NEW YORK CITY—The atmosphere at the third annual Capital Link Master Limited Partnership Investing Forum was one of uncertainty mixed with optimism. The feeling from the majority of the speakers was that there are still concerns over when the industry will begin to recover, but the MLP sector still represents plenty of solid investments.

Though the industry is in perhaps its worst downturn since 1986, there are tremendous opportunities at hand, according to Brian Kessens, managing director and portfolio manager at Tortoise Capital Advisors, who delivered the keynote address.

Fears over the impact of producer bankruptcies on the midstream were well founded given the decision by the federal bankruptcy courts that allowed these companies to reject midstream agreements. However, the feeling was that even if more bankruptcies take place, many midstream contracts would be honored since production remains economic. Additionally, the bulk of midstream operations serve high-quality customers who aren’t in financial trouble.

“The vast amount of production comes from investment-grade companies,” Kessens said, while noting that non-investment-grade producers make up about 1% of all domestic production. “If the recent $8 billion of successful producer equity offerings indicates anything, it’s that balance sheets are only getting healthier and bankruptcies are largely the exception.”

Kessens’ colleague Brian Sulley, who is vice president of business development at Tortoise, added that there is still room for growth opportunities in the midstream. “There is a lot of short-term volatility, but long term there’s lot of need for infrastructure, especially with pipelines,” he said.

John Lewis, chairman and CEO of CONE Midstream Partners LP, agreed that there is a large backlog of projects that will be needed.

Speakers were concerned about when a recovery would begin; many analysts advised that it would be prudent for some MLPs to maintain or even slightly drop distributions until the market improves.

The phrase “lower for longer” was pretty consistent throughout the event. “Fundamentals suggest ‘lower for longer’ and no matter what you hear, fundamentals still matter,” said Peter Boylan III, chairman, president and CEO of Cypress Energy Partners LP.

These fundamentals do point to a downturn, but there is also the suspicion that investors were over-reacting to the downturn at least when it came to the MLP market, specifically the midstream sector.

“Ninety percent of the risk is from weaker producers…Investors are overanalyzing and over-penalizing companies,” Jay Hatfield, co-founder and president of Infrastructure Capital, said. He did note that investors seemed to be coming around to MLP investments as more data on the sector’s overall strength are released.

A growing sub-sector of the midstream is LNG, which is seeing multiple domestic export terminals come online this year. Though LNG MLPs have to better manage their capital in a down market, the benefit is that the cost of shipping once the facilities are built is marginal, according to Graham Robjohns, CEO of Golar LNG Partners LP.

While emerging markets have gotten the most focus of the LNG picture, arguably just as important are areas that want gas but don’t have access to it. These markets require floating storage and regasification units, which represent a bigger total market than China for LNG, according to Robjohns.

There are worries about producers canceling their LNG shipment contracts, but panelists agreed this was unlikely because producers wouldn’t want to give up the contracted capacity that is tied to long-term contracts. It also would be difficult for companies that canceled LNG contracts to secure new ones in the future.

Shneur Gershuni, executive directorof equity research on MLPs and natural gas at UBS, said that part of the downturn in the MLP sector has been caused by too many MLPs sending out too much of their capital and not maintaining enough of it to fund operations. While this move might have satisfied investors, it didn’t help the bottom line when that cash flow slowed down.

“An MLP’s stock price doesn’t allow them to pay off debt, which a distribution cut does,” Selman Akyol, managing director at Stifel, said while agreeing with Gershuni’s assessment during a panel discussion.

The sentiment regarding whether to undertake distribution cuts was mixed among MLPs in attendance, although it was noted that this would be necessary for some companies. Tim Knox, president and director of CSI Compressco LP said that his company had cut distributions by nearly 50 cents in order to maintain its bottom line. He added that reduced activity in the current market doesn’t require as much capital output.

“In our industry, if we are not building new equipment, then capital expenditures are relatively low,” he said while noting that the company’s capex will decrease to about $15 million in 2016, down from $85 million in 2015.

Lewis said that CONE Midstream Partners would still maintain its distribution and will work to ensure sustainability. “It’s an interesting question and one we’ve had several times in our board meetings – how do you maintain this distribution growth vs. your balance sheet? Whatever we do for distributions, we want them to be sustainable. We don’t want to be in a position where we have to cut them,” he said.

Cypress Energy elected to maintain its distribution rather than increase it in 2014. It continues reviewing the balance sheet while deciding the best course of action for its distribution coverage in future, according to Boylan. The current downturn does open up potential acquisition opportunities-- Boylan said that this is another part of the market the company continues to review. The company will remain methodical in its approach to acquisitions.

“Discipline is critical as there is a wide gap between the bid and the ask. That’s starting to change, but we continue to be outbid on opportunities because we have an old-fashioned outlook…It has to be a good opportunity for us to pull the trigger,” he said.

The MLP market is unlikely to experience a full recovery in 2016, but there are positives for the sector as banks and other institutional investors are willing to allow companies to meet debt payments and provide access to capital during this downturn.

Frank Nieto can be reached at fnieto@hartenergy.com

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