Upstream MLP Players Still Exposed to Period-to-Period Fluctuations in Natural Gas Pricing: No Liquid, Attractive Futures Market for NGLs

Wall Street Transcript

67 WALL STREET, New York - March 25, 2013 - The Wall Street Transcript has just published its Oil & Gas: Master Limited Partnerships Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Increasing Demand for Midstream Assets - U.S. Energy Infrastructure Build Out - Emerging Shale Plays - Oil and Gas Transportation Infrastructure Demand - Master Limited Partnerships Distribution Growth - Outlook for Natural Gas Liquids - Low Treasury Yields and MLP Dividends

Companies include: El Paso Pipeline Partners, L.P (EPB), Copano Energy LLC (CPNO), Williams Companies, Inc. (WMB), Linn Energy, LLC (LINE), Berry Petroleum Co. (BRY), Vanguard Natural Resources, LL (VNR), Legacy Reserves Lp (LGCY), ONEOK Inc. (OKE), Williams Partners L.P. (WPZ), ONEOK Partners, L.P. (OKS), AmeriGas Partners LP (APU), Spectra Energy Partners, LP (SEP) and many more.

In the following excerpt from the Oil & Gas: Master Limited Partnerships Report, an expert analyst discusses the outlook for the sector for investors:

TWST: What trends or themes stuck out for you from the most recent quarterly earnings reports?

Mr. Sighinolfi: I think there continues to be concern with regard to natural gas liquids markets. Within the midstream space, NGLs are important from a processing and fractionation standpoint, but it's also very important within the upstream universe, because those are products that can't be effectively hedged. There is no liquid, attractive futures market for natural gas liquids, and so even the upstream players like LINN that have hedged nearly all of their gas and crude exposures - they are still exposed to period-to-period fluctuations in natural gas liquid pricing.

I think that has a tendency to surprise people, because there are five component products within the natural gas liquids stream all having independent supply/demand fundamentals, so to get a good handle on that for investors, I think, is a challenge. Quoted daily prices are difficult to find and there is no futures curve for investors to look at to get an idea of what to expect on a go-forward.

A lot of independent analysis is required to understand the NGL world, and I think that has led to some enhanced volatility. Just this week, for example, ONEOK's reduction in guidance was caused by the fact that we are now seeing widespread ethane rejection.

Companies in the midstream space have sought over time to replace commodity price exposure with volumetric exposure, a lot more fee-for-service type of contract arrangements are being sought, and that's great if you have, as we do, a long-term view that both supply and demand will increase for NGLs. But again, period to period, if you have things like ethane rejection that curtail processed volumes, that can be a challenge for your business.

And so I think that NGL market developments in general continue to be a point of focus for investors and questions around...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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