Net income was up 8% sequentially, but down 44% from last year due to low NGL margins and particularly low ethane prices. Consequently, gas processors opted not to extract ethane from the gas, as extraction and transportation costs exceeded ethane prices. Williams Companies, Inc. (NYSE:WMB) would be benefited from the rebound in industrial activity due to increased natural gas demand. Trading at about 36 times its earnings (7% above the industry average) while offering a moated business, I would recommend shares of Williams Companies, Inc. (NYSE:WMB) as a hold for now.
The largest natural gas pipeline system in North America
Kinder Morgan Inc (NYSE:KMI) is one of the largest midstream energy companies in the U.S. It owns and operates pipelines that transport natural gas, gasoline, crude oil, carbon dioxide, and additional products.It has more than 180 terminals that store petroleum products and chemicals, as well as ethanol, coal, petroleum coke, and steel.
Kinder Morgan Inc (NYSE:KMI) intends to increase its exploration and production volumes, expanding the Transmountain and other future projects that would also enhance shareholder value. Last year, Kinder Morgan Inc (NYSE:KMI) acquired El Paso, becoming the owner of the largest natural gas pipeline system in North America. Kinder Morgan Inc (NYSE:KMI) shareholders own approximately 68% of the combined company, and El Paso shareholders hold the remaining 32%.
However, the company’s move toward natural gas via this acquisition raised concerns amid a sluggish natural gas price environment. Other risks include the possibility of tax or regulatory changes; changes in regulated pipeline tariffs; capital investment risks; and pipeline spills, explosions, or ruptures.
For 2013, management expects a hike of 6% in declared cash distributions per unit compared to last year. Trading at about 37 times its earnings compared to the industry average of 24 times, Kinder Morgan Inc (NYSE:KMI) is expected to outperform its peers based on a moated brand and compelling growth prospects.
Bottom line
Chesapeake Energy Corporation (NYSE:CHK) and Williams Companies, Inc. (NYSE:WMB) do not offer convincing reasons for a buy recommendation due to the risk of a substantial and prolonged drop in oil and gas prices. Nevertheless, Kinder Morgan Inc (NYSE:KMI) is expected to deliver strong growth figures in the future and outperform its peers.
The article 3 Energy Plays Worth Watching originally appeared on Fool.com and is written by Victor Selva.
Victor Selva has no position in any stocks mentioned. The Motley Fool recommends Kinder Morgan. The Motley Fool owns shares of Kinder Morgan and has the following options: long January 2014 $20 calls on Chesapeake Energy, long January 2014 $30 calls on Chesapeake Energy, and short January 2014 $15 puts on Chesapeake Energy. Victor is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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