Constellation Energy Partners: A Speculative MLP with Appreciation Potential

| About: Sanchez Production (SPP)

Constellation Energy Partners (CEP), a small MLP, has gone through a brutal time during the recession. After trading in the 40s it peaked above 50 and then plunged to death's door by March 2009. The units rebounded, more than tripling off their 1-1/2 low. This year started positively for CEP; the units rose 25% to $4.84 by January 22 while popular stock averages declined.

The company owns natural gas and oil reserves in Alabama, Oklahoma & Kansas which provide long-lived, low cost drilling opportunities. In the recession, the company was negatively affected by commodity price volatility and the financial crisis. CEP had to reduce capital expenditures and cut costs in 2009 to pay down part of its loan. In addition, the distribution was slashed from $2.25 to 52¢ and then eliminated in 2009.

CEP persevered as Stephen Brunner took sole control of the company. Its loan was refinanced with a larger loan in the last quarter of 2009. Operations continued, and its 2009 report should be announced in the next week or so.

For those who are fans of MLPs, marginal ones (like CEP) will give the greatest rewards while also bearing the greatest risks. If CEP continues its recovery, it may be able to reinstate a portion of the former distribution. Investors who are willing to play with fire in pursuit of large gains might be interested in CEP. Appreciation could be great.

Disclosure: no position