deal valued EL Paso at a 47% premium to the stock’s 20-day average closing price. El Paso stock went up 24.8% on the news while shares of Kinder Morgan increased by 4.38%. The deal will be in cash, stock and warrants according to MarketWatch.

“The combined enterprise, which will include Kinder Morgan Energy Partners LP KMP and El Paso Pipeline Partners LP EPB, will have 80,000 miles of pipeline and an enterprise value of $94 billion, the company said.”

Kinder Morgan must feel its project is worth more than the $38 billion it will spend acquiring and paying off the debts of El Paso. Indeed, Chairman and Chief Executive Richard Kinder said in a prepared statement: “The natural gas pipeline systems of the two companies are very complementary, as they primarily serve different supply sources and markets in the United States.”

The interstate pipelines are said to produce “substantial, stable cash flow and have access to key supply regions and major consuming markets.” Given these statements we can assume Kinder Morgan feels El Paso was an undervalued company with the potential to earn significant gains.

So we were wondering, is El Paso one of a kind? What other pipeline companies are expected to see the most upside?

For ideas, we collected data on institutional money flows, and identified a list of oil pipeline stocks that have seen significant institutional buying during the current quarter.

Big money managers seem to think these stocks have a lot of potential–should any of these oil pipeline stocks be on your watch list?

List sorted by market cap.

1. Energy Transfer Equity, L.P. (ETE, Earnings, Analysts, Financials): Energy Transfer Equity, L.P., through its direct and indirect investments in the limited partner and general partner interests in Energy Transfer Partners, L.P., engages in midstream, intrastate, and interstate transportation of natural gas, as well as in storage of natural gas in the United States. Net institutional purchases in the current quarter at 5.0M shares, which represents about 4.53% of the company’s float of 110.26M shares.

2. Buckeye Partners LP (BPL, Earnings, Analysts, Financials): Operates refined petroleum products pipeline systems in the United States. Net institutional purchases in the current quarter at 5.2M shares, which represents about 6.85% of the company’s float of 75.93M shares.

3. Spectra Energy Partners, LP (SEP, Earnings, Analysts, Financials): Operates as an investment arm of Spectra Energy Corp. Net institutional purchases in the current quarter at 5.2M shares, which represents about 14.74% of the company’s float of 35.29M shares.

4. TC Pipelines LP (TCLP, Earnings, Analysts, Financials): TC PipeLines, LP, together with its subsidiaries, transports natural gas in the United States (U.S.) and eastern Canada. Net institutional purchases in the current quarter at 4.9M shares, which represents about 13.47% of the company’s float of 36.38M shares.

5. SemGroup Corporation (SEMG, Earnings, Analysts, Financials): Provides gathering, transportation, storage, distribution, blending, marketing, and other midstream services primarily to independent producers, refiners of petroleum products, and other market participants in the Midwest and Rocky Mountain regions of the United States, Canada, and the West Coast of the United Kingdom. Net institutional purchases in the current quarter at 2.5M shares, which represents about 6.06% of the company’s float of 41.25M shares.

6. Tesoro Logistics LP Common Unit (TLLP, Earnings, Analysts, Financials): Operates, develops, and acquires assets involving oil and petroleum products. Net institutional purchases in the current quarter at 11.7M shares, which represents about 38.78% of the company’s float of 30.17M shares.

(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA. Data sourced from Fidelity)

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