Natural gas begs your forgiveness.
If carbon molecules could speak, voices from the vapor would be reassuring Fools that the sector conceals opportunity beneath the rubble of a nearly $10 price collapse from a frothy 2008 peak.
Epitomized by the embarrassing margin call that forced Chesapeake Energy (NYSE: CHK ) CEO Aubrey McClendon to liquidate his entire stake in the company, the ride down has been gruesome. With supplies still plentiful despite a sharply reduced rig count, prices could yet take some time to recover. In the meantime, select income-generating names within the midstream component are moving right along like gas through a pipeline.
Pipeline purveyors Kinder Morgan (NYSE: KMP ) and Energy Transfer Partners (NYSE: ETP ) have joined forces to construct two strategically situated interstate gas pipelines in two separate joint ventures. A pipeline to connect the Fayetteville Shale of Arkansas to the broader grid won't be completed until early 2011, but the other new construction became fully operational August 1: the aptly named Mid-Continent Express.
The pipeline will carry product from the Barnett and Bossier shale regions to eastern markets, and it will provide back-up capacity when tropical storms halt movement through the Gulf Coast infrastructure. Continuing to build through this massive market disruption, these high-yielding income generators have generated some meaningful organic growth. Kinder Morgan, Energy Transfer Partners and related offering Energy Transfer Equity (NYSE: ETE ) each carry dividend yields above 7%. Just as they did before the natural gas collapse, these companies still offer an alluring pipeline to income and growth.
While contract drillers like Nabors Industries (NYSE: NBR ) were notably impacted by reduced production effort, the storage component of midstream services provides a cushion from the reduced flow volumes. Revenue from these new pipelines, furthermore, has been locked in by multi-year contracts. Southwestern Energy (NYSE: SWN ) and BP (NYSE: BP ) have already inked 10-year commitments for the upcoming Fayetteville Express.
For managing to grow while the industry contracted around them, and for paying attractive dividends all the while, I continue to view the midstream operators like Energy Transfer Partners as solid plays on a gaseous fuel.