Every year Platts, an energy analyst and consulting group, releases its list of the top 250 energy companies based on five key metrics: total value of assets, total revenue, annual profits, return on invested capital, and three-year compounded annual growth rate for revenue. As you would expect, nine of the top 10 are Big Oil. You know, the ExxonMobils and Chevrons of the world.
One group that gets pretty decent representation on Platts' list are midstream companies. Eighteen companies that specialize in oil storage and transportation made the list, which is surprising considering we are talking about every energy company on the planet that opens their books to the public. Here's the list of the top 10 midstream players:
|Rank||Overall Platts 250 Rank||Company|
Enterprise Products Partners (NYSE:EPD)
|3||57||Plains All American (NYSE:PAA)|
|5||84||Kinder Morgan (NYSE:KMI)|
|6||106||Spectra Energy (NYSE:SE)|
|7||110||Ultrapar Holdings (NYSE:UGP)|
|9||120||Oneok Partners (NYSE:OKS)|
|10||129||Energy Transfer Equity (NYSE:ET)|
It's not too much of a stretch of the imagination to see why eight of the 10 midstream companies on this list have operations in the U.S. and Canada. After all, Kinder Morgan alone has more natural gas pipeline under its management than all of the natural gas pipeline that exists in China today.
The largest company on the list, Transneft, leads the pack by a pretty large margin. With more than $60 billion in pipeline assets under management, which include over 33,000 miles of crude oil pipelines and around 12,000 miles of petroleum products pipelines. This company represents Russia's crucial connections with both Europe and China to supply both with crude from the remote oil fields in Siberia. Although it will be interesting to see where Transneft falls on this list as Western sanctions and low oil prices wreak havoc on the Russian oil and gas industry.
One company that we can expect to shoot up in the rankings very fast on the 2015 list is Kinder Morgan. Platts' survey was completed prior to the Kinder Morgan merger that was announced late last year. The $70 billion deal will most likely put Kinder Morgan in the running for top midstream company based on these metrics.
Will midstream companies wither on the vine with oil prices plunging?
So many investors out there are worried that the major dip in oil prices will cause pain all across the energy sector, including the midstream players. There are two big things that work against this theory:
- Most of these companies' revenue is isolated from actual prices. One of the benefits of being a transportation business is that revenue is more predicated on charging a fee on total volume transported rather than the price of the commodity. Just to give an example of this, more than 85% of Enterprise Products' revenue is fee-based, and Kinder Morgan estimates that 94% of its revenue is not dependent on prices. Many investors might grumble at this when oil prices are soaring and companies in other segments of the oil and gas industry are making a killing, but it's during times like this that staying out of the oil price game looks very smart.
- Decreased prices doesn't necessarily mean less volume. One of the biggest questions surrounding America's oil and gas production is how much the decline in prices will impact drilling and, by default, overall production. Recently, we have seen drilling activity slow and many active rigs have gone offline. However, this does not necessarily mean that we will see a decline in overall production. According to estimates from Enterprise, lowered prices and declining drilling activity will definitely slow production growth, not completely kill it.
What a Fool believes
As long as crude, natural gas, and all of their derivative products need to be moved, these pipeline companies will always remain relevant. You might not hear much about them -- which is probably a good thing because if you do it's probably for something not good -- but know that the long-term future of these companies looks pretty solid for many more years to come. With all of these companies in the U.S. cranking out solid dividends, they make for some pretty compelling investments for those with an eye on the future.