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Development could transform MLP landscape: Cramer

A major shift is underway in the energy sector, and Jim Cramer thinks the ripple could be significant.

A few days ago, CEO Rich Kinder announced plans to consolidate three associated companies into the Kinder Morgan parent company, abandoning the MLP structure he helped pioneer.

According to the New York Times, developments reflect a significant challenge faced by MLPs which must pay out a majority of their profits to investors; it can become difficult to fund growth.




Tom Merton | OJO Images | Getty Images

By consolidating, "Kinder believes he can make shareholders more money by consolidating everything into one non-MLP company that can more efficiently use its capital to make acquisitions or invest in building new pipelines," Cramer said.

Given that Rich Kinder is turning his back on the MLP structure, Cramer feels confident that rivals are taking notice. And as a result, "I think we should expect many more deals in the energy MLP space. Consolidation is the logical next step for other MLPs, too. It will allow them to either create a larger company with the financial muscle to develop new projects or to combine assets in a way that expands their overall reach."

Looking at other firms in the space, Cramer thinks the following three MLPs could, somehow, end up in play.

The first is Enterprise Products Partners. "I adore this company. In late June, EPD got permission from the Commerce Department to export condensate, a kind of lightly distilled crude oil, which means they can pipe crude directly from the Eagle Ford shale, process it, and then export it from their Gulf Coast docks. This is a huge gamechanger."

Cramer said he is also watching "Energy Transfer Equity, which yields just 2.6 percent because last year the company temporarily relinquished some of its incentive distribution rights, but once they're reinstated, which should happen next year, ETE's cash flows should explode higher and its payout will increase dramatically. If you just hold on, ETE could become one of the highest yielders in the space over the next couple of years."

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Third is Atlas Energy, "the master limited partnership that Leon Cooperman recommended at CNBC's Delivering Alpha conference last month. Atlas is a relatively cheap stock with a 4.2 percent yield, and it should be able to raise its distribution dramatically for the next few years. What's not to like?" Cramer said.

He says investors should expect many more deals in the energy MLP space.


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