Looks like a 9.1% dilution of the shares I now hold. I hope(a person can go broke living on hope) there is a GOOD reason for this action or I have miss judged the management of this Co. Your thoughts please.
Notice! when I write it is near term (2-3)yrs. My premiss with KMP is oil is depleting resource in US (land) except for Bakken find and oil tar sands in Canada. The co2 will be needed not only for KMP but other companies eeeking out of depleted fields. Most everything I read is depleted fields still have about 25% oil left and viable north of $65 I think the water technology to flood the fields will get serious consideration alah atlas energy and rivers in Pa.( negative and legal entailment) I like eep only near term because of Alberta Clipper to be completed soon.
I like etp most because the are in process of increasing NG transport -processing etc by 50% from 2008-2011,generally expanding & diversifying geographically . Everyone knows that NG must be moved from SW and Rockies to SE NE and Atlantic seaboard to make an impact nationally ,
therefore, KMP and ETP are leaders.
I like NS, not love it. I am calloused by the fact that I have owned it since $61 after cashing out of Kaneb my best score,along with KMI.They have always promised (Obamametrics) and short on delivering.
I think NS best bet is IRA 55 June calls.
Since I respect you dissertation , what company would you take on of the following -SXL BWP BPL as an addition. I already own major positions in KMP ETP ETE PAA NS. Soon to exit ATLS EEP PVR. Note I have owned SXL many times,BPL and BWP before Thanks
I didn't say that storage terminals and pipelines were risky. What I was saying, or implying, is that Kinder Morgan, which is indeed a congolmerate with a lot of really good midstream assets, is essentially relying on commodity prices to some degree. They buy depleted oil fields, flood them with CO2 (tertiary recovery). They try to hedge a large portion of that production but the fact of the matter is that those fields are a depleting asset. I realize that all assets have depreciation and require maintenance capex, but oil fields will eventually need to be replaced. It is a departure from the midstream focus. I dislike that Kinder runs with what amounts to a 1.00x coverage ratio. They project something like 15 million in surplus cash on a company that distributes over 2 billion between the GP and LP holdes. I can name you MLPs that are about one tenth the size and have more surplus on their distributable cash flow. I also dislike the i-units that KMP and EEP have. The large discount that the i-units trade at, cause them to issue more units each Q, which in turn eats up more distributable cash flow. I question if KMP could ever raise the distribution again if it weren't for the i-units. The i-units act as a steady equity raise, without it, growth would come to a complete halt.
I have never been a fan of EEP. The change in management has been a step in the right direction the past couple of years, but they got taken to the cleaners about 10 yrs ago when they stepped out and bought some of the G&P assets. They have been slowly trying to shed those assets that are a drag and focus on the long haul lines.
I made a killing on the G&P's and was fortunate to unload most of them before the big plunge. Most of my holdings are now in a blend of what I call safe, stable (famous last words!!) MLPs that have little to no commodity or processing exposure. That may mean lower distribution growth, it might mean better growth, it all depends on commodity prices as the G&P assets can either be no growth or ultra high growth whereas my holdings are just going to plod along and hopefully churn out an average of say 7% annual growth. I have large positions in BGH, BWP, MMP, NSH, SXL, TLP, HEP, ETE, EPE, NRGP, DEP, SEP, WMZ. I have smaller positions in a few others like EXLP, PAA and MMLP. Even smaller positions in a couple of others.
As I have said before, I think Greehey is a huge asset to NuStar. He knows how to build a company, he has put a significant portion of his fortune into NSH which, at least on the surface, leads me to believe that at the very least, it will be a decent investment and perhaps a fabulous one. Not all of our investments need to be a homerun. NuStar isn't swinging for the fence. They are a hit percentage hitter. Take what the market gives you. These companies aren't going to double buying assets with a 15% return with cost of capital at say 8%, but they can make a nice addition to the distribution. That is why companies like Kinder Morgan have had to move into higher risk projects (execution risk) like CO2. NuStar should be able to achieve 5%-7% distribution growth with a $600 million dollar acquisition. I don't worry to much about NuStar. The asphalt acquisition was a steal. It will pay off in the long run. The recent shuttering of refineries and even Valero admitting that they are trying to shift bottoms from pet coke to asphalt and fuel oil vindicates what Greehey has been saying all along.
I see you follow ETP KMP NS and others. KMP is a conglomerate. Their co2 is for their oilfields, and other fields. You have a choice co2 or,water (steam). If you call oil from TX-terminals for coal & steel-Pipelines for oil, airplane petrol ,ethanol,diesel,ng - Storage tanks risky we are not on same page. I have great hope that NS will improve but,the road for MLP's are not the same. Again look at NS ETP PAA and you see great disappointments from highs 2-3 years ago till now. It is the future that counts. I still rate KMP ETP EEP in #1 group. NS OKS BPL BWP PAA MMP EPD in group #2 ElPaso-Williams-MWE- in #3
They have not set the world on fire, however, Greehey has only been at NS for a few years now. Also, look at how conservative they have been. Kinder is a monster and they squueze out growth based on riskier E&P operations (what they classify as CO2).
It is a patience play and in the meantime, you collect a nice distribution while you wait for what could be a transforming transaction.
1000 shares @ $100/sh=$100,000. Issue 1000 more shares @ #100/sh=$200,000. It doesn't just disappear. It all goes to the asset part of a balance sheet in theory. Yes, it can be squandered. Yes, it can be put into non productive assets. But, it isn't necessarily bad in this scenario.
Agreed, while it is true that you own a little bit smaller piece of the pie, the pie gets bigger. If done correctly, the investment, whether it is an acquisition orfunding for a newbuild, should be accretive. By accretive, I mean that NuStar may be borrowing money at 8% and investing it at say 15%, earning a spread of 7%. In other words, they issued 5 million units and will have to pay distributions on those units, but the proceeds they received may be invested in an asset that not only generates enough cash to pay the distributions on those newly issued units, but also generates enough excess cash that all other unit holders can receive an increase in the distribution. If anyone ever watches Kinder Morgan, they typically attach the statement, "immediately accretive to cash flow".
As I have said many times before, I trust Greehey to be a good steward of NuStar's capital. He has a lot of his own moolah riding on NSH and NSH will only prosper if NS prospers.
I have mentioned the refineries before, which really aren't ideal MLP assets, especially in this environment so perhaps he is looking at something else. Whatever it is, it probably is quite large as they raised over 250 million in equity and typically deals are funded 50/50 equity and debt. Does this mean we should expect a 500 million dollar acquisition in the works??? Maybe they are gearing up to grab some of Conoco's midstream assets. Maybe they are getting dry powder to make a run at acquiring a dead duck MLP like TLP. Maybe they just want to have capital handy..
This is how an MLP operates. They all issue secondaries to buy additional assets to grow the distribution. That is the key.
Think about it in another way. They have a 9% dilution but it will be a good deal for us as long as the asset they buy raises the distribution by 9%. I have little doubt that they have something in mind.
I agree that the MLP structure is not the ideal parking lot for capital intensive refineries. I am just stating that Greehey is a very keen man, he knows to buy at the bottom of the cycle. If you look at Sun, they are essentially shuttering the Eagle Point refinery and may not reopen it. I think Greehey could obtain it by simply accepting environmental liabilities. It would certainly raise the risk level of the MLP, but Greehey may be able to do something to limit risk. The Valero Paulsboro plant is also likely on the market. I agree that the proceeds will likely be used to acquire fee based midstream assets from Conoco, which will likely allow them to boost the distribution. They may also be looking to acquire more asphalt assets from SemGroup or others.
Today 700,000plus shares traded vs. 200,000plus shares in volumn on an average day. More sellers than buyers-is this driving the price down? How many trading days to sell 5M. shares? Maybe 10 days.
Thanks for the comments.
Opinions vary, of course, about investing one's money. That is natural. In this instance, performance has been respectable, the industry is a sector highlight, the management is good, the issue has performed well historically and the investment community kicked up the price, even post distribution to over the offering price.
While there may be naysayers, IMHO this is an investment for both price appreciation and a safe, so-far secure rate of return.
Who knows what tomorrow brings but for now I think this NS will be around for some time to come and will reward those investing at this juncture.