In June, EV Energy Partners LP (EVEP) closed on the $575 million sale of its Utica midstream interests in Ohio and announced shortly afterward it would be in the hunt again to buy long-lived, producing properties.

EVEP repaid the balance of its credit facility—$530.4 million as of December 2014—and had cash left over, said Michael E. Mercer, EVEP president and CEO.

The MLP now plans to make onshore U.S. acquisitions and will likely make more than one deal.

"It's unlikely we’ll find one acquisition that’s the perfect size," Mercer told A-DCenter on July 10.

Despite money in the bank, Baird Energy analysts Ethan Bellamy and Fischer Van Handel said they are skeptical that EVEP can make an accretive acquisition, according to a June report.

The company could acquire third-party assets for up to $600 million, analysts said. EVEP said its steps to deal its midstream assets and acquire proved developed producing (PDP) upstream assets will significantly increase EBITDAX and its borrowing base.

EVEP’s other options include selling to another levered upstream or partnering with an E&P C-corp that wants to build value by dropping PDP assets into EVEP’s MLP structure. The company could also drop in assets from its general partner owners, EnerVest Ltd. or EnCap. EnerVest maintains an inventory of potential dropdowns.

Still, “None of these are layups,” the analysts said.

Mercer said that EVEP's A&D team is intently looking for acquisition opportunities.

"It could be a combination of third-party deals and potentially on the dropdown side, too. We're looking at a number of opportunities," he said.

EVEP holds producing assets in the multiple plays such as the San Juan Basin, Permian Basin, Midcontinent and Utica and Barnett shales. Whatever the company targets, too many players with too much money are vying for a modest pool of quality assets.

“If EVEP wins an auction, we fear it will be at a price that leaves little room for accretion” due to EVEP’s 14% weighted average cost of capital—essentially all the money it must pay out to finance acquisitions.

“Further, dropdowns from EnerVest would require a separate set of shareholders to be satisfied that the bid from EVEP trumps all other potential bids, and we'd be surprised if EVEP had the cost of equity to compete with any party not burdened with a recent distribution cut,” Bellamy and Van Handel said.

Mercer said any acquisition would raise the borrowing base significantly so that EVEP would still have plenty of liquidity.

"Given that we have completely unused bank capacity, anything we do would be accretive to distributable cash flow," he said.

And the distribution cuts from E&P MLPs have cast doubts on the long-term prospects of a fixed payout model for the publically traded partnerships.

“Either upstream MLPs can choose to be nominally variable—monthly or quarterly—or they can be de facto variable” with cuts every five or so years, Bellamy and Van Handel said.

In EVEP’s case, the gas-heavy company has lost ground. From April to June, EVEP unit prices dropped 27% from their peak of $17.61 despite natural gas spot prices increasing by 10% to $2.77 per million British thermal unit. The company was trading at roughly $11 on July 10 with gas at roughly the same price.

EVEP said in June that its current yield is 15.6%.

The company’s management has a strong track record of evaluating and entering into transactions that make money for unit holders.

EVEP’s Utica East Ohio Midstream LLC (UEO) midstream assets fetched an attractive price, effectively doubling its investment of about $294 million. Williams Partners LP (WPZ) acquired EVEP’s 21%, stake in the assets, raising the company’s overall interest to 70%.

The MLP received a 15.1 times multiple on Baird’s 2015 EBITDA estimate of $38 million. The analysts had estimated a value of about $433 million. EVEP said the purchase price represented about 15.3 times of its estimated 2015 EBITDA.

The UEO assets are composed of natural gas gathering and compression facilities, processing plants with a capacity of 800 million cubic feet per day (MMcf/d), a 135,000 barrel per day (bbl/d) NGL fractionation facility, 600 Mbbl of NGL storage and other assets.

In October, EVEP also sold a 9% interest in Cardinal Gas Services in the Utica, along with Eagle Ford formation rights for $194 million. The MLP has held off its plans to sell additional Utica and Eagle Ford acreage due to low commodity prices.

The company reduced its 2015 E&P capex by 40%.

EnerVest, EVEP’s general partner, owns 76.25% of the MLP. It is one of the 25 largest oil and natural gas companies in the U.S. with more than 36,000 wells in 15 states. The private equity fund has the rights to 5.2 Tcfe of gas.

Contact the author, Darren Barbee, at dbarbee@hartenergy.com.