Wednesday, December 23, 2009

Atlas Pipeline Holdings Ltd. (AHD) Gets Upgraded as Natural Gas Begins to Move in Volume and Price

Often investors look at the end product or how that product is manufactured as a way to profit. How that product actually gets to where it is sold is often passed by. Some sectors use trucks to move their products and find increased costs. Others use slightly more efficient methods such as rail transport. A method not often thought about is pipeline and oil/natural gas. Companies do actually specialize in moving natural gas and oil, processing it and getting it to market. One needs to investigate where the product is coming from and going to, but reliable profit can be found in a solid pipeline company.

Atlas Pipeline Holdings Ltd., a mid-stream natural gas transportation and processing company, works to transport natural gas through its pipeline system to processing facilities. It currently owns and operates pipeline systems across the southern mid-continent regions of the US and smaller systems in New York State, Ohio and Pennsylvania. Additionally, the company owns 8 natural gas processing plants and 1 treatment plant.

One cannot ignore the company’s strategic locations as far as its pipelines are concerned. Appalachia, Oklahoma and Texas are perhaps most central to natural gas hubs within North America and central company operations. Each of these locations, with regard to the company’s pipelines, are located in such a way that third party pipeline owners can also use and be used to the benefit of the company. In this regard, one would also need to understand that there are only a few major natural gas pipeline operators in the US and that they are all, for the most part, limited partnerships paying solid dividends in even the worst times.

In the natural gas sector, however, one must also understand that the price and volume of natural gas transported and/or processed plays a significant role in the amount of investment return each quarter. Higher volumes mean higher returns, lower volumes mean lower returns. In recent quarters, volumes and prices have been low, but lately they have been increasing. Now may well be an inflection point for investing in natural gas.

Although natural gas has been at lower levels of late, it is now beginning to get play. This is a solid and fairly conservative move from an investment perspective but one that needs to be assessed for a balanced portfolio. Investing in natural gas pipeline companies is much like electrical utilities. From this perspective, one must ask where are the hubs, where do they lead and where are they coming from. One might also ask about industrial users and the state of their sectors. Finding this information is not difficult but if the information leads to the best production, processing and customer distribution point, the company should pay nice dividends for some time to come. Atlas Pipeline Holdings is such a company and one that should be a leading player as the US works toward alternative fuels.

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