For Energy MLPs, It's All About That Basin

It's been a tough slog for energy master limited partnerships, or MLPs, those once high-flying developers and operators of transportation, processing and storage assets that pay sweet dividends to their shareholders.

While these energy infrastructure providers are less impacted by lower oil prices due to their long term, fee-based revenues, eventually they begin to feel the pain when oil and gas explorers and producers don't have a need for their services. Those worries sent shares of the Alerian MLP ETF (AMLP) down almost 56% from their peak of $19.31 in August of 2014 to $8.53 per share in January, although they've since risen 46% to $12.47.

Even so, as contracts roll off over the next few years, which could lead to lower tariffs, and oil and gas producers begin allocating capital to their more profitable areas, where energy MLPs have their assets will become increasingly important, according to a report by bond research firm CreditSights.

Using data from the U.S. Energy Information Administration, CreditSights said the Marcellus/Utica Shale in the northeast and the Permian Basin in West Texas have the best outlooks while the Haynesville in east Texas and northern Louisiana, the Barnett in north Texas and the Eagle Ford in South Texas are most challenged.

MLPs operating in the natural gas-weighted Marcellus/Utica, which has seen a 12% jump in production volume over the past year, include MPLX (MPLX) , Williams Partners (WPZ) , Spectra Energy Partners (SEP) and Columbia Pipeline Group (CPGX) . Large oil and gas producers operating in the area include Range Resources (RRC) , EQT (EQT) , Chesapeake Energy (CHK) , Antero Resources (AR) and ConocoPhillips (COP) .

Those with assets in the oilier Permian, which has seen a 7% production volume increase over the same period, include Plains All American Pipeline (PAA) , Targa Resources (TRGP) , Energy Transfer Partners (ETP) and Magellan Midstream (MMP) . Producers in the region include Chevron (CVX) , Occidental Petroleum (OXY) , Devon Energy (DVN) , Pioneer Natural Resources (PXD) and Exxon Mobil (XOM) .

Less advantaged are those with assets in the Haynesville, which has seen a 5% drop-off in production volumes over the last year. The outfits operating there include Williams Partners, DCP Midstream (DPM) , Boardwalk Pipeline (BWP) and Kinder Morgan (KMI) (a non-MLP) with the main producers being Chesapeake, Exco Resources (XCO) , BHP Billiton (BHP) , Encana (ECA) and Exxon Mobil (XOM) .

Production volumes in the Barnett, meanwhile, are off 13%, and it's home to assets owned by Williams Partners and Targa Resources (TRGP) with Chesapeake, Devon and EOG Resources (EOG) as the largest producers.

The Eagle Ford has seen production volumes fall by 23%, hurting DCP Midstream, Williams Partners and Kinder Morgan as well Enterprise Products Partners (EPD) (producers there include EOG, Chesapeake, Devon and ConocoPhillips along with Marathon Oil (MRO) ). CreditSights notes, however, that Enterprise Products Partners has said the Eagle Ford will be the first volumes to get turned back on as new ethane crackers begin to enter service.

CreditSights has outperform ratings on Williams Partners, Energy Transfer, Enbridge and Spectra Energy Partners among investment grade entities and NuStar and Oneok among high-yields. Its underperform names include Enterprise Products Partners and Magellan Midstream. It recently upgraded Plains All American to market perform and downgraded Kinder Morgan to market perform solely on valuation, as nothing has changed regarding its fundamental view of the company (it's already cut its dividend by 75%).

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