?When it comes to master limited partnerships (MLPs) in general, and upstream MLPs in particular, this may be the right time to jump into this energy-investment sector.


This is the take of several Wachovia Capital Markets LLC analysts.


“We are bullish on the MLP sector and believe that the current period will be viewed, in retrospect, as a unique opportunity to buy high-quality MLPs at bargain-basement prices,” says Michael Blum, senior Wachovia analyst in New York.


This sentiment, he notes, is supported by a strong fundamental backdrop for MLPs, recent depressed valuation levels—which have been approaching historic lows—and a view that these partnerships should be able to finance growth, albeit not without challenges.


Blum points out that financing options are still open to MLPs. This past March alone, that amounted to raising $4.7 billion of debt for investment-grade partnerships at an attractive weighted-average interest rate of 6.7%. Also, in that period, MLPs completed five follow-on equity offerings that raised a total of $1 billion.


Ron Londe, another senior Wachovia analyst, based in St. Louis, says the firm continues to focus on large-cap, investment-grade names with better liquidity and smaller-cap partnerships with significant distribution-growth visibility—which should help offset potential unit-price erosion.


Within the midstream, the company’s recent outperform-rated MLP stocks were Kinder Morgan Management LLC (NYSE: KMR), Energy Transfer Equity LP (NYSE: ETE), Plains All American Pipeline (NYSE: PAA), DCP Midstream Partnership (NYSE: DPM), Targa Resources Partners LP (Nasdaq: NGLS), MarkWest Energy Partners LP (NYSE: MWE) and Genesis Energy LP (Amex: GEL).


More recently, the firm upped its estimates and valuations for several E&P MLPs.


“We are adjusting our valuation ranges for our upstream MPL universe to reflect a higher oil and gas price-deck change made by Wachovia’s E&P equity research team and a more conservative outlook for future acquisitions,” says Blum.


“Specifically, we are increasing our valuation ranges for two (upstream) MLPs—Atlas Energy Partners LLC (NYSE: ATN) and Legacy Reserves LP (Nasdaq: LGCY),” the analyst says. “Overall, we remain constructive on the group, given attractive valuations as NAVs (net asset valuations) provide solid downside support, high commodity prices and our expectation of strong quarterly results.”


Consistent with changes by its E&P research team, Wachovia is raising its 2008 and 2009 gas-price (Henry Hub) forecast to $9.05 per million Btu and $8.50, respectively, versus previous corresponding estimates of $7.30 and $7.40. The firm is upping its 2008 and 2009 West Texas Intermediate price assumptions to $96.40 per barrel and $90, respectively, versus earlier corresponding estimates of $85 and $81.


“As a result, we are raising our 2008 and 2009 EBITDA (earnings before interest, taxes, depreciation and amortization) estimates for our upstream MLP universe by a median of 5% and 4%, respectively,” says Blum. “Longer term—2010-12—we are using a more conservative price deck of $7.40 for natural gas and $80 for crude oil.”


As for acquisition assumptions, Wachovia is also taking a moderate stance for 2009-12 to reflect an increase in the cost of capital for its upstream MLP universe, which could make financing accretive acquisitions more challenging. It is also taking a more conservative stance regarding option value given that acquisitions three to five years out are less visible and more difficult to forecast.


For 2008, the firm’s acquisition forecast remains unchanged, namely $485 million of aggregate spending for upstream MLPs under its coverage. For 2009-12, however, it is forecasting aggregate acquisitions of $3.7 billion. The company is also increasing the yield assumption on its assumed equity offerings by an average 50 basis points to reflect the upward shift in equity financing costs.


Wachovia’s top upstream MLP picks remain EV Energy Partners LP (Nasdaq: EVEP) and Legacy Reserves. It also recently had Overweight ratings on Atlas Energy Resources LLC (NYSE: ATN) and BreitBurn Energy Partners (Nasdaq: BBEP).

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