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Which Credit Card Rewards Does the IRS Care About?"Contrary to popular belief, CO2 isn't simply a useless pollutant; in fact, the gas is used to produce oil via a technique known as a CO2 flood," says Neil George and co-editor Elliott Gue in Personal Finance.
To invest in the trend toward increased usage of CO2 floods, the advisors look to the leader in storage and transportation of this gas, Kinder Morgan Energy Partners (NYSE: KMP), a master limited partnership (MLP).
The advisors explains that CO2 gas is already used to produce more than 200,000 barrels of oil per day in the US alone, employing the CO2 flood. This involves pumping CO2 under pressure into oilfields to squeeze additional production out of older, depleted fields.
Says George and Gue, "With oil prices above $60, there are plenty of opportunities for producers to further expand the use of CO2 floods." They add, "That's great news for companies that handle the transportation and storage of CO2 for enhanced oil production." Topping that list, the suggest, is Kinder Morgan Energy Partners, the largest transporter and marketer of CO2 in the US.
The advisors state, "At this time, the biggest market in the world for CO2 floods and enhanced oil recovery is the Permian Basin of West Texas and New Mexico. Although it's one of the oldest, most-drilled fields in the US, the Permian Basin still accounts for a fifth of production from the Lower 48."
They continue, "Kinder Morgan has the most extensive, most dominant CO2 pipeline in this market and also controls a handful of large storage facilities. In addition, Kinder benefits from the oil produced by floods; it owns pipelines to transport crude back to refineries in Texas and Oklahoma."
Because Kinder Morgan is organized as an MLP, the advisors notes that it pays out the majority of its cash flows as distributions and pays no corporate-level tax. The current yield stands at just under 6%.
As a caveat, they note that US partnerships typically aren't suited for IRA or other retirement accounts, as the IRS considers distributions unrelated business taxable income. The advisors recommend Kinder Morgan Energy Partners at prices under $60.
For more stock picks from the leading financial newsletter advisors, visit Steven Halpern's free daily website, TheStockAdvisors.com.
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