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Investing In Companies That Will Benefit From The Keystone Pipeline


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Investing In Companies That Will Benefit From The Keystone Pipeline To Increase Returns

Keystone Pipeline RouteInvesting in companies that will benefit from the Keystone pipeline is a way to potentially increase investment returns during 2014 and beyond.  Of course, there is some risk in making such investments, since the final leg of the Keystone pipeline is pending approval by the President of the United States, and approval is not assured.  Assuming approval is secured during 2014, there are a myriad of companies that will benefit.  These include companies that will see increases in revenues during the pipeline construction and once the pipeline is operational with oil flowing through it to Gulf of Mexico refineries. These companies will benefit from increased revenues to their top line and potentially increased earnings to the bottom line from the $6 billion pipeline project that will transport tens of billions of dollars worth of oil each year.

The Types of Companies That Will Benefit From The Keystone Pipeline

Keystone Pipeline ConstructionA number of companies will benefit when the Keystone pipeline is built, some during construction and others on an ongoing basis.  Since there is uncertainty whether the Keystone pipeline will be approved by the United States government, there is not a big premium built into these stocks.  Approval for the long-awaited pipeline project should give companies associated with the Keystone pipeline a nice boost in revenue and profit projections, which should eventually translate into increases in the price of their stocks.

Companies that are in the pipeline construction and supply business will benefit when the Keystone pipeline is built.  Construction equipment manufacturer and distributor Deere & Co. (NYSE: DE) is expected to benefit from the pipeline, as will the privately held engineering and construction management company Bechtel.  The pipeline will require upgrades to oil infrastructure in and around Houston, which should benefit the oil services company Quanta Services Inc. (NYSE:  PWR), which has a big presence in the Huston area.

Once built, companies that produce oil in the tar sands region of Canada and the Bakken shale region of the United States will benefit from the Keystone pipeline, since they will be able to sell their oil on the world oil market, capturing the higher Brent Crude oil price.  Brent crude has been commanding prices that are 10 to 20 percent higher than the West Texas Intermediate Crude that they have been selling their oil for.  Other companies that will benefit once the oil is flowing are companies involved in producing oil in the tar sands region of Canada and the Bakken shale region of the United States, the owner of the pipeline, and the owners of refineries along the Gulf of Mexico in Texas.  Refiners will process the oil and sell it to the highest bidders on the world oil and distillates markets.

Canadian oil producers that will benefit from the completion of the Keystone pipeline include:  Suncor Energy Inc. (NYSE:  SU), Canadian Natural Resources Ltd. (NYSE:  CNQ), MEG Energy Corp. (OTC Pink:  MEGEF), and Baytex Energy Corp. (NYSE:  BTE).

The large integrated oil company Exxon Mobil Corp. (NYSE:  XOM) will also benefit once oil is flowing through the Keystone pipeline, since the United States oil giant owns most of the refiner Imperial Oil and owns its own Gulf Coast refinery that has been retooled to process the heavy tar sands crude oil.

TransCanada CorpRefiners with refineries along the Gulf that are built to handle heavier crude grades, such as Phillips 66 (NYSE:  PSX), Valero Energy Corp. (NYSE: VLO) Cenovus Energy Inc. (NYSE: CVE) and Imperial Oil Ltd (NYSE:  IMO), will also benefit from the additional Canadian and Bakken crude that the pipeline will bring.

Co-owners of the Keystone pipeline, TransCanada Corp. (NYSE: TRP) and ConocoPhillips (NYSE:  COP) will benefit from fees paid by companies that use the pipeline to ship oil.

The Broader Economic Benefits and Impacts of The Keystone Pipeline

Anyone who has been following the Keystone pipeline project since it was first proposed in 2008 knows that this pipeline is controversial, with opposition coming from land rights activists and environmentalists, as well as those concerned that the oil will primarily benefit countries in Europe and Asia and do little to bolster energy independence.  These are valid concerns, but there are also broader economic benefits to the United States economy that need to be considered.

While it is true that a lot of the oil that flows through the Keystone pipeline is destined for foreign countries, some of the oil and oil products that come out of the refineries will remain in the United States and benefit the domestic economy.  The pipeline will have an interconnection in southern Nebraska that will send some of the oil to refineries in the Mid Western part of the county, so it can be refined into finished products for domestic consumption.  Additionally, the refining of oil that is done along the Gulf Coast in Texas will produce copious amounts of diesel fuel, heating oil, propane, and road tar, some of which will remain in the United States and will ensure that the domestic markets are well supplied with these oil derivatives.

Risks Associated With Investing In The Keystone Pipeline

It should be kept in mind that there is a significant risk associated with investing in companies that will benefit from the Keystone pipeline.  The risk being that if the pipeline fails to gain approval and is not built, the companies will lose out on significant revenues and potential earnings.  They will also lose the money they have invested so far in building supporting infrastructure for the pipeline, such as loading and unloading terminals and upgrades to refineries.  Stock analysts would then likely lower earnings estimates for the companies and possibly issue sell recommendations, which will send their share prices lower.

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