America's oil boom just set a new record, with daily production reaching 11 million barrels/day (bpd) -- making the US the world's leading oil producer.
Helping to achieve this has been North Dakota's oil boom. The state just surpassed 1 million bpd after growing production by 31% annually since 2007.
However, now that oil boom is threatened by new natural gas flaring regulations. Due to lack of infrastructure and low gas prices, North Dakota produces 1 billion cubic feet/day of gas and flares up to 36% of it. Although North Dakota produces just 0.5% of US gas, it accounts for 22% of US gas flaring.
State regulators are concerned about the environmental and economic costs of this and are imposing strict new laws requiring flaring be reduced to 26% by October 1, 2014 and 10% by 2020. Failure to meet the new standard results in oil production caps of 200 bpd/well for flare rates up to 40% and 100 bpd/well for flare rates above 40%.
ONEOK Partners (OKS) and its general partner ONEOK Inc (OKE 2.25%) are two great ways to profit from these new regulations while Energy Transfer Partners (ETP) and its general partner Energy Transfer Equity (ET 1.54%) are excellent ways to profit from the state's oil boom.
OKS Total Return Price data by YCharts
As these charts show, ONEOK and Energy Transfer have been excellent investments over the last eight years, and the winning streak is set to continue for at least the next decade.
| MLP | Yield | 10 Year Projected Annual Dividend/Distribution Growth | 10 Year Projected Annual Earnings Growth | 10 Year Projected Annual Total Return |
| ONEOK Partners | 5.30% | 9.66% | 11.20% | 14.96% |
| ONEOK Inc | 3.40% | 21.02% | 22% | 25.40% |
| Energy Transfer Partners | 6.60% | 4.03% | 4% | 10.63% |
| Energy Transfer Equity | 2.60% | 18.46% | 18.70% | 21.30% |
| S&P 500 | 9.20% |
Sources: S&P Capital IQ, Yahoo Finance, Moneychimp.com
ONEOK: large-scale investment means high growth
ONEOK is investing $2.3 billion to $2.5 billion into North Dakota's Bakken, in the form of six gas gathering, processing, transport, and NGL (natural gas liquid) separating infrastructure projects. The last of the projects is set to be completed by the end of 2015.
This large investment is part of ONEOK's larger six-year, $6 billion to $6.4 billion investment program, to be completed by 2016. This doesn't include $3 billion to $4 billion in yet-to-be announced projects, potential acquisitions, or the $1.5 billion to $1.8 billion oil pipeline ONEOK plans to build from North Dakota to Cushing, Oklahoma.
ONEOK's aggressive investments, $14 billion in projects from 2006-2016, have been the key to its success. This is because almost all of its investments are in long-term contracted, fee-based projects with rates of return of 14%-20%. They provide stable cash flows to grow ONEOK Partners' distributions.
With every $0.01/unit increase in ONEOK Partners' distribution, ONEOK Inc gains $12.5 million in incentive distribution right (IDR) fees. This explains why ONEOK Inc is guiding for 10% dividend growth through 2016. Analysts expect those growth rates to accelerate in the years to come.
Energy Transfer: a midstream MLP empire
Energy Transfer Partners plans on building a 1,100 mile, 320,000 bpd oil pipeline from the Bakken to Illinois. The project will be completed by the end of 2016 and supply Bakken crude to refineries in the east and along the Gulf Coast. Energy Transfer Partners is in discussions with Sunoco Logistics Partners to buy an equity stake in the project to help fund it. Energy Transfer's affiliation with this MLP represents one of the reasons I recommend it as a long-term investment.
Energy Transfer Partners owns 35,000 miles of gas and natural gas liquid (NGLs) pipelines. However, it is part of the larger $90 billion Energy Transfer empire with Energy Transfer Equity as direct and indirect general partner of four (soon to be five) MLPs. In other words, Energy Transfer is like a series of Russian nesting dolls.
For example, Energy Transfer Partners owns 50% of the general partner and IDR fees of Sunoco Logistics Partners. It also owns 100% of Susser Peterolum Partners' general partner and IDR rights and 50% of its units. Energy Transfer Partners is working with Energy Transfer Equity to build a $9 billion LNG (liquefied natural gas) export terminal in Lake Charles, Louisiana. The facility will be completed in 2019 and will be capable of 2.1 bcf/d of gas exports, which is 2.44% of projected 2019 US gas production. To finance it Energy Transfer Partners will establish an MLP and retain 100% of its general partner and IDR fees.
This structure results in tsunamis of cash flowing up to Energy Transfer Partners and Energy Transfer Equity, which is also general partner to Regency Energy Partners. Because Energy Transfer Partners owns large stakes in these other MLPs, it receives large distribution streams, in addition to its growing IDR fees. This will help it fuel its distribution growth, which will in turn increase Energy Transfer Equity's cash flows and allow it to become one of the best dividend growth stocks of the next decade.
Foolish takeaway
ONEOK Partners, ONEOK Inc, Energy Transfer Partners, and Energy Transfer Equity represent four high-quality, high-yield ways to profit from North Dakota's oil boom as well as America's energy renaissance at large. Major energy megatrends such as gas and oil growth, LNG exports, and booming NGL production will act as fuel for both earnings, dividend/distributions, and capital gains. Patient long-term income investors are likely to be rewarded with several decades of market-beating total returns.
