Enterprise Products Partners L.P. (EPD), BreitBurn Energy Partners L.P. (BBEP) & Plains All American Pipeline, L.P. (PAA): Three MLPs for a Safe Retirement Portfolio

The energy sector has not been immune to the economy’s downturn, but it still has areas of growth that show considerable promise. In this sector, there are still plenty of opportunities for investment and income. In this piece, I pick a few promising MLPs from the energy sector. These MLPs offer regularly increasing distributions. These are Enterprise Products Partners L.P. (NYSE:EPD), BreitBurn Energy Partners L.P. (NASDAQ:BBEP) and Plains All American Pipeline, L.P. (NYSE:PAA)‘s. Let’s review each MLP’s ability to sustain its returns.

Moving toward fee-based business

Enterprise Products Partners L.P. (NYSE:EPD) is a master limited partnership. Being organized as an MLP, its shareholders enjoy many tax advantages. Enterprise has been paying regularly increasing quarterly distributions. At the moment, the partnership offers a quarterly distribution of $0.67/share.

Is the distribution safe?

The partnership has been consistently benefiting from investments in fee-based business. Its investments in fee-based business are generating high gross operating margins. This helps to offset its weakness in natural gas processing and related NGL marketing activities. Therefore, during the first quarter, Enterprise has begun operations on major assets totaling almost $400 million of capital investment to boost its fee-based revenue. Additionally, its onshore crude oil segment is also generating record operating margins.

For the remaining year, it is looking to complete growth capital projects of $2.2 billion, including two NGL fractionators at Mont Belvieu during the fourth quarter of 2013, the Texas Express NGL pipeline during the third quarter of 2013, and the Front Range NGL pipeline during the fourth quarter of 2013. I believe it is positioned well to increase its distributable cash flow with additional sources of fee-based volume.

Expanding production

BreitBurn Energy Partners L.P. (NASDAQ:BBEP) is an oil and gas partnership engaged in the acquisition, exploitation, and development of oil and gas properties. At present, BreitBurn offers a quarterly distribution of $0.47/share, yielding at 10.24%. BreitBurn has an established history of consistently increasing dividends. The table below demonstrates this trend:

Is the distribution safe?

The company’s development program mainly concentrates on high-margin oil opportunities in both its legacy and newly acquired assets. The majority of its capital spending is on high-margin oil projects, including those in Texas and California. The company is on track with its $261 million capital program. The partnership runs five rigs at the moment, which can increase to 11 rigs by the end of 2013. The partnership is expecting to end the year with liquids comprising about 55% of total production.

With the massive increase in production levels, its top-line growth is solid. It is consistently increasing its production levels with a smart investment strategy. At the end of the first quarter, the partnership was able to reach a record production level of 2.35 million barrels of oil equivalent (MMBOE). Its liquid production is nearly 51% of total production, which increased by 40% at the end of the recent quarter. With a convincing investment strategy and increasing production levels, the company is well positioned to sustain returns for investors.

Moving beyond the Midwest

Plains All American Pipeline, L.P. (NYSE:PAA) is engaged in the business of crude oil, refined products, and natural gas liquids. The partnership has paid hefty distributions with solid increases. In the past five years, it has been able to enlarge its distributions by 29.58%. The partnership has increased distributions on a quarterly basis and currently offers a quarterly distribution of $0.575/share.

Is the distribution safe?

The partnership has been able to establish itself as one of the best master limited partnerships by concentrating on supplying the Midwest with crude oil to run its refineries. However, it is growing its product focus to include all of the United States and Canada. It is extending its business model from crude oil to refined products, natural gas liquids, liquefied petroleum gas, and natural gas to this end.

To do this, it is spending $300 million to $1.4 billion. One of its most valuable projects is Cactus Pipeline, which will connect the Permian Basin and Eagle Ford assets. The partnership is working on several other projects across Canada and the U.S. With this aggressive growth strategy, it has been able to increase its 2013 adjusted EBITDA projections by $135 million, representing an approximate 7% increase. This increase in projections represents its ability to sustain returns.

Conclusion

Enterprise Product Partners offers strong income. Its focus toward fee-based business is generating strong cash flows. BreitBurn is also investing heavily to increase its  production levels. This strategy has been working so far, and the company has been generating record productions quarter over quarter. Plains All American Pipeline, L.P. (NYSE:PAA) is expanding its business model, which will increase their revenue base. I believe its returns are safe as the partnership has increased its full year EBITDA projections by 7%.

The article Three MLPs for a Safe Retirement Portfolio originally appeared on Fool.com.

siraj 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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