I added ConocoPhillips (COP) to my Dividend Income portfolio http://jubakpicks.com/jubak-dividend-income-portfolio/ on January 11 because what was then a relatively pessimistic view of growth in global economy had hit oil prices and thus the stocks of oil companies. On January 11, ConocoPhillips shares paid a 4.51% dividend yield.
Since then sentiment on global economic growth has turned up and so have the prices of oil and oil stocks. Shares of ConocoPhillips are up 4.8% from the January 11 close to the close on January 25. That has reduced the yield to 4.32%.
I still like these shares as a dividend income play, however, even at this slightly higher price. Through a series of asset sales and the May spin off of its refining assets into a separate company, Phillips 66 (PSX), ConocoPhillips has turned itself into the biggest U.S.-based independent exploration and production company. With that comes big exposure to the U.S. onshore oil boom—ConocoPhillips has big holdings in the Permian Basin, in Eagle Ford and in the Williston Basin (which includes120 wells in the Bakken formation of North Dakota.) ConocoPhillips also has significant assets in Canada’s oil sands, the Gulf of Mexico, Africa, and Asia.
ConocoPhillips does not look like it will grow reserves or production as quickly as some of the smaller, more concentrated U.S. independents such as Pioneer Natural Resources (PXD) or Denbury Resources (DNR). Read more
I added Targa Resources Partners (NGLS) to my Dividend Income portfolio http://jubakpicks.com/jubak-dividend-income-portfolio/ on January 11 because the units offer a really attractive potential for dividend growth and capital gains. The current dividend, at 6.81% on January 11, isn’t any too shabby either. (For the most recent update on that portfolio see my post http://jubakpicks.com/2013/01/11/reformatting-my-dividend-income-portfolio-for-a-period-when-dividend-investing-gets-more-important-and-tougher-too/
The big upside here comes from Targa’s acquisition of oil and natural gas pipelines from Saddle Butte Pipeline that for the first time moved Targa into the Bakken shale formation of North Dakota that is the heart of the U.S. oil boom. The deal also gave Targa its first oil pipelines—before that Targa had been a natural gas only pipeline play. The North Dakota oil boom is currently very underserved by pipelines, which gives pipeline companies with footholds in the area, and that now includes Targa, an opportunity to invest today’s cheap money in profitable new capital projects.
After the deal Targa reiterated its projections for 10% growth in distributions to holders of the MLP (master limited partnership) units in 2013 from 2012 levels. Read more
In my November 23 post on buying income assets in what increasingly looks like a bubble in income assets http://jubakpicks.com/2012/11/23/i-think-the-argument-that-were-in-an-income-asset-bubble-is-easy-to-make-deciding-when-it-might-burst-and-what-to-do-about-it-are-much-harder/ , I suggested opportunistically looking for income-producing assets that had been sold down at the moment for no good reason. From that point of view I suggested units of Targa Resources Partners (NGLS), which took a pounding from $42.83 on November 6 to $35.96 on November 16 on news that the company would price a secondary stock offering at just $36 a unit. It’s typical for secondaries to get priced below the current market in order to attract new money. But in this case the pricing seems to have been aggressively low and that took down Targa. After all if you can buy the secondary at $36, why pay $42 for units on the market?
What makes this drop a very interesting opportunity is that the capital raised is going to finance an acquisition that takes this pipeline master limited partnership (MLP) into North Dakota’s Bakken shale formation. (For more on this fast-growing oil region see my post http://jubakpicks.com/2012/11/20/the-oil-world-turned-upside-down-and-how-to-invest-in-the-rise-of-the-u-s-to-top-global-producer-by-2017/ .) Targa is buying Saddle Butte Pipeline’s crude oil pipelines and natural gas gathering and processing operations in the Williston Basin for $950 million. The growth potential here is very solid—not only is oil and gas production climbing in North Dakota but also the region is underserved by pipelines with 74% of North Dakota crude traveling by (more expensive) truck.
For Targa, which already operates in the Barnett and Wolf Camp areas in Texas’s Permian Basin and in Louisiana’s Tuscaloosa play, this is an initial foothold in the Bakken oil shale geology.
The deal also gives Targa its first oil pipelines, which increases the diversification of a company that had been hooked to natural gas and natural gas liquids. Read more
Big news on Petrohawk (HK) since I posted http://jubakpicks.com/2011/07/15/let-the-ma-boom-show-you-where-to-put-your-money-in-this-crazy-market/ on how to use the mergers and acquisitions boom to develop an investing strategy for this crazy market.
After Thursday’s close BHP Billiton (BHP) announced a $12.1 billion cash bid for Petrohawk. The price is about 65% higher than the closing share price for Petrohawk on Thursday at $23.49.
BHP, which earlier this year, paid $4.8 billion to acquire shale oil and gas assets from Chesapeake Energy (CHK), is clearly still in the hunt for more shale acreage. Petrohawk owns about 1 million net acres of shale in the Eagle Ford, Haynesville, and Permian basins of Texas and Louisiana. (Eagle Ford is one of my two favorite shale plays—the other is the Bakken formation in North Dakota and Montana.)
If you own shares of Petrohawk, I’d sell today. At a recent price of $38.20 a share, the stock has captured almost all of BHP Billiton’s $38.75 a share offer.
Where might you put that cash to work? Read more