Wells Fargo cut its rating on all the upstream Master Limited Partnerships, or MLPs, it covers to Underperform, the firm’s equivalent to a “sell” rating, and also downgraded its rating on the sector to Underweight, citing the partnerships’ high default risk and its belief that many of their shares could become worthless over the next 12-24 months.

WHAT’S NEW: All of the upstream MLP’s covered by Wells Fargo could have “very high” debt to earnings before interest, taxes, depreciation, and amortization ratios over the next 12-24 months, according to Wells Fargo analyst Praneeth Satish. Moreover, all of these upstream MLPs could default on their debt payments during that time frame, according to Satish. He identified Mid-Con Energy (MCEP), LINN Energy (LNCO) and Atlas Resource Partners (ARP) as having the greatest risk of default in the near-term. BreitBurn Energy (BBEP), EV Energy (EVEP), Legacy Reserves (LGCY), Mid-Con, Memorial Production (MEMP) and LINN Energy have the greatest risk of default in the medium term, the analyst stated. Additionally, there’s a good chance that “many upstream MLPs could have zero equity value” when their hedges expire over the next one to two years, warned Satish. The analyst downgraded all the MLPs named above to Underperform from Market Perform. He also cut his rating on LinnCo (LNCO) to Underperform from Market Perform.

PRICE ACTION: In late morning trading, Mid-Con Energy slipped fractionally to 91c, Linn Energy sank 11.5% to 60c, EV Energy fell 6% to $1.90, Atlas rose 2.5% to 77c, Legacy Reserves fell 4% to 95c, BreitBurn gained 5% to 65c and LinnCo dropped 6% to 26.5c.