Are you looking to add some energy to your portfolio in 2013? Here are three 5-Star CAPS-rated companies that deserve a deeper look. All three are coming off a transformative 2012 and each poised to outperform in 2013.
Your pipeline to profits
Unlike its midstream energy MLP peers, Energy Transfer Partners (NYSE: ETP ) hasn't raised its quarterly distribution since 2008. That streak is likely coming to an end in 2013 as the company's diversification efforts are about to pay off. Its recent acquisition of Sunoco along with its 32.4% interest in Sonoco Logistics Partners added a diverse portfolio of crude oil and refined product pipelines to Energy Transfers' natural gas weighted assets.
Energy Transfer is also working on several organic growth projects in the Eagle Ford Shale that are just beginning to come online. These assets will grow the company's interest in the important NGL pipeline and fractionation market. In 2010 the company had no exposure to NGL's, but by the end of the year Energy Transfer's NGL business will contribute 8% of the company's adjusted EBITDA. Look for 2013 to be Energy Transfer's year as both the distribution and stock should head higher as it finishes up digesting recent acquisitions and completes its organic growth projects.
Producing outperformance and income
Linn Energy (NASDAQOTH: LINEQ ) is a different kind of energy company. Its mission is to buy mature, producing oil and gas assets and milk the cash flows from them. Increasingly these assets are being sold by exploration and production (E&P) companies that need the capital to fund expensive drilling programs or shore up weak balance sheets. Because of this trend, Linn sees a very robust acquisition market over the coming 18-24 months.
Linn's ready to go on the offensive and last year it launched LinnCo (UNKNOWN: LNCO.DL ) via an IPO in an effort to broaden its investor base and provide easier access to capital. Linn can use LinnCo as a vehicle to raise additional equity capital to pay for these value-creating deals. It used the proceeds from the LinnCo transaction to help it fund some of the $2.225 billion worth of assets bought from BP last year.
In the BP deals, Linn acquired immediately accretive assets as well as a significant inventory of future drilling locations. This gives Linn upside to grow organically and create even more value for investors. In 2013 look for Linn to acquire more producing oil and gas properties from cash strapped E&Ps, which should yield another distribution increase before the year is over.
Drilling deeper for a big yield
If you're looking for yield, then few energy companies offer as generous a payout as deep sea driller, Seadrill (NYSE: SDRL ) . That payout is likely to keep climbing as the company executes on its growth plans. Over the next two years, Seadrill plans to introduce 22 newbuilds into its current fleet of 48 drilling units. The company has a record-high revenue backlog and earnings visibility as markets are improving across all its asset classes.
In 2012, Seadrill was engaged in several transactions to position itself for future growth. Seadrill improved both its access to capital and asset mix by floating its Seadrill Partners MLP while also selling a tender rig fleet and increasing its ownership of Asia Offshore Drilling. Look for Seadrill to continue to add to its backlog over the coming year as it begins to contract out its 2014 newbuild deliveries.
Foolish bottom line
While I personally really like Linn Energy, it's hard not to be interested in the transformation under way at Energy Transfer Partners. It's made several interesting acquisitions over the past couple of years that should begin to pay off in 2013. I like what I'm seeing from the company and I'm giving it the thumbs-up in Motley Fool CAPS.
Its hard not to notice that the surge in oil and natural gas production from hydraulic fracturing and horizontal drilling is creating massive bottlenecks in takeaway capacity. However, this problem for producers creates a massive and immensely profitable opportunity for midstream companies. Energy Transfer Partners helps alleviate the gluts in supply with 23,500 miles of transformational pipelines. To see if ETP and its industry-leading yield will be a fit for you, click on this detailed premium report, which will supply you with a thorough analysis of this midstream.