3 Reasons to Sell EV Energy Partners, L.P. (EVEP)

The other concern here is that the company has big hopes for the Utica, which is a real wild card. It’s helped by its participation in a joint venture with Chesapeake, as well as its overriding royalty interest in the wet-gas and oil windows. However, Devon is pulling out of the play completely as it found no real success. The hope is that EV Energy’s acreage turns to be more like Gulfport Energy Corporation (NASDAQ:GPOR)’s liquids-rich acreage than Devon’s.

Relationship to EnerVest Energy & Oil Sands Total Return(TSE:EOS.UN)

EV Energy Partners has a very close and synergistic relationship with EnerVest Energy & Oil Sands Total Return(TSE:EOS.UN) which owns two-thirds of its general partner. That close relationship can help EV Energy grow as it co-invests with EnerVest Energy & Oil Sands Total Return(TSE:EOS.UN) in areas such as the Barnett and Utica. That being said, these relationships can be a hidden risk to investors if the sponsor sells assets for above market prices.

For example, Gulfport has a very close relationship with Wexford Capital which has a small stake in Gulfport. The two are frequently involved in transactions with each other, most recently involving the sale of acres in the Utica from a Wexford affiliate to Gulfport for more than $10,000 an acre. While that was a top-dollar price to pay for acreage in the play, it was in the liquids sweet spot. Only time will tell if these close relationships with financial partners will work out well for investors.

Final Foolish thoughts
While there is a lot to like when looking at EV Energy, I don’t really love the company’s units even at these lower prices. The 8% yield is nice, but you can get that and more from some of its upstream MLP peers. In my opinion, the company’s assets are too gassy and too concentrated on the Barnett while its Utica position really clouds the picture as it’s not a great fit for an MLP. While there is the potential for upside, that outcome is still not that certain at the moment.

The article 3 Reasons to Sell EV Energy Partners originally appeared on Fool.com is written byMatt DiLallo.

Fool contributor Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of Devon Energy and has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy.

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