NEW YORK (TheStreet) -- Plains All American Pipeline (PAA) and Plains GP Holdings (PAGP) are poised for growth in the face of falling oil prices, thanks to a fee-based business model and the initiation of several large projects.
Plains GP Holdings could be a better choice for investors, however.
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Plains All American is a master limited partnership engaged in the transportation, storage and marketing of oil and natural gas (nearly three-quarters of its revenue are related to crude oil). It owns more than 18,000 miles of pipelines, 7,400 railcars, 2.500 trucks, and hydrocarbon storage, fractionation and processing facilities. Because it's an MLP, Plains All American gives its cash to its investors as distributions.
Plains GP Holdings, on the other hand, does not possess any midstream assets. Rather, it owns some of Plains All American's general partner and incentive distribution rights. The latter entitle it to receive an increasing share of cash distribution from Plains All American.
Plains GP Holdings is structured as a limited partnership but for tax purposes, it is akin to a C-Corporation. Like shareholders of other conventional companies, Plains GP's investors receive 1099 tax forms, as opposed to the complicated K-1 tax form that is sent to Plains All American investors. Plains GP's shareholders also receive quarterly dividends, which will remain nontaxable over the next several years, the company said in a November presentation.
The weakness in oil prices, which is evident in the 29% drop in West Texas Intermediate crude oil futures over the last three months, will not have any significant impact on Plains All American's and Plains GP Holding's growth, according to a recent report by Goldman Sachs.
Because of weakness in oil prices, Goldman Sachs believes that production from the Lower 48 states will increase by 7.9% between 2015 and 2016, as opposed to its previous estimate of 11.5%. Although lower production could impact exploration and production as well as oilfield-services companies, it should be more than enough to allow Plains All American and Plains GP Holdings to record strong earnings, distribution and dividend growth.
Plains All American benefits from having a fee-based business, which minimizes its exposure to the volatile commodity price environment. This year, Plains All American will generate 70% of its cash flows from fee-based businesses.