Top picks: MEMP and BSM; rating changes: VNR and ARP
With this backdrop, MEMP remains a top pick given its liquidity and hedges, although risk of a distribution adjustment is possible with continued NGL weakness. We assume a 35% decline in 2016. VNR is upgraded to Buy, as we believe the pending acquisitions of LRE and EROC will improve credit metrics, and, with its strong liquidity, it is in a good position to pursue acquisitions while maintaining current distributions. ARP is downgraded to Underperform. In a low price environment, we believe the complexity of its partnership business continues to put it at a disadvantage, raise debt and equity costs and may impact its ability to compete in the A&D market and limit access to financing. We introduce BSM as a second top pick, which we view as positioned to deliver on its MQD given low leverage and subordinated units. Our 2016 estimates also assume distribution cuts of 40%, 50% and 35% for LGCY, ARP and EVEP.