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Monday, July 29, 2013


Looking for ways to try to take advantage of the Natural Gas export boom (the US-r.o.w. arbitrage), I came across PAA. It's a Master Limited Partnership that seems to have the right mix of carbons and focus on LNG or NGL.

PAA seems to be in a unique position to also benefit from domestic increase in hydrocarbon transportation. They have been steadily growing their volumes over the years:

Their revenue has been growing too. But the means of growth is my biggest concern. Their revenue basically mimics their Suppy&Logistics function:

The other two functions, Transportation and Facilities, while growing slowly (Chart corrected. Current chart shows trend including intersegment):

The combo of the three groups provides for a very nice growth in operating income. An income more then capable of handling spike in investor distribution. The income distribution has been consistently rising for a few years, but not as quickly as income.

PAA reports on Aug 5th and if the above is maintained, I would expect continued increase in dividend. (I plan on getting a better feel for management during their conference call.)

In the mean time, the daily chart is not so enticing. But PAA looks to be oversold.

And the weekly shows the stock is sitting on a trend support. (Although the CCI suggest this support can break.)

I like PAA, and current levels merit an initial position. But the wild card with respect to future income is their risk management, and buying/selling/hedging crude and NGL for their Supply&Logistic function. If they can maintain their consistency, great. The stock should continue to perform well. If they get arrogant and jpm-London-whale-crazy, it will affect their bottom line and potentially the yield.

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