Postcards: When It Comes to Oil, “There’s Always Money in the Midstream”

I learned well from a terrific oil analyst that the best place to invest in energy sits in the dead center of the supply chain. Welcome, everyone, to the Midstream. ͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­ Forwarded this email? [Subscribe here]() for more You are a free subscriber to Postcards from the Florida Republic. To upgrade to paid and receive the daily Republic Risk Letter, [subscribe here](. --------------------------------------------------------------- [Postcards: When It Comes to Oil, “There’s Always Money in the Midstream”]( I learned well from a terrific oil analyst that the best place to invest in energy sits in the dead center of the supply chain. Welcome, everyone, to the Midstream. [Garrett {NAME}]( Feb 14   [READ IN APP](   Market Update: With liquidity rising, markets shook off the worst trading day of the year from Tuesday. Volatility again collapsed, and bond prices dipped. The one thing that did catch my attention is that mortgage rates are moving higher, which is a problem not just in the housing market - but it will rear its head as more companies look to refinance existing commercial real estate debt. We’re raising our stops and focusing more on the month ahead. In good news, the latest member of our Model Portfolio - Tower Semiconductor (TSEM) surged 12.4% after earnings today. Shares are up 12% since our recommendation on February 1. If you missed out, don’t worry. We’ll have another name for you on March 1. Dear Fellow Expat: My second job in financial publishing was as an editor for Dr. Kent Moors. Kent was one of the best global energy analysts I’d ever met. He had a keen understanding of international politics. He knew all the key players. He attended conferences with Middle Eastern royalty and leading energy officials. There are two headlines and stories I remember well. The first is “The Sweet Spot of the Global Oil Market.” The second: “There’s Always Money in the Midstream.” He said investors should dive into the center of the energy value chain. That's where pipelines, storage players, and shipping giants operated. This is the cash-rich part of the energy supply chain. Over the last decade, it has been one of the most reliable places for income investors. America continues to set new crude production records. It imports more oil and gas. These “midstream operators” will continue to thrive. If it worked for John D. Rockefeller, it can work for you. So, with this in mind, let’s dive into the midstream market. [Upgrade to paid]( Understanding the Midstream The midstream connects production sites to downstream facilities like refineries. These companies act like toll bridge operators for pipelines, trains, ships, and trucks. Midstream operators move crude oil and natural gas across the supply chain. They receive fees that help offset the volatility of oil and other energy fuel prices.  The U.S. pipeline network is extensive. The nation has roughly 2.4 million miles of natural gas transfer and storage pipelines. Also, there are 200,000 miles of liquid petroleum pipelines. Companies that move crude through pipelines also receive fees for storage and processing. The American Petroleum Institute and the Energy Information Administration provide weekly “inventory” updates. They tell you how much crude oil and natural gas is being stored.  Energy prices will fluctuate based on the amount of stored commodities. They are a predictor of supply in the system against expected demand. As fuels move downstream to refineries, customers process them into byproducts. T hese byproducts include gasoline and lubricants. Oil byproducts are also used in almost every product in your home. They are in furniture, electronics, and the plastic containers in your refrigerator.  Investors find this supply chain segment attractive thanks to reliable cash flow streams. Pipeline operators and fleet companies will sign long-term contracts with producers and refineries. They will move these commodities through their networks daily. These reliable income streams can offset worries about broader crude oil and natural gas market conditions. Why Structure Matters Now, there’s a very important decision midstream investors need to make. One of the most common midstream investments are companies structured as “master limited partnerships” or “MLPs.” For tax reasons, MLPs structure themselves differently than traditional corporations. MLPs bypass the corporate tax level and kick the dividends straight to investors. This lets investors secure higher dividend payments. They can file these payments as ordinary income at tax time. Here’s the decision: When you invest in MLPs, you can reinvest dividends. But you’re going to receive a tax document called a K-1. They are - without a doubt - one of the biggest pains in the butt in tax filing. If you aren’t good at keeping track of documents, you might find yourself scrambling at the last minute. If you can tolerate the K-1, we’ll talk about one of the best names in the space. But for those of us with less pain-tolerant rear ends… I’ve got you covered. My Favorite MLP My favorite MLP is Enterprise Product Partners (EPD). Enterprise Products Partners is one of the largest MLPs in the United States. The company specializes in transporting oil and gas products. They do this across more than 50,000 miles of pipelines. Products shipped include crude oil, natural gas, NGL, petrochemicals, and refined product pipelines. It also owns vast storage capacity, processing facilities, and deep-water docks. These enable the global export of U.S. fuels. The company is a cash flow machine, charging its consumers for the right to ship and store fuels. EPD presents a unique long-term proposition as energy prices pull back. Shares currently provide about a 7.7% yield. If You’re Avoiding MLPs We talked about Kinder Morgan (KMI) the other day. It’s one of the biggest players in energy storage in the United States. But if that’s not for you, check out Plains All-American. Plains has a very popular MLP with the ticker “PAA.” But you can buy the corporate stock (which owns the MLP) and not face the challenges associated with the K-1. Plains GP Holdings LP (PAGP) issues a 1099 to investors. It pays a dividend in line with its public subsidiary, PAA. Plains All-American Pipeline owns and operates a network of pipeline transportation, terminals, storage, and gathering assets in key crude oil and NGL-producing basins and transportation corridors in the United States and Canada. The company was founded in 1998. It ships crude oil and natural gas liquids (NGL)S from production areas to refineries, export terminals, and delivery points. PAGP is the holding group's ticker. Investors can participate in the income generated from the assets owned by Plains All American Pipeline, L.P., by owning PAGP shares. No K-1. No mess. And the dividend sits at roughly 7.7%. Why You’ve Got to Be in Energy Now It’s vital to consider tax structures before investing. Talk to an expert who can help you determine the best strategy that fits your risk tolerance profile. As always, remember the energy markets are volatile. We remain confident that oil and gas will remain vital to the U.S. energy system for the next 30 years. We argue investors are undervaluing energy stocks—especially those in such a vital part of the supply chain that provides reliable income. Remember: There’s always money in the midstream. Stay positive, Garrett {NAME} Disclaimer Nothing in this email should be considered personalized financial advice. While we may answer your general customer questions, we are not licensed under securities laws to guide your investment situation. Do not consider any communication between you and Florida Republic employees as financial advice. Under company rules, editors and writers cannot recommend their positions. The communication in this letter is for information and educational purposes unless otherwise strictly worded as a recommendation. Model portfolios are tracked to showcase a variety of academic, fundamental, and technical tools, and insight is provided to help readers gain knowledge and experience. Readers should not trade if they cannot handle a loss and should not trade more than they can afford to lose. There are large amounts of risk in the equity markets. Consider consulting with a professional before making decisions with your money.   [Like]( [Comment]( [Restack](   © 2024 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()