Special Research Report

Four Great Energy Companies for the Peak Energy Portfolio

TABLE OF CONTENTS
The U.S. Oil Reserve U-Turn: Fantasy and Reality....................................i The Fantasy.......................................................................................... 1 The Realities......................................................................................... 2 Great Investment Opportunities in the Energy Sector Lie Ahead............. 3 Welcome to New Subscribers and Our Existing Ones........................ 5 A Review of Our Stock Selection System............................................... 6 Were Heading to the Beach for This Next Company.............................. 7 Proppants Explained............................................................................. 8 Proppant Demand Outstrips Supply....................................................... 9 Now Is the Time to Back Up the Truck................................................ 10 Our Petroleum Pipeline Network......................................................... 10 Americas Natural Gas Pipeline System............................................... 11 One of the Top Vertically Integrated Natural Gas Producers................. 12 Natural Gas Operations....................................................................... 14 Natural Gas Liquids Operations .......................................................... 14 Poised for Growth............................................................................... 14 This Companys Sold 90% of Its Product for the Next 10 Years....... 15 An MLP Midstream Powerhouse ........................................................ 15 2013 Is Shaping Up to Be a Banner Year............................................. 16 Another Midstream Poised for Solid Growth........................................ 17 EQT Midstreams Strategy.................................................................. 18

The U.S. Oil Reserve U-Turn: Fantasy and Reality

It hasnt been making big headlines, but the nations key economic figures continue to move higher. Instead of moving forward at a snail-like 1.7%, the bean counters in D.C. now say the nations economy expanded by 2.5% in the second quarter.

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But heres the secret few folks are talking about a record low petroleum trade deficit played a huge role in the revisions. Moreover, our elected leaders are eager to take credit. But are they really the ones responsible? Lets take a look

The Fantasy
Back on March 7, 2012 in North Carolina, President Obama made the following statements in a speech on American energy: Weve got 2% of the world oil reserves; we use 20%. What that means is, as much as were doing to increase oil production, were not going to be able to just drill our way out of the problem of high gas prices. Anybody who tells you otherwise either doesnt know what theyre talking about or they arent telling you the truth. Fast forward to September 2013. The White House and the president are now openly acknowledging increased oil production is boosting the U.S. economy. No argument there. In fact, I think its great. The part I have a problem with is Obama and his administration openly taking credit for it. That reminds me of when Al Gore famously said, During my service in the United States Congress, I took the initiative in creating the Internet. Both are total fabrications. Politicians historically like to take credit for good news. They also are good at pointing out bad news due to someone elses shortcomings. Nonetheless, when the revised figures came out, the White House spin machine went into action. It started with an Aug. 29, 2013 White House blog entry. In it, National Economic Council Director Gene Sperling and Council of Economic Advisors Jason Furman, took credit for the record low petroleum trade deficit. As I mentioned above, the record low deficit number is a key part of the Q2 gross domestic product (GDP) upward revision from 1.7% to 2.5%. The government (correctly) points to this as a sign of continuing economic improvement. To quote Sperling and Furman, This is yet another reminder that the presidents focus on increasing Americas energy independence is not just a critical national security strategy, it is also part of an economic plan to create jobs, expand growth and cut the trade deficit. The president and his staff are certainly talking the talk on increasing energy independence. The reality is, the federal government has had little if anything to do with
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making it happen.

The Realities
The reality is that the government produces nothing of a material nature. Nowhere in the U.S. is any government agency drilling for oil. It hasnt developed any technology concerning horizontal drilling, fracking or other well technologies. There is less oil production on federal lands now than when President Obama took office his first time. Private companies developed and funded all of the above technology. Others are doing the drilling, fracking and the extraction of crude. Nearly all of it is on private lands. Industry groups are furious and were quick to respond. The American Petroleum Institute (API) weighed in a few days later: That were producing more oil and natural gas despite current federal policy, not as a result of it, must be understood so we can make policy choices that help increase domestic energy and job creation, economic stimulus and improved balance of trade. Kathleen M. Sgamma, vice president of public affairs for the Western Energy Alliance (WEA), also weighed in on the governments blog. She indicated that private sector investment in new technology, exploration and development of new shale plays absolutely dwarfs any monies the government spent on basic research. She was critical of the federal government, which continues to erect obstacles to domestic oil and gas production. The above is a classic example of Washington taking credit for something it had absolutely nothing to do with. In fact, in many of Obamas stump speeches, he pooh-poohed more oil and gas development in favor of renewables. Obamas generally been openly critical of subsidies for big oil. According to John Felmy, chief economist of the API, these are not subsidies. They are tax provisions that generally apply to all industries. He calls Obamas comments a political distraction from high gasoline prices and our nations failed energy policies. I might add, What energy policies? This is just another example of the government talking out of both sides of its mouth. Criticizing the oil industry on one hand and taking credit for all of the new oil thats been produced on the other just irks the hell out of companies that are really responsible for it. In order to produce all this new oil, private investment in new technologies created hundreds of thousands of new jobs. Entire new industries have been born. Untold numbers of new companies are in business.
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They drill for oil. They build pipelines and processing plants. They reprocess contaminated drilling fluids. They develop and produce special materials used in fracking a horizontal well. Not the government. I could go on and on The point is this: Look at all the additional new oil we have. Our reserves keep increasing. (The Energy Information Administration reports they went up 15% in 2011 over 2010.) We now import a mere 2 million barrels of crude from the Middle East per day. In a few years, that number will be zero. Who would have ever guessed? Make no mistake, politicians will continue to take credit for any additional good news from the oil and gas sectors (or anywhere else for that matter). Its what theyre good at. You and I know better. All this new oil is great news for the folks savvy enough to invest in the nations energy sector. Im not alone in my thinking either. Goldman Sachs analyst Joseph B. Stewart recently said the oil and gas exploration sectors look attractive. He expects oil prices of $100 to $110 per barrel for at least several years. One of the stocks he specifically mentioned is already in the Peak Energy portfolio: Gulfport Energy Corporation (Nasdaq: GPOR). He also believes natural gas prices will be in a range of $4 to $4.50 per million British thermal units. Stewart commented: With improving business conditions and company-specific factors driving growth, the group should perform well even without extra help from rising commodity prices.

Great Investment Opportunities in the Energy Sector Lie Ahead

Here at Peak Energy Strategist, were constantly evaluating all energy companies. Coal, crude oil, natural gas, geothermal, wind, nuclear and solar companies are always on our radar screen. Our goal is simple: To provide you with the best investment choices in the energy and infrastructure sectors. As I write this, the markets are rebounding off their significant June corrections. Markets never go straight up or down, either. However, with our trailing stop strategy, we sell our losers and let our winners ride. Speaking of winners, we recorded five of them since our last Peak Energy TrendWatch Report. A 28.6% gain on American Railcar Industries, Inc. (Nasdaq: ARII) A 133.5% gain on SolarCity Corporation (Nasdaq: SCTY)
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A 79.3% gain on First Solar, Inc. (Nasdaq: FSLR) A 67.5% gain on Williams Companies, Inc. (NYSE: WMB) A 32.7% gain on Tesla Motors, Inc. (Nasdaq: TSLA) Twelve out of the 15 stocks in the Peak Energy portfolio are profitable as I write this. Most of our stocks are in the energy sector. Many are in the oil and gas business and their prices tend to fluctuate with the price of oil and gas. Some of our stocks are high dividend payers. These companies, many of which are master limited partnerships (MLP) pay nearly all of their net income to unitholders. Share prices of MLPs tend to fluctuate less. Whats going to happen to oil prices this year? West Texas Intermediate (WTI) crude will continue to be tightly range-bound between $100 and $110 per barrel in 2013. The Bakken field continues to be one of Americas top producing fields. The lack of pipelines has forced oil companies to transport some of their crude via rail. This oversupply will probably continue at least through the end of 2013, and will help keep WTI prices low. Brent crude, on the other hand, is a different story. It will likely remain in the $100 to $120 range. Any international geopolitical incident (like Syria) could send prices soaring. Thats not good news for U.S. East Coast refineries. They use Brent as a feedstock since they cant get their hands on the lower-priced WTI. Some refineries are installing rail-unloading facilities in order to get their hands on WTI. Natural gas will continue to rise, and will eventually trade in a range of $4 to $4.50 per MMBtu. Were loaded with it here in the U.S. As a result, power companies are switching to it, and trucking companies are beginning to switch their 18-wheeler fleets over to run on it. The increasing demands from those two uses will continue to build a floor under natural gas prices. Eventually, almost imperceptibly, prices will begin to rise. As my friend Rick Rule likes to say, The cure for low prices is low prices. The converse is also true, of course. I firmly believe there are going to be a few select energy and infrastructure stocks that will do well in 2013 and beyond. Our Peak Energy portfolio is loaded with them. In this report, were adding what we believe will be four great investments you can make in the energy sector right now. During the rigorous analysis and screening weve been undertaking for the last several months, these four passed our tests. I think youll find the in-depth information well worth the read.
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So, grab a fresh cup of coffee, and sit back and pore through my latest edition of the Peak Energy TrendWatch report.

Welcome to New Subscribers and Our Existing Ones

Id like to take a few moments and welcome our new subscribers to The Oxford Clubs Peak Energy Strategist research service. (Existing subscribers, feel free to skip ahead to Were Heading to the Beach for This Next Company.) As investors, we are in the midst of an unprecedented investment opportunity. Its happening right now in the energy, energy infrastructure and energy technology sectors. Each has an integral, interconnected role in the coming decades. The mission? Wean the world off its 100-year dependence on fossil fuels. 1856 marked the beginning of the Age of Oil. For the last 154 years, it has provided humanity with the cheapest form of energy it has ever had. However, we know fossil fuels arent infinite in supply. The end of the Age of Oil is on the horizon. Some fear the peak has already passed. In addition, there are growing concerns about fossil fuels potential effects on the earths climate. After oils 2008 peak of $147 a barrel, renewables like geothermal, solar, wind and others burst onto the energy stage and quickly gained traction. However, the reality is that transition wont happen overnight. Challenges and concerns litter the path to global energy resource-sustainability. The socioeconomic implications are unprecedented. However, heres the good news: So are the investment opportunities. The four new companies we profile inside this Peak Energy TrendWatch report have the very real potential to chalk up gains of historic proportions the kind of companies we want in our portfolio. About once per quarter, Peak Energy TrendWatch highlights the worlds hottest energy and infrastructure trends and provides precise recommendations for playing them for double- and triple-digit gains. Every blockbuster report features institutional-quality research. You hear about the latest news and exciting advances in alternative energy, fossil-fueled energy, infrastructure, and the energy technology companies that pull it all together. But while my research team and I dig deep, we always keep it simple so you know exactly what youre investing in and why. You get our weekly newsletter delivered to your inbox. Peak Energy Weekly delivers
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updates on our current positions and hot new recommendations that just cant wait for the next quarterly report. In Peak Energy Weekly, you receive periodic sneak peeks into what Im researching for the next quarterly report. The Peak Energy portfolio: This is our master portfolio that contains all our current picks and provides simple buy/sell/hold recommendations for all of them One important note: Peak Energy Strategist isnt a trading service, so we dont provide options plays on any of the stocks we recommend. We also dont short stocks. After all, the long-term trend for energy usage is up, not down. We pick companies that our research identifies as the ones that stand to reap huge rewards and potentially huge gains for shareholders as a result of future energy trends happening. Were in the early stages of what I expect will be an exciting, fascinating and most important extremely profitable adventure. Welcome to Peak Energy Strategist.

A Review of Our Stock Selection System

Before we get to the first of the four recommendations profiled in this quarters report, I wanted to give new subscribers a quick review of our stock selection system. To identify opportunities, my research team and I use an amazing tool. We call it the Peak Energy Indicator, or PEI for short. The PEI is a special predictive formula called an algorithm. It works in much the same way as a GPS navigation system does. A GPS computer crunches millions of pieces of data, maps out your route, and tells you where to turn next. The algorithm Ive developed crunches huge quantities of data. It gives me the likely future trajectories of individual stocks, essentially predicting where theyre going next. So how exactly does this technology work? Lets take a look As a 30-year veteran of the markets and the engineering and energy world , Ive never seen a technology this powerful. In addition, its simple, too. We apply our PEI algorithm to the entire energy, energy infrastructure and technology sectors. When all the number-crunching is complete, we end up with a group of stocks we investigate even further. The algorithm also gives us an easy-to-read road map of where these stocks will likely be 24 hours from now seven days from now or even seven years from now.
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I cant tell you everything about our algorithm. Suffice it to say we look at things like long-term growth trends in energy, sectors most likely to benefit, why and of most interest to us as investors when they will occur. Were constantly refining it, too. Lets face it: The investment landscape is a dynamic, changing landscape, and we have to be able to adapt quickly. We also look for those companies that represent value (bargains) relative to their peers. In addition, we look at both past and future predicted growth rates. Perhaps most important, we look beyond the Wall Street wonks things Wall Street analysts may have overlooked in their traditional cookie-cutter company analysis. However, after we run the numbers, I like to take my research one step further: I interview CEOs, COOs and CFOs and ask them about their companies. Few if any analysts (other than some of my peers at The Oxford Club) have the high-level access, or are willing to take the time to call these people. However, heres the thing: These guys are the real brains behind every company. Ive spent over 30 years of my professional life talking to them. In that time and with the hundreds of conversations Ive had one thing has become obvious: I always learn something by talking with company executives. They all love to spout off about their companies. Well its time to get started. In this report weve detailed four new stocks weve identified with the PEI. Theyre the ones were adding in this report. You can go on The Oxford Clubs website to see the entire list of companies we are currently tracking in the Peak Energy portfolio.

Were Heading to the Beach for This Next Company

Actually, Im kidding. You would think that a company that started in the sand business would be operating near a beach somewhere. But it turns out the best sand deposits arent found anywhere near the ocean. Back in the late 1800s, frontiersman Henry Harrison Hunter found a deposit of some of the purest sand hed ever seen near Berkley Springs, W. Va. He decided to enter his sand in the Chicago Worlds Fair. He won the medal of excellence and a blue ribbon for the purest sand entered. He decided to build a small plant near the deposit to mine the sand. Silica sand is the main ingredient for manufacturing glass.
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Not too far away in Lewistown, Pa. lived another pioneer by the name of Samuel S. Woods. He too found a pure silica sand deposit. He built a production plant that eventually became the Pennsylvania Glass Sand Corporation. The next 50 years saw many silica sand mines opened all across the United States. Acquisitions and mergers saw several major players emerge. One of them is U.S. Silica Holdings, Inc. (NYSE: SLCA). As it exists today, U.S. Silica has undergone many mergers over the years. Most notably was the merger of Pennsylvania Glass Sand Corporation and the Ottawa Silica Company. Today, U.S. Silica has 13 locations around the U.S. It has a 100-plus year history as a leader in producing industrial silica products. It has a rapidly increasing market share as a supplier of proppants to the oil and gas industry. Its a leading producer of industrial minerals. In addition to proppants, it produces whole grain silica, ground and fine-ground silica, aplite and kaolin clay. U.S. Silica manufactures over 200 products from these minerals. In addition to the oil and gas industry, U.S. Silicas customers include those in the glass, chemicals, foundry, building products, fillers and extenders, recreation, industrial filtration and treatment, and testing and analysis industries. U.S Silica has 307 million tons of high-quality reserves. In 2012, the company sold 7.2 million tons. One of the big growth areas for U.S. Silica is supplying sand proppant materials for the oil and gas industry.

Proppants Explained
Over the last 10 years, horizontal drilling combined with hydraulic fracturing has resulted in an oil and natural gas boom in the U.S. The process allows production and extraction of previously unobtainable oil and natural gas trapped in shale. One of the key elements is a material called proppants. Lets do a quick review of the oil or natural gas horizontal well drilling process, fracking, and where proppants come in. Take a look at the graphic on the following page. A drill rig sinks a vertical shaft down to within 500 feet of the oil or gas-bearing layer. The bit slowly turns toward the horizontal as it drills, until it arrives at the layer of interest. The drill bit then proceeds horizontally for up to three miles, following the shale layer. After the drilling process is finished, the fracking process can begin. First, explosive charges are set off at specific intervals along the horizontal pipe. These punch holes in the pipe.
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Pumps force a mixture of water and sand and various other chemicals into the well under extremely high pressure. This causes the surrounding shale to fracture, releasing the trapped oil and/or gas. The proppants stay in the cracks, holding them open. The pressure of the trapped gas or oil forces the water and chemicals back out of the well. Filtration units separate them for reuse again on another well.

Proppant Demand Outstrips Supply

Fracking a well uses about 4 million gallons of water. The best part, as far as U.S. Silica is concerned, is as much as 5 million pounds of proppants is required for each well. Whats driving the demand? With as many as 20 wells drilled in a radial fashion from one drill pad, you can imagine the amount of material required at just one site. As of this writing, the Baker-Hughes rotary rig count showed that drilling on 1,076 horizontal wells is currently underway in the U.S. Thats a lot of sand. The fracking process is faster as new pressure pumpers increase fracking efficiencies. More fracking stages per horizontal lateral results in more proppant required. U.S. Silica has the lowest cost per ton for fracking sand in the industry. Barriers to
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entry are high including mining permits, trucking and rail costs. U.S. Silica has access to nearly every major railroad in the country. The company also operates transload facilities in each major oil and natural gas basin. The company is in the process of opening a new mining site due to increased demand for fracking sand. Its located near Utica, Ill. Its expected to have an annual capacity of 1.5 million tons when it comes online in Q1 2014.

Now Is the Time to Back Up the Truck

With demand outstripping supply, its no surprise that when U.S. Silica announced its Q2 2013 results at the end of July they were excellent. The company chalked up record revenue of $129.8 million. That was an increase of 24% over Q2 2012. U.S. Silicas business with the oil and gas sector soared. It increased 44% over Q2 2012. It reaffirmed its full-year earnings guidance of $165 million to $175 million. Bryan Shinn, president and CEO, had this to say about the companys results: We are extremely pleased with our second quarter performance, again delivering Adjusted Earnings at the high end of our guidance range. For the Company as a whole, the bottom line is that our business is very strong. We expect robust second half performance, driven by record oil and gas demand and continued margin expansion in our industrials business. U.S. Silica is the perfect pick and shovel play for the booming horizontal drilling industry. There is currently no end in sight for U.S. oil and gas production from shale plays. Demand for frack sand will continue to exceed supply for the foreseeable future. This will be a big driver for U.S. Silicas business. Now is a great time to add a few shares to your portfolio. Action to Take: Buy U.S. Silica Holdings, Inc. (NYSE: SLCA) at market. In addition, use a 25% trailing stop to protect your principal and your profits.

Our Petroleum Pipeline Network

Right now, the U.S. has 170,000 miles of onshore and offshore pipelines dedicated to crude oil transmission. Another 95,000 miles carry refined petroleum products. These include gasoline, diesel fuel, home-heating oil and jet fuel. Check out the map on the following page. There are also tens of thousands of miles of small (2- to 6-inch diameter) crude oil gathering lines. Theyre located in every major conventional and shale oil field. For instance, Anadarko operates 5,200 wells in Colorados liquids-rich Niobrara formation. Oil from these wells reaches its Wattenberg Processing Plant via 3,000 miles of gathering lines.
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Many people believe gasoline moves from refineries to gas stations via tractor-trailer trucks. It turns out theyre just used for the last few miles. The bulk of the transmission is via pipeline. Not only is it energy efficient, its safer too.

Americas Natural Gas Pipeline System

Americas natural gas pipeline system is even more impressive than its crude oil one. Over 350,000 miles of interstate and intrastate transmission pipelines crisscross the lower 48 states and the Gulf of Mexico. Take a look at the map on the following page. More than 1,500 compressor stations maintain pressure on the lines. This keeps gas moving through the system to the more than 11,000 delivery points. There are more than 210 separate pipeline systems for moving natural gas. Over 1,400 interconnection points tie them all together. More than 400 underground storage facilities house excess production. Now that weve discussed the whys and wherefores of pipelines, lets get to the first of two natural gas distribution companies were adding to the portfolio. This company owns
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one of the largest publicly traded MLPs in the U.S.

One of the Top Vertically Integrated Natural Gas Producers in the U.S.
Very few natural gas companies are vertically integrated. That is, most are gathering pipeline operators, midstream pipeline operators, processors or marketers. ONEOK Inc. (NYSE: OKE) is all of the above. It owns 43.4% of ONEOK Partners, LP (NYSE: OKS), one of the largest natural gas MLPs. ONEOK Partners is a leader in Courtesy of Core Labs, Inc. gathering, processing, storage and transportation of natural gas in the U.S. In addition, it owns one of the nations largest natural gas liquids (NGL) pipeline and processing systems. It connects NGL supplies in the Mid-Continent and Rocky Mountain plays with large NGL market centers. Take a look at the map below, courtesy of ONEOK. It gives you a sense of the coverage the company has in its served markets. While we could choose to own either company, ONEOK Inc. provides the best
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combination of growth and income. Unless we specifically mention otherwise, when we mentioned ONEOK we are talking about the parent company, not the MLP. ONEOK is one of the biggest natural gas distributors in the country. It serves over 2 million customers in Kansas, Oklahoma and Texas. The companys Energy Services operation focuses on marketing natural gas. It operates throughout the entire U.S. Like most pipeline operators, ONEOK and its subsidiaries operate primarily on a fee-based model. The more product that flows through its pipeline network, the greater its earnings. ONEOK is really two companies in one. The first focuses on natural gas, and the second on natural gas liquids (NGLs). Lets look at its natural gas operation first.
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Natural Gas Operations

The companys natural gas operations comprise two divisions: gathering and processing, and pipeline and storage. ONEOKs operations include nearly all of the top shale plays in the U.S. Its gathering system includes 18,479 miles of pipelines. This pipeline network serves the Williston Basin, Wind River, Powder River, Hugoton, Central Kansas Uplift and the Anadarko. Its 15 active processing plants have 968 million cubic feet per day (MMcf/d) capacity. In addition, the company has six new processing plants either planned or under construction. The company also supplies compression and treating services for its customers. It has a diversified customer portfolio, with more than 2,000 contracts. ONEOKs pipeline and storage division includes 6,515 miles of natural gas transportation pipelines. It also has 51.7 billion cubic feet (Bcf) of active working capacity. Its key customers are natural gas companies and electric utilities.

Natural Gas Liquids Operations

The companys NGL operation is vertically oriented. It handles NGLs from gathering through fractionation, transportation, marketing and storage. Its gathering system includes 4,340 miles of pipeline with 1.1 million barrels per day (MMbpd) of capacity. The company can store 26.7 million barrels of NGLs. In addition, its system includes 3,498 miles of distribution pipelines with a throughput of 708,000 bpd. Its distribution network connects to about 100 processing plants. This is over 90% of the plants located in the Mid-Continent region. ONEOKs distribution system has links to key NGL marketing points at Conway, Kansas and Mont Belvieu, Texas.

Poised for Growth

The U.S. is the Saudi Arabia of natural gas. Looking forward, ONEOK is positioning itself to become an even bigger player in the natural gas sector. Right now, ONEOK sports a respectable 2.97% yield. In terms of its share growth, the company shares are up over 14.5% in just the last three months. Since it announced its Q2 2013 results back in July, shares have traded sideways. I expect Q3 2013 will be another great quarter. Hedge funds like the stock as well. Now
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is the perfect time to add this natural gas powerhouse to the Peak Energy portfolio and to yours too. Action to Take: Buy ONEOK Inc. (NYSE: OKE) at market. In addition, use a 25% trailing stop to protect your principal and your profits.

This Companys Sold 90% of Its Product for the Next 10 Years
The next company were adding in this report is a bit of a unique animal. Its a midstream master limited partnership (MLP). Why is it unique? The company has a buyer for 90% of its product for the next decade. It doesnt matter how much it produces. In addition, the MLP currently yields 3.78%. Its year-over-year increase was 18%. The MLP projects a minimum 15% increase in its distribution over the next year. This kind of distribution growth rate puts this MLP in a different class compared to other MLP choices. Two years of this fast-paced distribution growth should see share prices increase at least 33%. Combined with the distribution, that could easily be an investment double. Right now, this company seems just as focused on share price gain. This MLP is running under the radar screen of most individual investors. Thats probably one of the reasons it showed up on the Peak Energy radar screen.

An MLP Midstream Powerhouse

Western Gas Partners, LP (NYSE: WES) was born when Anadarko Petroleum Corporation (NYSE: APC) spun off about 50% of its energy midstream business. The company focuses on the business of gathering, compressing, processing, treating and transporting natural gas, condensate, natural gas liquids and crude oil. Western Gas Partners is less than a year old, but its already giving investors their moneys worth. Its delivering nearly 15% distribution growth annually. Better yet, its poised to do so for the foreseeable future. Seventy-five percent of the companys gross margins come from liquids-rich energy plays. Heres the best part: 96% of its revenue comes from fixed price, fee-based contracts. One of the best parts of the spin-off is that Anadarko will continue to be gradually transferring the remaining 50% of its midstream assets into Western Gas. These will be immediately accretive to the MLPs earnings and subsequent distributions.
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Westerns systems are located in East, West and South Texas, North-Central Pennsylvania, the Rocky Mountains (Colorado, Utah and Wyoming) and the Mid-Continent (Kansas and Oklahoma). Take a look at the map below to see what and where Westerns current assets are.

2013 Is Shaping Up to Be a Banner Year

Back on July 31, 2013, Western Gas Partners announced its Q2 2013 results. Net income available to unitholders was $44.8 million. Adjusted earnings were $107.6 million. Distributable cash flow was $89.8 million. Doing the math, the coverage ratio comes out to 1.13. This indicates Western Gas can easily cover its dividends via ongoing operations. President and CEO Don Sinclair commented on Westerns Q2 results: Our second quarter fully met our expectations.
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[We had] strong sequential throughput growth in our liquids-rich areas, as well as the Marcellus. [With the] start-up of our Brasada plant in June, and the commencement of our recently announced capital projects, 2013 is shaping up to be a very exciting year. We continue to maintain the full-year 2013 earnings guidance that we released in February. We will be revising the total capital expenditure guidance to reflect the new projects. To sum it up, Western Gas Partners could turn out to be one of the best-performing MLPs in the midstream space, and possibly in the entire natural gas sector. It certainly deserves a place in your portfolio, which is why were adding it to ours. Action to Take: Buy Western Gas Partners LP (NYSE: WES) at market. In addition, use a 25% trailing stop to protect your principal and your profits.

Another Midstream Poised for Solid Growth

Our next company is another spin-off from a solid parent. In this case, the parent company is EQT Corporation (NYSE: EQT). Its one of the countrys largest producers of natural gas. EQT Corporation operates in five states and is a technology-driven leader in horizontal drilling. Its drilled over 14,000 producing wells. Its midstream business is growing rapidly, as EQT Corporation builds and operates new storage facilities and pipelines. EQT Corporation is aggressively drilling in the Appalachian Basin. The company has approximately 3.5 million gross acres under lease. Heres the best part: 540,000 of those are in the heart of the Marcellus play. This is the fairway. Its the part of the Marcellus containing the most natural gas and natural gas liquids. It has an estimated 25.9 trillion cubic feet (Tcfe) of reserves. Like Anadarko, EQT Corporation decided to spin off its midstream operation into an MLP. Thats what were adding to the portfolio. EQT Midstream Partners, LP (NYSE: EQM) is the midstream arm of EQT Corporation. It provides midstream services to its parent company and other multiple third parties in Pennsylvania and West Virginia. EQT Midstream has two primary assets. Take a look at the map on the next page to get an idea of where theyre located. The first of EQT Midstreams assets is the Equitrans Transmission and Storage System. It serves as a transmission pipeline as well as storage. The system consists of about 700 miles of interstate transmission pipeline. This connects to five other interstate pipelines, as well as multiple distribution companies.
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In addition, 14 natural gas reservoirs can store approximately 400 million cubic feet (MMcf) per day. The storage system has 21 compressor units, and a total throughput of 1.4 trillion British thermal units (TBtu) per day. The second asset is the Equitrans Gathering System. It consists of roughly 2,000 miles of low-pressure gathering lines. It collects natural gas from wells and other receiving points. These lines have multiple connections with the companys transmission and storage systems.

EQT Midstreams Strategy

Again, similar to the Anadarko/Western Gas Partners LP arrangement, EQT Midstream will gradually acquire additional midstream assets from EQT Corporation. These will be immediately accretive to quarterly results.
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EQT Midstreams objective is to grow its cash distributions at double-digit rates over the next several years. Beside the drop-downs from EQT Corporation, the partnership is pursing other organic opportunities as well as third-party producer volumes and acquisitions. EQT Midstreams most recent acquisition was the Sunrise Pipeline. It acquired the 41.5-mile transmission pipeline from EQT Corporation. You can see the strategic location on the map below.

In addition to the pipeline, the Sunrise acquisition includes the Jefferson compressor station plus an interconnection point with the Texas Eastern Pipeline. The Sunrise Pipeline currently has a throughput capacity of 400 BBtu per day. The Jefferson compressor station is currently undergoing an expansion that will add approximately 550 BBtu per day of additional capacity. Its expected to be in service by September 2014. The additional capacity is already gone. EQT Midstream has entered into a 10- and 20-year contract that commences once the expansion goes online. In terms of future opportunities, EQT Corporation still owns 10,300 miles of gathering
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PEAK ENERGY STRATEGIST SPECIAL RESEARCH REPORT

lines and 244 compressor stations. Its likely that over time, most if not all of these assets will transfer to EQT Midstream Partners. I believe that EQT Midstream Partners is another growth and income story much like Western Gas Partners. Thats why were adding it to the Peak Energy portfolio. Action to Take: Buy EQT Midstream Partners LP (NYSE: EQM) at market. In addition, use a 25% trailing stop to protect your principal and your profits. Well there you have it. I hope you enjoyed reading the latest edition of Peak Energy TrendWatch. The four companies profiled above are poised to add to the gains were currently sitting on. Well continue to track our new picks, as well as the rest of the Peak Energy portfolio stocks in our regular Peak Energy Weekly. Good investing,

David Fessler

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From time to time, The Oxford Club will discuss investment ideas that will not be included in the Clubs various portfolios. There are certain situations where we feel a company may be an extraordinary value but may not necessarily fit within the selection guidelines of these existing portfolios. In these cases, the recommendations are to be considered speculative and should not be considered part of any of the Clubs portfolios. Also, by the time you receive this report, there is a chance that we may have exited a recommendation previously included in one of our portfolios. Occasionally, this happens because we use a disciplined trailing stop philosophy with our investments, meaning that any time a companys share price falls 25% from its high, we sell the stock.

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PEAK ENERGY STRATEGIST SPECIAL RESEARCH REPORT

About the Author:

David Fessler is the managing editor of Peak Energy Strategist, the Oxford Clubs premium energy research service. Hes the energy and infrastructure expert for The Oxford Club, one of the worlds most exclusive and prestigious networks of private investors. A prolific writer, David also writes Hot Stacked, a focused overview of the energy and infrastructure markets appearing monthly in the Communiqu. In addition, hes a daily contributor to Investment U, the Clubs free investment education division with more than 450,000 active subscribers. His articles are syndicated widely. Seeking Alpha has listed Dave in the group of the top 100 fastest growing authors, and one of its Top Ten Commodities authors by readership. David has appeared on the FOX News Channel, where he was one of the first journalists to break the story on the commercial real estate crash. David has also appeared on Moneyshow.com, and The Real Estate Guys radio network. Before retiring at the age of 47, David served as Vice-President for Strategic Business at LTX Corporation. He was also Vice-President of Operations, Sales & Marketing for Quality Telecommunications, Inc. His success as an investor spans nearly 40 years in the technology and energy sectors. He has owned and operated two successful businesses. Hes a degreed Electrical Engineer, and is a renowned specialist in the semiconductor, telecommunications, energy and infrastructure sectors. David, his wife Anne, and their two sons, Jared and Noah, live in a 200-year-old stone farmhouse in northeastern Pennsylvania. An avid cyclist, David also enjoys fly-fishing with his sons, gardening with Anne, and woodworking.

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