It's that time, people. Earnings season for energy companies, and so far, it has followed the script. Anyone producing is losing, oil services haven't felt the sting yet, and based on the recent results from Valero (NYSE:VLO) and Phillips 66 (NYSE:PSX), the refining space is seeing some outsized gains from cheap feedstocks for refining and chemical manufacturing. Why is everyone so surprised by these numbers again?

In addition to looking at earnings from the nation's two largest independent refiners in this week's episode of Industry Focus, host Mark Reeth pins energy analysts Tyler Crowe and Nate Wallingsford against each other to find out which midstream company is the better fit for someone's portfolio: Enterprise Products Partners (NYSE:EPD) or Kinder Morgan (NYSE:KMI). Find out what each analyst had to say by tuning into the video below. 

Mark Reeth: White boys unite in their blue gingham shirts here on Industry Focus.

Hey everybody, I'm Mark Reeth here with Tyler Crowe and Nate frickin' Wallingsford is on the show, baby! It's going to be great, this is the first time on...

Tyler Crowe: First time on, yeah. And we all call each other and make sure we're wearing the same shirts.

Reeth: Absolutely!

Crowe: Nice and matching.

Reeth: We had to, this is great, man.

Crowe: So organized.

Reeth: Who wore it better; send us an email at Energy@Fool.com, and we'll talk about it. We're talking about a lot today. We're going to go through some great income investments over in the energy sector, but we're going to start with some earnings from some refiners, and let's kick things off with Valero (NYSE:VLO). How did Valero's quarter look to you, Tyler? 

Crowe: Well, overall, I think it had a really good quarter. Both them and Phillips 66 (NYSE:PSX) reported this morning, so this is about the closest thing that you're going to get up-to-the-date numbers in terms of anyone else. Don't look at anybody else, look at ours. 

Reeth: Right, right. 

Crowe: They had $1.83 per share excluding those fancy special items that everybody seems to forget about better (over euro year) and soundly beat everybody's estimates. What was kind of surprising, though, revenue was down, but the margins were improved, which kind of makes a lot of sense, you know, obviously they're not getting as much money for the gasoline because gasoline prices have gone down. 

Reeth: I've heard that. 

Crowe: But since crude oil price is down, went down, even further, the margins improved. What a shock, you know, that nice little balance thing going on. Same thing at Phillips 66; about $2.05 per share up from about $1.37 year-over-year so a big improvement on that end and they saw the same thing; marketing numbers improved but they saw also refining numbers improved, but they also had huge numbers in their marketing sector retail, same thing. They bought gasoline at wholesale prices a lot cheaper then they were selling at retail prices, yeah! Good things for everybody. 

Reeth: Right, makes a lot of sense. What about you, Nate, what's your take on Phillips 66, Valero, how did they look to you? 

Wallingsford: So, the key thing about these two refining companies is the amount of capital that they return to shareholders, right, so you're invested in these companies hopefully to get a nice hefty dividend out of it.

So, for Valero for instance, they return 50% of their net income for the year, which equates to about just over $500 million in dividends. They also had a pretty large stock buyback program as well -- returned about $1.9 billion of that to shareholders and stock buybacks. 

Reeth: Nice, nice. 

Wallingsford: Phillips 66, similar story, $275 million back in dividends and they had about $500 million or so, a little bit more than that in stock buyback. So continuing for these refiners to return value to shareholders, I think that's something that will just continue as they work through maximizing and making their costs more efficient and their refining margins, as Tyler mentioned, hopefully those will get a little better down the road as well. 

Reeth: All right, you mentioned dividends earlier as I desperately search for a transition into our next topic: dividends and income investments in the energy sector. 

Crowe: It was a little bit smoother than I thought you were going to go. It was actually pretty good. 

Reeth: Thank you, I pulled it off. I'm pretty happy about it. It's been a rough morning. Energy is obviously suffering these days, but there is still some value there, especially when you're looking for income, if you're thinking about retirement, you're just looking for dividends. You each have some ideas of which is the best energy investment for dividends. Let's start with you, Nate, what's the best one out there? 

Wallingsford: So, I'm going to go with Kinder Morgan (NYSE:KMI). So like you said, predictable cash flows with this company with 94% of their cash flows tied up, fee-based, or hedged, so that means and translates to predictable dividends. So that's something that, you know, every income investor would love to have.

Want to talk a little bit more about the revenue stream, their backlog and projects that they have coming up. The revenue stream, like I said, 94% of the cash flow is tied to thoes fee-based hedge contracts. Fifty-four percent of those earnings though are in the natural gas pipelines and there they have a couple of projects that are coming online over the next couple of years. One partnership that they just initiated with Cheniere Energy (NYSEMKT:LNG) helping to transport natural gas through their pipelines down to the Corpus Christi location where the company is building LNG export terminal there.

So to kind of give some context for that LNG, Global LNG to (Mantis) expected to blow up over the next several years. So, for instance, this facility is looking at producing about 13.5 million tons per annum of LNG, global demand; on the other hand, expected to increase 215 million tons. So there's a lot of opportunity there and Kinder Morgan is kind of getting their foot in the door by hooking up with Cheniere and processing, sending, this gas down to that terminal to export. 

They also have another acquisition that was mentioned not too long ago with Hiland Partners, which I think, Tyler, and you talked about?

Reeth: Right, right. 

Wallingsford: On the last Industry Focus but -- so there's a lot of fee-based assets tied up in this transaction as well which is just going to help them sort of plant that footprint in the Bakken region, give them some more exposure in that area and that's just going to be incredibly accretive a couple of years down the line adding several cents per share to the dividend looking around the 2017, 2018 timeframe. 

Reeth: Okay, how can you disagree with anything that he just said Tyler? 

Crowe: Well, you know, I've got to admit, I am kind of splitting hairs trying to decide between Enterprise Products Partners (NYSE:EPD) and Kinder Morgan, however, however I am going to take it town! Let's see what I can do.One of the things that I like about Enterprise Products more, a little bit more in terms of Kinder Morgan is they have a little bit more of an integrative asset-base then what's going on with Kinder Morgan. One of the things that Nate was just talking about was that LNG play. Well, Kinder Morgan, even though they're getting a slight play in that, they're building their own facility, Enterprise Products Partners is doing a major, major export program themselves, however they're looking at it doing it in stuff that isn't as regulated; propane, ethane, butane, all of those... 

Reeth: All the 'tanes. 

Crowe: All the 'tanes, yeah; all of those natural gas liquids. They're even starting to export condensate which is really, really light crude oil kind of skirting around those oil export rules finding their own way to do it and exports for them have grown immensely. They are the nations largest exporter of natural as liquids and they represent about half of that and the United States is the largest exporter of thoes products around the world so that company themselves is one of the largest we've ever seen.

Aside from that their natural gas liquid pipelines as well as their fractionation kind of their processing facilities and stuff like that, they are linked to 99% of the fractionation capacity east of the Rockies in the United States so there is a ton of vertically integrated opportunities there to kind of up-sell.

They have a little bit less, or a little bit more exposure to commodities, about 85% instead of that fancy Kinder Morgan 94. 

Reeth: White-collar boys over there. 

Crowe: Yeah, but whatever. You know -- but at the same time Enterprise Products values is undervalued in comparison to Kinder Morgan. If you're looking to buy things today, you know, one's a (master) limited partnership, one's a C Corp, so the best way to, I guess, kind of apples to apples comparison would be on a total enterprise value to EBITDA. Enterprise Partners 16.3, Kinder Morgan 19.0. So you're getting a little bit more there and last thing, there is some real big opportunities for enterprise to be making some big moves here.

Their debt leverage, which is net debt to EBITDA, is at about 3.7 times, giving them a ton of wiggle room if they want to go make another acquisition like they just did with this Oiltanking Partners (NYSE:OILT) one that they did earlier last year, and they've got about $20 billion in identified potential projects, so there is a lot of room for this company to make a big splash and hopefully grow that dividend. 

Reeth: Lots of option here, boys, I like what I'm hearing. I can't choose sides, far be it for me so if anyone out there has something to say who's better, Nate or Tyler, send us an email over to Energy@Fool.com, let's all just calm down. He's just such a polite guy, he's going to give the win to Tyler. 

Crowe: Oh, you can't be that humble man! Own it, own it. 

Reeth: This is Industry Focus -- we're not friends here, all right. Focus on that. Okay, Nate Wallingsford, great first time, Tyler Crowe always a pleasure. I'm Mark Reeth for The Motley Fool, thanks for watching, and we'll see you tomorrow.

Mark Reeth has no position in any stocks mentioned. Nate Wallingsford has no position in any stocks mentioned. Tyler Crowe owns shares of Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners and Kinder Morgan. The Motley Fool owns shares of Kinder Morgan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.