Coal-related MLPs have suffered the most from the drop in natural gas prices, as utilities with the flexibility to do so have switched to gas from coal and the unseasonably warm winter has elevated inventories.  

Aggressive Portfolio holding Penn Virginia Resource Partners LP (NYSE: PVR) pulled out of this vortex by purchasing Chief Gathering LLC for $1 billion. This transformational deal forced investors to regard the MLP as a midstream operator with some coal-related assets and prompted a wave of buying.

Management estimates that midstream assets will account for 75 percent of Penn Virginia Resource Partners’ cash flow by 2013, compared to 45 percent at the end of the first quarter.

Ironically, the MLP’s coal operations posted a decent first quarter, prompting management to increase the firm’s quarterly distribution by 2 percent sequentially and 8.3 percent on a year-over-year basis.

Distributable cash flow slipped 21.1 percent from a year ago, but investors have plenty of reason for optimism. In addition to the acquisition of additional midstream assets in the Marcellus Shale, the MLP’s joint venture with Aqua America (NYSE: WTR) to supply water for hydraulic fracturing is now operational.

Although price realizations on coal royalties ticked up from year-ago levels, volumes fell short of expectations because of an unseasonably warm weather. Revenue from these royalties fell 15 percent from the prior year.

Despite these headwinds, Penn Virginia Resource Partners still achieved management’s target for distributable cash flow, which covered only 72 percent of the MLP’s first-quarter payout. We expect cash flow from the MLP’s organic growth projects an new operations to offset this temporary shortfall.

Buy Penn Virginia Resource Partners LP up to 29.

We’re less sanguine about the prospects for the other coal-focused MLPs in our coverage universe, as demand for the feedstock from US electric utilities declined by 20 percent last year. In particular, investors should steer clear of Oxford Resource Partners LP (NYSE: OXF) and Rhino Resource Partners LP (NYSE: RNO).

That being said, the selloff appears overdone, especially for names whose production is already sold under long-term contracts. Investors have overreacted to the Environmental Protection Agency’s rules regarding the emission of carbon dioxide; these new requirements only apply to coal-fired power plants that have yet to be built.

We continue to rate Alliance Resource Partners LP (NSDQ: ARLP) a hold, though the firm’s general partner Alliance Holdings GP LP (NSDQ: AHGP) rates a buy under 45 for its superior distribution growth and a potential takeover by its limited partner.

The stocks’ recent weakness reflects the effect of ultra-low natural gas prices and elevated coal inventories on Alliance Resource Partners’ profitability. Management this week reduced its forecast for full-year cash flow to between $585 and $615 million from a prior range of $590 million to $680 million.

At the same time, management also raised the limited partners’ quarterly payout to $1.025 per unit from $0.99 per unit–hardly the move of a struggling company. Alliance Holdings GP LP rates a buy under 45 in our How They Rate table.