Fastest Growing Oil and Gas MLPs for the Next Decade

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Upstream MLPs are a great way for long-term income investors to earn mouth-watering yields and strong capital gains, if chosen correctly. This slideshow ranks the 12 most popular upstream MLPs in …

Upstream MLPs are a great way for long-term income investors to earn mouth-watering yields and strong capital gains, if chosen correctly. This slideshow ranks the 12 most popular upstream MLPs in America and helps investors determine where best to invest their hard-earned money.

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  • 1. Fastest Growing Oil and Gas MLPs for the Next Decade
  • 2. 12th place: Eagle Rock Energy Partners (NASDAQ: EROC) •The worst upstream MLP in America? •History of distribution cuts and suspensions. •Highest cost of capital in industry. •Long track record of destroying unit holder value. •Last two quarters coverage ratio was .77 and .82. •Banks recently cut its credit lines, making future expansion harder. MLP Yield 10 year Projected Distribution Growth Rate Coverage Ratio EV/EBITDA Beta 10 Year Projected Annual Total Return Eagle Rock Energy Partners 12.00% -3.65% 0.92 10.84 0.72 8.35 Industry Average 9.63% 9.40% 1.05 12.37 0.74 19.03%
  • 3. 11th Place: Linn Energy (NASDAQ: LINE) •Slow down in distribution growth due to trouble with recent Berry Petroleum acquisition. •Acquired valuable oil assets that are fast depleting and expensive to drill. •Recent deals with ExxonMobil and Devon Energy will restore coverage ratio and restart distribution growth. •Solid management team and track record means this MLP is still worth owning. MLP Yield 10 year Projected Distribution Growth Rate Coverage Ratio EV/EBITDA Beta 10 Year Projected Annual Total Return Linn Energy 9.30% 1.27% 1.02 12.47 0.66 10.57% Industry Average 9.63% 3.78% 1.05 12.37 0.74 19.03%
  • 4. 10th Place: Legacy Reserves (NASDAQ: LGCY) •Seven-year track record of 131 successful accretive acquisitions worth $2.1 billion. •Recently issued IDRs worth $2.5 billion to use as currency to acquire new assets and fuel growth. • Targeting non-operating stakes in low depleting oil and gas resources to cut costs and increase distribution growth. MLP Yield 10 year Projected Distribution Growth Rate Coverage Ratio EV/EBIT DA Beta 10 Year Projected Annual Total Return Legacy Reserves 7.70 % 4.36% 1.11 10.12 1.1 12.06% Industry Average 9.63 % 9.40% 1.05 12.37 0.74 19.03%
  • 5. 9th Place: Vanguard Natural Resources (NASDAQ: VNR) •Coverage ratio average of .85 in last two quarters due to new strategy. •Most recent natural gas acquisition increased reserves 80%, production by 55%. •Management investing aggressively to further expand production. •Below average production costs means production growth will secure distribution and accelerate growth. MLP Yield 10 year Projected Distribution Growth Rate Coverage Ratio EV/EBITDA Beta 10 Year Projected Annual Total Return Vanguard Natural Resources 8% 4.57% 0.97 12.77 0.85 12.57% Industry Average 9.63% 9.40% 1.05 12.37 0.74 19.03%
  • 6. 8th Place: QRE Energy (NYSE: QRE) •Previously troubled MLP that now represents a special opportunity. •Previous general partner fee arrangement resulted in as much as 10% dilution/quarter. •Buy out of general partner immediately 7% accretive to DCF/unit, distribution growth catalyst. •Wall Street upset because management plans to invest aggressively in existing assets vs grow through acquisitions. •Distribution not likely to grow until production increases in 2016. MLP Yield 10 year Projected Distribution Growth Rate Coverage Ratio EV/EBITDA Beta 10 Year Projected Annual Total Return QRE Energy 10.7 2.01% 1.03 9.13 0.65 12.71 Industry Average 9.63% 9.40% 1.05 12.37 0.74 19.03%
  • 7. 7th Place: Mid-Con Energy Partners (NASDAQ: MCEP) •Ultra-low cost of production •net margin 31.2% vs 9.2% industry average •Mid-Con’s cost of equity 6.25%, return on equity 29.1% vs 7.1% industry average •best balance sheet in industry, Debt/EBITDA 2.42, management is aiming for <2.0 • bank-vault safe distribution with management targeting coverage ratio of 1.2 and 4% distribution growth MLP Yield 10 year Projected Distribution Growth Rate Coverage Ratio EV/EBITDA Beta 10 Year Projected Annual Total Return MCEP 9.20% 3.74% 1.16 13.02 1.55 12.94 Industry Average 9.63% 9.40% 1.05 12.37 0.74 19.03%
  • 8. 6th Place: LRR Energy (NYSE: LRE) •7 consecutive quarters of distribution growth •fast growing, Q1 production up 7.9%, Adjusted EBITDA up 41%, DCF up 68% •lowest valuation multiple for a reason, only $50 million in credit remaining. •LRR has started “ATM” program to issue additional units to raise capital. •30% dilution in last quarter threatens distribution growth MLP Yield 10 year Projected Distribution Growth Rate Coverage Ratio EV/EBITDA Beta 10 Year Projected Annual Total Return LRR Energy 11.40% 1.85% 1.05 9.06 1.18 13.25% Industry Average 9.63% 9.40% 1.05 12.37 0.74 19.03%
  • 9. 5th Place: EV Energy Partners (NASDAQ: EVEP) •Industry-worst coverage ratio temporary condition •DCF declined 30% in 2013 when high-priced oil and gas hedges ended •strong growth catalysts in Utica, Eagle Ford shale assets and new midstream operations. •midstream alone will increase 2015 EBITDA 33% above 2013 levels •management guiding for coverage ratio returning to 1 by end of 2014 MLP Yield 10 year Projected Distribution Growth Rate Coverage Ratio EV/EBITDA Beta 10 Year Projected Annual Total Return EV Energy Partners 8.10% 5.54% 0.74 17.78 0.35 13.64% Industry Average 9.63% 9.40% 1.05 12.37 0.74 19.03%
  • 10. 4th Place: Memorial Production Partners (NASDAQ: MEMP) •Least volatile upstream MLP •12 acquisitions in 3 years resulting in annual growth of reserves, production, and Adjusted EBITDA of 69%, 73% and 101% respectively. •now targeting enhanced oil recovery assets with production decline rates of just 5% vs as high as 90% for traditional shale •Lower decline rates will accelerate distribution growth MLP Yield 10 year Projected Distribution Growth Rate Coverage Ratio EV/EBITDA Beta 10 Year Projected Annual Total Return MEMP 9.10% 11.22% 0.97 11.61 0.34 20.32% Industry Average 9.63% 9.40% 1.05 12.37 0.74 19.03%
  • 11. 3rd Place: Atlas Resource Partners (NYSE: ARP) • 7 acquisitions in 2 years has grown production by 614% •aggressively acquiring ultra low decline rate assets with average decline rate of 8% •Last acquisition, Rangley oil field in Colorado, has declined by just 3%-4% annually for last 15 years due to CO2 injection. •Highest quality yield in entire upstream MLP industry MLP Yield 10 year Projected Distribution Growth Rate Coverage Ratio EV/EBITDA Beta 10 Year Projected Annual Total Return Atlas Resource Partners 11.50% 19.34% 1.05 14.8 0.49 30.84% Industry Average 9.63% 9.40% 1.05 12.37 0.74 19.03%
  • 12. 2nd Place: New Source Energy Partners (NYSE: NSLP) •Highest coverage ratio and net margins in industry (37.9%) •45% reserve and 44% production growth due to 6 oil and gas acquisitions in last year •New Source has acquired 4 oil services companies achieving vertical integration •Oil services business has 27% EBITDA margins and is expected to grow revenues by 369% from 2013 through 2015 MLP Yield 10 year Projected Distribution Growth Rate Coverage Ratio EV/EBITDA Beta 10 Year Projected Annual Total Return New Source Energy Partners 9.9% 27.06% 1.42 14.55 0.37 36.54% Industry Average 9.63% 9.40% 1.05 12.37 0.74 19.03%
  • 13. 1st Place: Breitburn Energy Partners (Nasdaq: BBEP) •$2.1 billion in acquisitions in 2011-2013 has increased reserves 113% and high-margin liquid reserves by 72% •$773 million in liquidity and targeting $600 million in acquisitions for 2014 •targeting low decline enhanced oil recovery projects with little to no production decline •also targeting Permian Basin, which holds 75 billion barrels and costs just $7/barrel to extract MLP Yield 10 year Projected Distribution Growth Rate Coverage Ratio EV/EBITDA Beta 10 Year Projected Annual Total Return Breitburn Energy 9.10% 35.46% 1.11 12.24 0.67 44.56% Industry Average 9.63% 9.40% 1.05 12.37 0.74 19.03%
  • 14. An Energy Tax “Loophole”?