The oil and gas industry is typically divided into three major components: upstream, midstream and downstream.

“Upstream” is commonly used to refer to the searching for and the recovery and production of crude oil and natural gas. It’s also known as the exploration and production (E&P) sector.

Upstream activities include searching for potential underground or underwater oil and gas fields, drilling of exploratory wells, and subsequently drilling and operating the wells that recover and bring the crude oil and/or raw natural gas to the surface. These activities and the financial results therefrom are highly sensitive to changes in commodity prices.

MLP Profits Growth Portfolio Holding Linn Energy LLC (NSDQ: LINE) is the largest publicly traded partnership in the upstream MLP sector. Its reserves are concentrated in the Mid-Continent, including the Granite Wash play, the Permian Basin of West Texas and New Mexico, the Antrim Shale in Michigan, the Los Angeles Basin in California and the Williston Basin in North Dakota.

Reserves are approximately 45 percent crude oil and natural gas liquids (NGLs) and 55 percent natural gas, with a relatively long reserve life of 17 years.

In addition to its size and balanced commodity mix, what sets Linn apart from other upstream MLPs is the extent of its hedging program and the degree to which it mitigates commodity-price-risk exposure.

Linn has hedged basically 100 percent of its expected natural gas production through 2017 and approximately 100 percent of its expected oil production through 2016. That means cash flow is locked in for about half a decade and its distribution is secure.

Linn units generated a flat total return in 2012 despite the fact that oil and NGLs prices decline precipitously during the year.

Linn’s low cost of capital is an even bigger advantage after the rollout of the LinnCo (NSDQ: LNCO) vehicle. LinnCo is a traditional corporation that pays dividends to shareholders, who will receive a Form 1099 at tax time rather than a Form K-1. A share of LinnCo represents essentially the same economic interest that a unit of Linn Energy represents.

The traditional share structure and streamlined tax reporting should avail the MLP access a larger equity pool. And after opening on Oct. 12, 2012, at a slight discount to the MLP LinnCo is now trading at a slight premium, suggesting investors appreciate the opportunity to invest in Linn Energy’s proposition without perceived tax complexities and that the rollout is working.

Lower capital costs will help Linn Energy continue and accelerate its growth-by-acquisition strategy. Linn Energy LLC is a buy under USD 40. LinnCo is also a buy under USD40.

The other three upstream MLPs we hold in the Portfolio are Aggressive Holdings. These companies are all much smaller than Linn–which in fact is bigger than all the other exploration and production (E&P) publicly traded partnerships combined.

Legacy Reserves LP (NSDQ: LGCY) has hedged 61 percent of estimated 2013 production, 52 percent for 2014, 31 percent for 2015 and 9 percent for 2016. Sixty-eight percent of current production is weighted to oil and NGLs.

According to Wells Fargo Securities, upstream MLPs have hedged, on average, 79 percent, 72 percent, 59 percent, 40 percent and 27 percent of estimated 2012, 2013, 2014, 2015, and 2016 production, respectively.

The MLP has sold forward its production at a below-average pace in the MLP E&P space, which means it has greater exposure to price swings.

This is good news when the global economy is on a strong growth path, less good news when growth is jagged and lumpy.

Legacy is, however, well positioned to benefit from fundamentals that favor higher crude oil prices over the long term. The MLP posted a loss, including distributions, of 8.7 percent in 2012, making it the biggest loser among upstream MLPs in the Portfolio.

At the same time, however, Legacy has posted a two-day gain of 5.6 percent as the threat of the US going over the fiscal cliff and threatening global growth abated.

Management recently closed the acquisition of Permian Basin oil and natural gas properties from Concho Resources Inc with estimated production of 5,238 barrels of oil equivalent per day in the first quarter of 2013 from 1,584 existing wells. Proved reserves are estimated to be 25.6 million barrels of oil equivalent, 71 percent of which are considered “proved developed producing” and 14 percent of which are considered “proved developed non-producing.”

More than 90 percent of the properties are operated, and 100 percent of the reserves are located in counties where Legacy currently has operations or has adjacent operations.

The acquisition extends Legacy’s Permian footprint, adds significant scale to operations and should provide decades of cash flow for unitholders.

Legacy financed the acquisition with the proceeds from a recent offering of 9.2 million units and a recent USD300 million, 8 percent senior unsecured notes offering.

Legacy also announced that it secured commitments from its syndicate of bank lenders to expand its borrowing base to USD800 million from USD600 million.

Legacy Reserves–currently yielding more than 9 percent–is a buy for aggressive investors USD27.

Mid-Con Energy Partners LP (NSDQ: MCEP) is an Oklahoma-based master limited partnership involved in the acquisition, production, and development of oil and natural gas properties with a focus on waterflood operations. The MLP’s reserves are primarily located in the Mid-Continent region. MCEP’s sponsor is Yorktown Energy Partners, a private equity firm focused on investments in the energy sector with assets under management of USD3 billion.

Mid-Con–which was the best-performing of our E&P MLPs in 2012 with a total return of 9.1 percent–has the heaviest crude oil exposure among upstream MLPs in the Portfolio, at 97.2 percent of third-quarter output. There is very little exposure to NGLs, prices of which have declined steeply through 2012 and into 2013, and very little exposure to natural gas, which rallied off mid-2012 depressed levels but is still well below its all-time high.

Mid-Con also boasts a strong balance sheet and is well positioned to grow output from existing assets. Management recently reiterated its goal of growing the MLP’s distribution by 6 percent to 8 percent in 2013.

Management has sold forward 70 percent of expected 2013 production and 57 percent for 2014.

In mid-October 2012 Mid-Con acquired waterflood operations in northwest Oklahoma via two separate transactions for a total of USD32.6 million, Clawson Ranch and War Party I and War Party II. The MLP financed the acquisition by issuing 1 million units for total proceeds of USD20.4 million.

Management’s distribution growth guidance is largely the result of these two acquisitions, which should prove to be highly accretive. Production from Clawson Ranch acquisition could double with minimal incremental capital expenditure, while overall output should reach 2,400 barrels per oil equivalent per day based on fourth-quarter 2012 guidance coupled with Clawson Ranch and the War Parties.

Mid-Con posted a solid total return in 2012 but is still well below the 12-month high of USD24.79 it established on Mar. 12, 2012. At these levels it’s yielding 9.8 percent and is a great way for aggressive investors to play an economic recovery and get paid at the same time. Buy under USD26.50.

Vanguard Natural Resources LLC (NYSE: VNR) is another E&P MLP with an aggressive hedging program, which is a “pillar” of its strategy.

Typical targets for natural gas hedging activity include natural gas floor price of approximately USD4 and 80 percent hedge coverage.

Management aims to hedge commodity prices on estimated production from acquisitions for three to five years upon signing definitive agreements to protect its forecast rate of return from price fluctuations.

Approximately 90 percent of expected oil production is hedged through 2014 at a floor price of USD91.32 per barrel.

Approximately 80 percent of its expected gas production is hedged through the first half of 2017 at USD4.73 per MMBtu. Sixty-one percent of Vanguard’s

Management’s acquisition strategy is built around an active hedging component to “lock in” anticipated margins. The MLP is on track to close recent acquisitions in Colorado and Wyoming.

Production is expected to grow from 18,800 barrels of oil equivalent per day in 2012 to 33,900 in 2013.

As of July 2012 Vanguard pays its distribution on a monthly basis. The MLP is currently yielding 9 percent. Buy under USD30.