Markwest Energy Partners LP (MWE), Kinder Morgan Energy Partners LP (KMP), Williams Partners L.P. (WPZ): Master Limited Partnerships With Upside Potential

Energy partnerships are great ways to gain exposure to America’s energy boom. These newly unlocked sources of energy are helping many sectors of the economy, none more so than the companies that transport and move natural gas and oil. There are three small Master Limited Partnerships (MLPs) that are benefiting greatly from downstream applications of natural gas and processing.

Small but steady

Markwest Energy Partners LP (NYSE:MWE) has a 5% yield, and has increased the distribution at least 10% annually for the past three years. Mark West expects that it will retain that track record for the next few years at least. It plans to be able to increase this distribution because of the increased reliance on pipelines for drillers to bring their products to market. Pipelines are preferred since they are cheaper and can move more natural gas than locomotives.

Mark West has a pipeline system that is equivalent to capillaries moving crude oil and gas to larger pipelines owned by larger operators like Kinder Morgan Energy Partners LP (NYSE:KMP). In addition to moving the natural gas, Mark West filters the fossil fuel to increase its purity. Infractionation is the process in which you remove the contaminants and add value to natural gas.

Transformation location

Markwest Energy Partners LP (NYSE:MWE) owns premier locations for transporting and converting natural gas. The company has processing plants that convert natural gas from the fossil fuel in its raw state into both propane and methane. Mark West has pipelines, terminals and plants in the Haynesville shale basin located between Louisiana and Texas. This proximity to the Gulf Coast refineries and export shipping corridors gives Mark West the ability to convert its products and gives it a market place to sell its products.

Moving natural gas is a profitable business. Markwest Energy Partners LP (NYSE:MWE) is more heavily reliant on the conversion of natural gas into useful products and is not simply a mover of the resource like most other MLPs. Nearly 48% of its revenue is from toll-based gas transportation, and Mark West is looking to increase that steady stream of revenue to nearly 70% by 2015. It plans to do this by spending nearly $3.5 billion over the next three years. All of this hard work will pay off for management, as the company is expecting to grow revenue and distributions for unit holders by 9% to 10% per year for the next five years.

The middle child

Williams Partners L.P. (NYSE:WPZ) is one of the nation’s largest MLPs, valued at more than $20 billion with a distribution yield of 6.6%. Williams partners is a larger version of Markwest Energy Partners LP (NYSE:MWE), a $10 billion market-cap company, but is smaller than Kinder Morgan Energy Partners LP (NYSE:KMP), which has a $32 billion market cap. Williams has a larger stake in natural-gas storage and a substantial stake in natural gas to propane conversion. Williams Partners is expanding feverishly to capitalize on the natural-gas supply glut in this country.