These are good times to be in the business of running pipelines and/or handling and storing petroleum products. Limited partnership Plains All American
With strong conditions across the business, Plains All American now sees second-quarter earnings (without items) of about $1.03 per unit -- nearly 50% higher than the guidance given back in April and more than 60% higher than the prior Wall Street estimate. For the full year, management is now pegging an unadjusted number of $2.89 -- also well above prior guidance and analyst expectations.
While the company has a fair bit of debt on the balance sheet and further capital expenditure plans, it's not unreasonable to think that some of its expanded earnings might drop into partners' pockets in the form of higher distributions. Management made no specific comments about that topic in the press release, but I'm sure they'll get a question on it tomorrow during the conference call.
Speaking of capital projects, Plains All American also announced its intention to build a new 2.9-million-barrel crude-oil storage facility in St. James, La. Management expects this facility to be operational in the first quarter of 2007, with a price tag of about $70 million.
Though St. James may not be investors' foremost vacation destination, it's one of the major oil interchanges in the country. The new facility helps Plains All American strengthen its business with refinery customers and gives the company a presence at all three major liquid interchanges in the country.
Prior to this energy price boom, Plains All American was one of my favorite stocks -- a quiet little company that did really well, paid a fat dividend (or distribution, to be technically correct), and got relatively little notice. Since the energy boom, though, all manner of energy partnerships have attracted investor attention. As a result, these units yield comparatively less, compared with Treasury bonds, than they have in the past.
I still like the company (and its cash flow prospects), but potential investors should be a bit wary. If and when this boom fades, these stocks could easily go back to a more traditional valuation -- meaning stagnant or declining share prices for some period of time. Patient income-oriented investors may not be worried about that, but newbies should try to understand what they're getting themselves into with an energy limited partnership.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (which means he's neither long nor short the shares).