LGCY versus natural gas
Legacy Reserves (LGCY), an upstream MLP, is in the fourth spot in terms of its correlation with natural gas. LGCY’s three-month correlation with natural gas was 0.31 as of November 27, 2017. However, the one-year correlation between LGCY and natural gas is close to zero at 0.06.
Legacy Reserves has a higher correlation with natural gas compared to peers EV Energy Partners (EVEP) and Mid-Con Energy Partners (MCEP), which could be due to the partnership’s higher natural gas exposure and lower crude oil exposure compared to its peers. Natural gas sales formed 38.4% of the partnership’s revenue mix in the third quarter of 2017, while crude oil formed 55.3%. Thus, the partnership had a higher three-month correlation with crude oil at 0.39. The volatility in natural gas and crude oil prices has a direct impact on LGCY’s earnings and liquidity, which in turn impact the partnership’s stock performance.
Only one analyst currently covers LGCY, and that analyst rates the partnership as a “sell.” In the next article, we’ll look into the correlation between DCP Midstream (DCP) and natural gas.