Wunderlich Securities analyst Jay Dobson has a pretty glum assessment of upstream master limited partnerships (MLPS). These are exploration and production companies that have been hammered by energy price declines.
Dobson writes in a June 15 industry report:
The sector has too much debt on average and has suffered from the dramatic decline in oil, natural gas, and natural gas liquids prices since late 2014. Further, a lack of hedging discipline has left the industry more exposed to the declining prices and, in some cases, with very limited financial flexibility.
That said, there are a few he recommends as he takes over coverage of the sector. He believes these are the MLPs that are in the best positions for the current energy environment:
- Memorial Production Partners (MEMP),
- Vanguard Natural Resources (VNR)
- LRR Energy (LRE). Its merger with VNR is still pending and its trading at a 6% discount, so it’s is another way to play Buy-rated VNR, says Dobson.
- Legacy Reserves (LGCY). He notes this one is more risky.
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