Saturday, November 3, 2012
Porter Stansberry's prediction of lower oil prices is already coming true.
Earlier this week, Western Canada Select crude crashed to $56.59 a barrel, down 31% from last November's $82.26 price tag and about 26% below the year-to-date average price of a little more than $76. Western Canada Select is a blend of heavy oil-sands crude and conventional crude oil. It's lower quality than West Texas Intermediate (WTI) crude, whose price is the benchmark for U.S. oil. So Western Canada Select typically sells at a discount to WTI.
The problem is that 99% of Canadian oil-sands petroleum is sold in the U.S... where we have more crude oil than we know what to do with these days. So all oil prices are falling, and oil-sands prices are nearing the point where it's literally not worth extracting the stuff.
A report by market research firm Wood Mackenzie said some new oil-sands projects would need $90-$100 per barrel oil prices to make economic sense. Others would need at least $65 per barrel to work. Those projects won't see the light of day any time soon.
Worse... many current oil-sands projects require $45-a-barrel oil to make a profit... With prices now at $56 a barrel, how long will it be until most of the Canadian oil-sands industry is operating at a loss?
The massive new oil and gas boom that prompted Porter's prediction of lower oil prices is creating an opportunity for investors to earn large, growing streams of tax-advantaged income for decades to come.
The income I'm talking about is already pouring into investors' pockets from the pipeline industry. The United States' 210 natural gas pipeline systems encompass more than 305,000 miles of pipe, according to the federal Energy Information Administration. All our natural gas pipelines laid end to end could cross the continental United States more than 100 times.
These pipelines carry natural gas, crude oil, gasoline, jet fuel, ethane, propane... and many more valuable energy commodities.
The huge oil and gas boom in the U.S. today means demand is greater than ever for pipeline capacity. Phil Blancato, CEO and president of New York-based asset management firm Ladenburg Thalmann, says, "There is demand for $200 billion to $300 billion of new pipelines."
That's a huge opportunity. It would approximately double the current market cap of all of today's pipeline stocks. While new pipeline companies will surely be formed to address some of that demand, existing pipeline companies will handle much of the growth.
That's good for investors who know how to find great pipeline stocks. Our research shows that one area of the pipeline sector has outperformed nearly every other asset class for the last 10 years... earning investors more than 16% a year in returns.
If you'd put $10,000 into pipeline stocks 10 years ago, you'd have more than $50,000 today compared with less than $30,000 if you'd bought real estate investment trusts and utility stocks... and less than $20,000 with U.S. stocks in general. And with the U.S. energy boom creating massive new pipeline demand, it's likely the pipeline stocks will keep growing for many years to come.
Longer term, rising natural gas prices are also part of Porter's global energy outlook... but it has nothing to do with the weather. As oil and gas companies throw themselves into producing more and more crude from domestic shale formations, they're shifting operations away from gas resources. Meantime, super-low gas prices are spurring demand. Falling production plus rising demand equals higher prices.
Now let's look at the tax advantages of owning pipeline stocks. These stocks I'm talking about aren't regular corporations. They're what are known as "master limited partnerships," or MLPs.
These publicly traded companies engage in activities in the energy industry... operating pipelines, natural gas processing, refining, even exploration and production. As long as an MLP earns 90% of its revenue from these sources of "qualifying income," it pays no corporate taxes.
The MLP shareholders – called "unit holders" – pay the taxes... except that most MLP dividends are tax-deferred. A substantial portion of an MLP's dividend is usually categorized as "return of capital," not regular income. Most investors won't owe taxes on "return of capital" distributions until they sell their MLP shares.
Having taxes deferred on MLP distributions can work out quite well. In some cases, shareholders do not have to pay the tax at all... According to the website of the National Association of Publicly Traded Partnerships: "As long as your adjusted basis is above zero, tax on your distributions is deferred until you sell your units. [And] if a unitholder dies and the units pass to his heirs... the prior distributions are not taxed."
Imagine earning a great income in the last couple decades of your life, incurring no tax liability on it, and then passing the units along to your heirs... who will incur no liability on your distributions. That's why we call this opportunity in pipeline stocks "The A.O.P. Retirement." A.O.P. stands for "American Oil Pension."
As you can see, pipelines tend to treat investors very, very well. So I've prepared a special 32-page report, featuring seven pipeline stocks.
My research partner, Mike Barrett, and I scoured the universe of pipeline stocks to come up with the best recommendations for subscribers to my monthly income advisory, The 12% Letter.
We even developed a proprietary, seven-point system to make certain we only recommend those pipeline stocks that do the best job of creating shareholder value.
I'm fairly certain you won't find anything like this report anywhere else. So if you're in the market for an investment that'll provide you with a safe, growing, and tax-advantaged income, I recommend you read the full "A.O.P. Retirement" report. You can gain access to the report by becoming a 12% Letter subscriber. Learn more about A.O.P. and a subscription to The 12% Letter by clicking here.
Date Range:10/25/2012 to 11/1/2012
Date Range:10/25/2012 to 11/1/2012