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Master Limited Partnerships

What We Have Here is a Failure to Differentiate

By Roger S. Conrad, on Oct. 3, 2015

Through its general-partner interest in Williams Partners LP (NYSE: WPZ), Williams Companies boasts the leading gathering position in the Marcellus Shale and an abundance of projects that leverage its Transco pipeline to deliver Appalachian natural gas to underserved markets on the Atlantic Coast.

However, the company also must contend with renegotiated gathering contracts with Chesapeake Energy Corp (NYSE: CHK) and exposure to weak prices of natural gas liquids at its processing operations.

Williams Companies isn’t necessarily a have-not, but combining with Energy Transfer Equity addresses its near-term challenges and creates ample opportunity to unlock value via synergies with Energy Transfer Partners LP (NYSE: ETP) and Sunoco Logistics Partners LP (NYSE: SXL). Other have-nots lack the asset base to garner a takeover bid.

But the market isn’t distinguishing between the haves and the have-nots. The proliferation of fund products that offer significant exposure to MLPs—a big part of the indiscriminate buying that occurred in recent years—has exacerbated the across-the-board selling.

Blue chips like Enterprise Products Partners and Energy Transfer Partners, both of which figure prominently in most MLP strategies, have come under pressure from the mass liquidation that occurs when investors rotate out of these funds.

There’s more pain to come in the energy patch—even best-in-class stocks can go lower from here—but sticking with the sector’s haves and avoiding the have-nots will pay off over the long haul.

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