Merger Monday was back, and this week’s biggest deal could be a big game changer. On Sunday, natural gas and natural gas liquids infrastructure company, Oneok Inc. (NYSE: OKE), agreed to pay $18.8 billion, including more than $4 billion in debt, for petroleum pipeline company Magellan Midstream Partners L.P. (NYSE: MMP). Oneok has agreed to pay $67.50 per share for Magellan in cash ($25 a share and 0.667 shares of Oneok) stock for each outstanding common unit of Magellan. The price represents a premium of 22% to Friday’s closing price for Magellan.
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Pipeline operators and others in the energy business are going back to the old-school playbook and utilizing mergers and acquisitions as a way to increase growth prospects, and this acquisition gives Oneok, which currently only transports natural gas and its byproducts, a massive network of crude oil and refined products conduits and terminals from north in Minnesota all the way down to Texas. The deal, if it indeed goes through, will make the combined entity, which will have an enterprise value of a stunning $60 billion according to released statements, one of the five largest pipeline operators according to Bloomberg. The question for energy master limited partnership (MLPs) investors is who could be next?

We screened our 24/7 Wall St. MLP research database and found five top companies that could end up in the sights of one of the larger players, such as Enterprise Product Partners. While all five are Buy rated on Wall Street, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Antero Midstream

With shares trading at just under $10 apiece, this well-run company offers a huge total return package, and its water-handling division could make the company attractive. Antero Midstream Corp. (NYSE: AM) owns, operates and develops midstream energy infrastructure. It operates through two segments.

The Gathering and Processing segment includes a network of gathering pipelines and compressor stations that collects and processes production from Antero Resources’ wells in West Virginia and Ohio.

The Water Handling segment delivers fresh water and offers other fluid handling services, such as wastewater transportation, disposal and treatment, as well as high-rate transfer services.

Investors receive an 8.58% distribution. UBS has set its target price at $14. Antero Midstream stock has a consensus target of $12.14. The shares closed on Monday at $10.53.

Cheniere Energy Partners

This company is focused on liquefaction and could be a nice asset for a larger entity to grab now if the parent company would sell. Cheniere Energy Partners L.P. (NYSE: CQP) provides liquefied natural gas (LNG) to integrated energy companies, utilities and energy trading companies worldwide.
Cheniere Energy Partners owns and operates a natural gas liquefaction and export facility at the Sabine Pass LNG terminal located in Cameron Parish, Louisiana. Its regasification facilities include five LNG storage tanks with an aggregate capacity of approximately 17 billion cubic feet equivalent; two marine berths that accommodate vessels with capacity of up to 266,000 cubic meters; and vaporizers with regasification capacity of approximately 4 billion cubic feet per day.
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Cheniere Energy Partners also owns a 94-mile pipeline that interconnects the Sabine Pass LNG terminal with various interstate pipelines. Cheniere Energy Partners GP serves as the general partner of the company, which was founded in 2003 and is headquartered in Houston.

Shareholders receive a 9.00% dividend. Evercore ISI has a $55 target price on Cheniere Energy Partners stock. The consensus target is $52.50. The shares closed over 3% higher on Monday at $47.44.

Energy Transfer

The top MLP is a safe way for investors looking for energy exposure and income. Energy Transfer L.P. (NYSE: ET) owns and operates one of the largest and most diversified portfolios of energy assets in the United States, with a strategic footprint in all the major domestic production basins.

Energy Transfer is a publicly traded limited partnership with core operations that include complimentary natural gas midstream, intrastate and interstate transportation and storage assets; crude oil, natural gas liquids (NGLs) and refined product transportation and terminaling assets; NGL fractionation; and various acquisition and marketing assets.

After the purchase of Enable Partners last December, Energy Transfer owns and operates more than 114,000 miles of pipelines and related assets in all the major U.S. producing regions and markets across 41 states, further solidifying its leadership position in the midstream sector.

Through its ownership of Energy Transfer Operating, formerly known as Energy Transfer Partners, the company also owns Lake Charles LNG, as well as the general partner interests, the incentive distribution rights and 28.5 million common units of Sunoco, as well as the general partner interests and 39.7 million common units of USA Compression Partners.

Energy Transfer stock comes with a 9.98% distribution. Morgan Stanley’s $17 price target is in line with the $17.07 consensus target. The shares closed on Monday at $12.51.

MPLX

This is the top holding for the Alerian MLP energy exchange-traded fund. MPLX L.P. (NYSE: MPLX) is primarily engaged in crude oil and refined products transportation and terminaling in the U.S. Midwest and Gulf Coast regions, as well as natural gas gathering and processing in the northeast from its prior acquisition of MarkWest Energy in 2015. MPLX was formed by independent U.S. refiner Marathon Petroleum.
MPLX’s assets include a network of crude oil and refined product pipelines; an inland marine business; light-product terminals; storage caverns; refinery tanks, docks, loading racks and associated piping; and crude and light-product marine terminals. It also owns crude oil and natural gas gathering systems and pipelines, as well as natural gas and NGL processing and fractionation facilities in key U.S. supply basins.
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Investors receive a 9.12% distribution. The $41 J.P. Morgan price target compares with a $39.58 consensus target and the $33.91 close for MPLX stock on Monday.

Sunoco

This well-known company could be the best buy for investors who are more conservative. Sunoco L.P. (NYSE: SUN) distributes and retails motor fuels in the United States. The company operates in two segments.

The Fuel Distribution and Marketing segment purchases motor fuel from independent refiners and oil companies and supplies it to independently operated dealer stations, distributors and other consumers of motor fuel, and partnership operated stations, as well as to commission agent locations.

The All Other segment operates retail stores that offer motor fuel, merchandise, foodservice and other services that include credit card processing, car washes, lottery, automated teller machines, money orders, prepaid phone cards and wireless services. It also leases and subleases real estate properties and operates terminal facilities on the Hawaiian Islands. As of December 31, 2020, the company operated 78 retail stores in Hawaii and New Jersey.

The distribution yield here is 7.70%. Sunoco stock has a $53 target price at Raymond James. The consensus target is $50.57, and Monday’s close was at $44.27.

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No one knows if there will be a big consolidation in the MLP space. Some cite the fact that green energy production from wind and solar is lessening demand for conventional midstream services. That could perhaps be the case, but note that the number of electric vehicles (EVs) on U.S. roads is projected to reach 26.4 million in 2030, which will be only 10% of the 259 million light-duty vehicles (cars and light trucks) expected to be on U.S. roads by then. The remaining vehicles will still be using gasoline, natural gas or perhaps even hydrogen, so demand should remain intact.

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