The ongoing expansion of shale supply and the shift to NGL-rich supply sources continues to propel long-haul transportation needs for natural gas and liquids, as well as the midstream infrastructure side, making for a robust market with at least 10% upside potential, says Carl Kirst, CFA, a Senior Research Analyst and Managing Director at BMO Capital Markets Corp.
“But right now, what’s going to essentially be the bridge will be the oil infrastructure that’s required, and most certainly the midstream and NGL infrastructure, which continues to be required, and you see everyone from the MLPs to the C-Corps participating in all of that,” he said.
Kirst has El Paso Corp. (EP) as a top pick in the oil and gas sector. He believes El Paso offers about 10% to 15% upside this year versus the 40% to 50% upside from two years ago because the stock was so disassociated from its sum-of-the-parts valuation. Kirst also favors EP ahead of its merger with Kinder Morgan, Inc.
“We liked El Paso because it was a cheap way into Kinder Morgan. We thought Kinder Morgan was undervalued, so you wound up getting an arbitrage lift plus the upside of Kinder Morgan,” he said. “Well, Kinder Morgan year to date is now up 16% and is at $37, so that one is beginning to be a little bit closer to fair value, perhaps.”