Global Hunter Securities on Energy Infrastructure/MLPs: Downgrading CPNO, DPM, OKS & XTEX

July 2, 2012 9:49 AM EDT
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Global Hunter Securities on Energy Infrastructure/MLPs: Downgrading CPNO, DPM, OKS & XTEX

Analyst, Bernard Colson, said, "We are downgrading a handful of natural gas gathering & processing MLPs and revising estimates based on our belief that the NGL market environment will favor lower ethane and propane prices going forward. We believe a weakening US economy, high propane inventories (and prices) and continued weakness in natural gas prices all indicate a higher risk that NGL prices stay lower for longer. This results in caution toward the gathering & processing subsegment. We recommend positioning defensively going into the Q2:12 reporting season, favoring fee-based, diversified MLPs with low exposure to unhedged NGLs. Names such as Enbridge Energy Partners (NYSE: EEP), Tesoro Logistics Partners (Nasdaq: TLLP), Plains All American Pipeline Partners (NYSE: PAA) and Western Gas Partners (NYSE: WES), a natural gas gathering & processing MLP with 96% fixed fee and fee-like contracts) appeal to us currently."

"We are downgrading Copano (Nasdaq: CPNO) to Reduce, DCP Midstream (NYSE: DPM) to Neutral, ONEOK (NYSE: OKS) to Accumulate and Crosstex (Nasdaq: XTEX) to Accumulate. We are maintaining our ratings on Enterprise Products Partners (NYSE: EPD) (Accumulate), Regency Energy Partners (NYSE: RGP) (Accumulate) and WES (Buy). The highest rating currently assigned to an MLP with meaningful NGL price exposure is Accumulate, reflecting the belief that a challenging NGL environment will translate to muted performance across the peer group. We do not consider WES to be exposed to NGL market dynamics given its 96% fee and fee-like contract structure. Along with the downgrades, we are revising estimates for many of our NGL-exposed MLPs."

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