NEW YORK—The past two years have been a tough slog for MLPs but the sector now offers investors “a good entry point” with the potential for market-pacing returns in the near future.

That was one of many insights a panel of energy sector financial analysts offered at the 4th annual Capital Link Master Limited Partnership Investing Forum on March 2. Ed Russell, senior managing director for Tortoise Capital Advisors LLC, served as panel moderator and opened the lively discussion with that opinion on the sector’s prospects.

Timm Schneider, senior managing director and fundamental research analyst for Evercore ISI, agreed with Russell and projected annual returns of 7% to 8%, adding “it’s the best deal-oriented sector out there.” Schneider compared limited partnerships to the utility sector, which is expected to offer annual returns of 3% to 5% “but is safer.” He added that because of the shakeout of weaker partnership during the energy downturn, “MLPs have become a much safer investment.”

Other panel participants were Ethan Bellamy, senior research analyst for Baird Equity Research; Shneur Gershuni, executive director for equity research on MLPs and natural gas pipelines for UBS; Kristina Kazarian, director, MLPs, midstream and natural gas for Deutsche Bank; and Christopher Sighinolfi, manager director, U.S. equity research for natural gas, refining and MLPs at Jefferies LLC.

Gershuni elaborated on Schneider’s safety theme, adding that because of the commodity price collapse “there has been more of a removal of fear from the table.”

Deutsche Bank’s Kazarian said a plus from the downturn has been increased discipline by midstream MLP management and “a move away from a ‘if we build it they will come’” approach to growth. That will slow apparent sector expansion but will assure better investor returns, she added.

Sighinolfi reviewed recently completed fourth-quarter and annual earnings reports and said “the space appreciates value. On the quarterly calls, there was an emphasis to not expect much in the first quarter” with common projections of increased in second-half 2017 and into 2018. Management emphasized earnings and cash flow will improve as production volumes continue to rise.

“But I worry if the volumes don’t show up,” he said. The analyst agreed with comparisons of MLPs to utilities and the reduction in partnerships’ comparative risk as a result of the downturn.

Russell asked the panelists to comment on the impact of distribution cuts in the past two years and the simplification of partnership structures during the downturn.

Schneider said the restructurings will lead to M&A deals “and the era of the supermajor MLP” in which the biggest partnerships get still bigger. He compared the coming period to the downturn of the late 1990s when financial challenges and a commodity price downturn led such already large firms as Exxon, Mobil, Conoco and Phillips to merge and form the so-called supermajors of the oil and gas business.

He cited as examples the recent moves of such midstream “majors” as Enbridge and Spectra—and the proposed combination of Energy Transfer and Williams—as examples.

“Are we done yet? I don’t think so,” Schneider added.

Gershuni said that because of the downturn, MLPs “have gone through the process of right-sizing” and are retaining some earnings that can be used for growth “in theory at zero cost.” He also noted the value of structural simplification “that will help that process.” Elimination of general partners and incentive distribution rights will free up cash for meaningful growth—and yields to investors.

The panel also discussed moves out of the partnership structure to a conventional corporate arrangement. The announcement by ONEOK to bring its partnership into the corporate parent was cited as the most recent example.

Bellamy said government regulation remains an important issue for energy partnerships. The new, more energy-friendly administration in Washington will benefit MLPs, he said.

“But what if Trump can’t deliver?” he asked. “I’m ex-Lehman Brothers and I’m paranoid.” Local and state regulation roadblocks remain “and New York state isn’t going to change,” Bellamy added, meaning proposed pipelines linking the Marcellus and Utica to energy-short markets in New York and New England continue to face major hurdles.

Tax reform represents another governmental challenge to the industry, Bellamy said. The impact of a proposed border adjustment tax could be significant, given the nation’s growing volumes of exports. “MLPs should not be silent” in the debate about changes to tax law, he emphasized.

Gershuni noted changes to U.S. tax law will be watched closely worldwide because of the country’s growing role as an energy exporter even as it continues to be a major importer, primarily of crude oil. “The U.S. can continue to take market share globally. The question is, will other countries be able to use our technology to bring their costs down?” he said.

The panelists agreed OPEC and Russia, currently involved in oil production cutbacks, will watch not only production trends in the U.S. but what the nation will do with its tax structure.

Russell asked the panelists about prospects for partnerships’ distribution growth—in contrast to some MLPs that cut distributions or suspended them entirely during the downturn.

Kazarian projected distribution increases “in the high single digits” as the energy business turns up. Sighinolfi agreed, saying over the next five years “high single digits looks doable.” Gershuni cautioned “there’s still a ton of fear out there” about MLP returns, even though the energy industry appears to be in a rebound and a year out from a trough that apparently occurred in early 2016.

Paul Hart can be reached at pdhart@hartenergy.com.