Buckeye Partners LP continues price slide with new unit float

ATLANTA, Ga. (April 15, 2011) - Buckeye Partners LP (NYSE: BPL) has been underperforming the pipeline limited partnership market for months, and disappointment hit the tipping point on April 14 when disgruntled unitholders dumped more than 6.1 million units, driving down the long-flagging unit price of BPL securities.

According to “Energy Pipeline News,” a daily newsletter that covers the pipeline master limited partnership market, the disappointment in the security’s performance culminated when Buckeye announced the offering of at least 4.8 million new limited partnership units priced at a 3.3 percent discount to BPL’s April 13 closing price.
Existing units fell 2.7 percent to $59.75 in premarket trading on April 14. By the market close, Buckeye units were at $60.35, down $1.06 (1.73 percent) after hitting an intraday low of $59.89. Much of the dumping of 6.1 million units occurred during the final minutes of trading. The final-minutes selloff was attributed to programmed trading.

Through April 13’s close, Buckeye units were down 8.1 percent this year.

The new units were priced at $59.41 each. The underwriters have been granted an option to purchase up to 720,000 additional LP Units.

Barclays Capital, Citi, J.P. Morgan, Morgan Stanley and Wells Fargo Securities are acting as joint book-running managers of the new BPL unit offering. Deutsche Bank Securities and Credit Suisse are acting as the co-managers of the LP unit offering.

The operator of petroleum products transmission, gas storage and fuel distribution businesses plans said it planned to use the proceeds from the new float to reduce the indebtedness outstanding under its revolving credit facility.

The offering is expected to increase the number of units outstanding by about six percent. The company also sold units in January.
Buckeye Partners, which has expanded greatly through acquisitions in recent months, in February reported that its fourth-quarter profit fell by half as effects of the expansion masked rising revenue across most of its businesses.

BPL closed its merger with sister company Buckeye GP Holdings LP and acquired a marine terminal in Puerto Rico late last year. In January, it acquired an 80 percent interest in Bahamas Oil Refining Co. and agreed to pick up the remaining stake in a deal valuing the target at $1.7 billion. Last month, it agreed to acquire refined petroleum products terminals and pipeline assets for $225 million from BP PLC.

BPL is included in the three model portfolios run by “Energy Pipeline News.” The three portfolios had returns in 2010 of 28.9 percent, 29.1 percent and 74.8 percent respectively. The 74.8 percent return was in the leveraged model portfolio.

Energy Pipeline News reports 2010 portfolio gains of 28.92% – 74.75%

Energy Pipeline News reports that its three energy pipeline limited partnership portfolios in 2010 once again outperformed the stock market.

The typical equity fund in the United States in 2010 returned just short of 19 percent in 2010, while the Standard and Poor’s 500-stock index rose 12.8 percent.

By comparison, Energy Pipeline News Portfolios 1 and 2 (tax sheltered, unleveraged) returned 28.92 percent and 29.11 percent respectively in 2010. Portfolio 3 (unsheltered, leveraged) returned 74.75 percent in 2010.

The Energy Pipeline News portfolios invest almost exclusively in energy pipeline limited partnerships such as Kinder Morgan Energy Partners LP (NYSE: KMP) and Copano Energy Partners LP (Nasdaq CPNO). Return is based on both dividends received common unit trades.

Energy pipeline limited partnerships have in general outperformed the Standard & Poor’s 500 Index, which posted total returns of just 4 percent since the beginning of 2000.

Pipeline limited partnerships are regarded as cash cows because they return a higher per-unit payout than typical high-dividend stocks. However, there are tax consequences to investing in them – especially if the investments are made outside of tax shelters such as 401(k) investment retirement accounts (IRAs).

Energy Pipeline News provides comprehensive coverage of the energy pipeline business, with special emphasis on pipeline master limited partnerships as investment vehicles. Visit http://www.energypipelinenews for further information.

Southcross Energy laying natural gas pipeline in Southern Mississippi

Southcross Energy announced on Nov. 4 that the company is constructing an eight-mile, 12-inch natural gas pipeline in Jones County, Miss.

The new pipeline will connect the existing Southcross system with the Southeast Supply Header (SESH) pipeline system.

The interconnect will augment Southcross’ gas supply and enable the company to provide expanded service to its customers in the region, including the South Mississippi Electric Power Association (SMEPA), an electric generation and transmission cooperative. The new pipeline is scheduled to be operational by April 2011.

“We are pleased that Southcross is undertaking this project so we can access additional gas supply for our customers in Mississippi,” said David Biegler, Southcross chairman and chief executive officer.

Southcross operates the largest intrastate natural gas pipeline system in Mississippi, which includes 640 miles of transmission and gathering pipelines.

Making money with LPs (Part 1): A different kind of partnership

The following six articles have been developed to introduce expanded coverage in Energy Pipeline News of the high-yield investments called master limited partnerships (MLPs) or simply limited partnerships (LPs). For further information, please visit http://www.energypipelinenews.com

LPs – limited partnerships - specialize in mineral and natural resource development that can be traded on securities exchanges. Investors buy and sell LP "units" just like shares of stock, but instead of receiving dividends, "unit holders" get cash distributions typical of a partnership structure.
Established by Congress in the 1980s, LPs were originally developed to spur investment in energy and natural resource projects. According to the Revenue Act of 1987, only companies engaged in "the exploration, production, mining, processing, refining, marketing or transportation" of mineral and natural resources may use this structure.
Today, there are about 100 LPs, more than 75 percent of which are energy infrastructure companies. These partnerships run a variety of businesses - including pipelines, refineries, processing plants and more - for a range of natural resources such as oil, coal, propane, natural gas, timber. They even cover alternative fuels like ethanol and biodiesel.
Because most LPs own physical assets that operate independently of the commodities transported, processed or refined, the income of these companies depends less on energy prices and more on energy demand. And since demand is much less volatile than pricing, LP income remains relatively stable even when energy prices go haywire. So unit holders usually see a steady, predictable increase in their cash distributions.

Making money with LPs (Part 2): American energy demand is growing

Back when I (Energy Pipeline News editor Noel Griese) was working on a graduate degree at the University of Wisconsin in the 1970s, I ran data on more than 140 independent nations of the world looking for the correlates of economic development. What factors, I wanted to know, using three-wave lagged correlations as the tool to determine causality, explained growth in gross national product?
The upshot of the research was that one inanimate factor and one animate factor (independent or causal variables) explained almost all growth in national GNP (dependent variable).
The inanimate correlate of growth in GNP is energy consumption per capita. The greater the energy consumption per capita, the greater the growth in GNP. The animate factor is education per capita. The higher the education of the population, the greater the growth in GNP. Energy consumption per capita is a far more powerful predictor than education. Put the two primary correlates together, and you explain almost all of the growth in GNP for a given country.
The United States and the other nations of the world are currently wallowing in one of the most severe economic recessions since World War II. To emerge from that recession, we will almost certainly have to invest large amounts of capital in energy and education.
Despite conservation efforts, the existing energy infrastructure of the United States just can't keep up with our ever-increasing thirst for energy. By 2030, Americans will require an estimated 131.2 quadrillion BTUs of energy - up 33 percent from 2005.
While it’s difficult to invest in education, with few available opportunities, investing in energy is easy. A multitude of investment opportunities exist.
One opportunity promising better than average returns is to invest in pipeline limited partnerships, or in the mutual funds that invest in the LPs. In a future article, I'll explore why investing in the mutual funds is less complicated from a tax standpoint than investing directly in the LPs.
The advantage of investing in LPs is that they offer consistently higher, more secure yields than most other investments.
In the past, the average yield of LPs has ranged anywhere from 7-10 percent, and currently it hovers well above eight percent.
One of the LPs in which the editor is currently investing, while it has above-average risk, is currently yielding 53 percent in dividends – and that does not include the capital gains likely to be realized as pension funds start reinvesting in LPs offering high yields, driving up the unit price.
That's not to say LPs are immune to market implosions like the one that began last year - they aren't. Mutual funds that were heavily invested in LPs, in order to meet cash calls from investors, often sold off the LPs to get the cash they needed to meet those calls. That drove down the unit prices of the LPs, and kicked up the yield.
In addition to having their prices driven down by cash call selling, the LP prices are depressed because they rely on new capital investments to keep growing. That requires loans and new stock issues – things that dried up in the current tight recessionary economy.
But historically, the LPs have outperformed other asset classes, such as stocks. Between 1998 and 2007, LPs beat the S&P 500 average seven out of 10 years.