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

I recently took a look at three reasons why one might want to buy units of EV Energy Partners, L.P.(NASDAQ:EVEP), especially in light of the company’s slide this year. While that slide could prove to be a buying opportunity, it could also signal danger that is yet to come. Let’s look at three reasons why EV Energy Partners, L.P.(NASDAQ:EVEP) might still be a sell.

Unable to sell Utica package
Last year EV Energy Partners, L.P.(NASDAQ:EVEP) and its sponsor EnerVest put 335,000 acres (104,000 net to EV Energy Partners, L.P.(NASDAQ:EVEP)) in the Utica up for sale. The companies had hoped to close a deal for these acres before the end of last year but were never able to come to acceptable terms with a buyer. Now the two are attempting to split these acres into smaller packages to attract a broader group of buyers. These acres could end up in a joint venture or sold outright, but the uncertainty surrounding the sale has hurt EV Energy Partners, L.P. (NASDAQ:EVEP) unit price.

The big problem is that the Utica isn’t turning into the top-tier play that many had hoped. While the wet-gas window looks promising, the oil window is proving to be much tougher than expected. This changing dynamic in the play has caused both Devon Energy Corp (NYSE:DVN) and Chesapeake Energy Corporation (NYSE:CHK) to look to reduce their exposure to the play while Gulfport Energy Corporation (NASDAQ:GPOR) is bulking up on that core wet gas window. The play really is a mixed bag for producers, with Devon Energy Corp (NYSE:DVN)’s wells producing next to nothing, while Chesapeake Energy Corporation (NYSE:CHK) and Gulfport Energy Corporation (NASDAQ:GPOR) have had some wells produce tremendous results. Until more wells come on line, the play will remain a big question mark for EV Energy Partners, L.P.(NASDAQ:EVEP).

Very concentrated and gassy reserves
Another area of concern is that 67% of EV Energy Partners, L.P.(NASDAQ:EVEP)’s reserves are natural gas, while 60% of its total reserves are in the Barnett Shale. While the Barnett is an excellent gas play, given the current price of natural gas there is more money to be made in natural gas liquids and oil. That’s why Chesapeake Energy Corporation (NYSE:CHK) and Devon Energy Corp (NYSE:DVN) aren’t investing much capital in the play; Chesapeake, for example, is only spending 4% of its capital budget this year on the Barnett. EV Energy, on the other hand, is spending 60% of its $100 million capital budget to develop its Barnett Shale position this year.