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Oppenheimer is bullish on the MLP sector, believing the pullback is an overreaction to the...

Oppenheimer is bullish on the MLP sector, believing the pullback is an overreaction to the decline in oil prices; most MLPs it covers have strong hedge positions and yields remain attractive vs. other yield-based investments. Top picks include EEP, which is upgraded to Outperform, PAA and EPD for the diversifieds and QRE and MCEP for upstream MLPs.
Comments (4)
  • Most pipeline MLPs have very little exposure to oil, natural gas, or NGL prices. Thus it's not clear why hedges would matter for most.
    29 Jun 2012, 01:13 PM Reply Like
  • Hi Bio,
    QRE is an oil/gas MLP so I think he may have referred to them hedging when oil was $120.00 per barrel locking in those prices for the next 3-4 years. They will be making more money so they can keep paying their dividends. Unhedged companies like VNR do better when oil/gas is very low and getting ready to rally. Definitely more volatile than the pipeline companies.

     

    I have been long QRE.
    29 Jun 2012, 03:01 PM Reply Like
  • Many pipeline (gathering and processing) MLPs have percentage of processing or keep whole contracts which create commodity exposure. That's what they hedge.
    29 Jun 2012, 05:17 PM Reply Like
  • I agree that hedging, or a conscious decision not to hedge, is central to the business of an upstream MLP like QRE.

     

    I also recognize that those pipeline MLPs that have revenues from processing may be affected by movements in prices, particularly NGL prices.

     

    The reason for my original comment was that changes in energy prices sometimes affect the prices of MLP units, as if investors are forgetting that the fees for moving oil or natural gas through a pipeline are generally independent of the price of the commodity moved.
    30 Jun 2012, 09:17 AM Reply Like
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