Tuesday, December 31, 2013

This Permian-Focused MLP Can Be a Healthy Addition to Your Portfolio

This article was originally published by TheStreet.com

NEW YORK (TheStreet) -- Legacy Reserves (LGCY_) is a Texas based small-cap MLP that is engaged in exploration and production from oil and gas properties located in the Permian Basin, Mid-Continent and Rocky Mountain regions. However, Legacy Reserves is essentially a Permian Basin-focused MLP. It has amassed a healthy liquids-rich portfolio on the back of a history of successful acquisitions. Over the last few years, the business has increased its liquid production and has reported reasonable growth of its revenues and income. Moreover, Legacy Reserves has rewarded its unit holders through consistent growth of cash distributions and a healthy dividend yield of 8.4%.
Its units are trading at 118 times its trailing earnings but Wall Street is expecting double-digit growth of its revenues in the next two years, which will be followed by earnings growth. Therefore, due to its growth prospects, attractive yield and growing cash distributions, this Permian-focused exploration and production MLP can be a healthy addition to your portfolio.
Low-Risk Acquisitions
Since 2006, Legacy Reserves has spent as much as its current market cap ($1.6 billion) on 119 acquisitions. The company now boasts an impressive 83.2 million barrels of reserves, which are weighted 68% toward oil and natural gas liquids.
Over the last few years, Legacy has spent an average of $200 million annually on acquisitions. Then in 2012, it spent a record level of $635 million, which includes a single purchase of $503 million at the Permian Basin. This year, Legacy has spent $100 million on acquiring properties through 11 transactions. Most of these have been fairly low-risk acquisitions as the company generally buys assets that are located around its existing acreage. By the end of 2012, Legacy's net developed and undeveloped acreage was 349,836 acres and 70,108 acres respectively.
What Is the Permian Basin?
The Permian Basin is at the heart of Legacy's overall operations. It is one of the oldest and largest oil and gas producing areas in the world. Last year, Occidental Petroleum (OXY_) was the leading operator here in terms of oil production, followed by Pioneer Natural Resources(PXD_) and Apache Corp. (APA_).
Oil production from this region peaked out in the 1970s but following the arrival of new and sophisticated drilling techniques, like horizontal drilling and fracturing, the oil production started rising from 2008. Last year, the crude oil production from Permian stood at 312 million barrels, still below the production in the early 1990s, but 24% above the lowest levels of the mid-2000s ... read full article at TheStreet