reading the note just came i really cant believe the assumptions behind the neutral rating.....firstly they discount the dcf by 12.5% way higher than other mlps to to $24 target. Yet they have divy growing 18% to $2.77 in 2014...among the highest in mlp class. To me they talk on both sides of mouth as u cant have a 13% yld and grow at that rate unless u are saying there est arent accurate or shrs arent signif undervalued....i honestly dont get it.....instead they site current risk appetite prevent shrs going higher.....u forecast stellar growth but site doubt inv believe them? idiocy....to me. Unless there is huge risk tied to sec or the nature of its fund raising or these guys simply arent making sense.....
I think you have to look closely at the last acquisition. Simply put we overpaid. We are now partially a bet on $4.50+ NG I the out years. And investors have seen how well this type of overpaying for assets worked out for SD and CHK.
E&P is always recognized as being risky simply given the nature of our business. Throw pricing risk on top of that and it will trade at a discount. Throw our history on top of that and its a greater discount. Then put LINE/SEC on top of that (rightly or wrongly) and its got another anchor. Its going to be some time before the LINE debacle gets settled one way or the other - if its a positive we'll see a bump as people look for related plays.
Bottom line is that the smaller acquisitions we made were solid and positive. The large acquisition we made is highly questionable when you look at it from a price of NG position. Yes production is largely hedged through 2016 but looking forward how confident are you in $4.75 or $5 NG? Personally, I'm hopeful but not confident. For all the talk of exporting NG there is a ton of NG being simply burned off by producers - so any uptick in demand will be met by all the excess supply currently not being brought to market. There seems to be a slowdown in electricity producers switching to NG and don't see any mass conversion of anything else to NG. So its just as likely we see $3.50 to $4.25 going forward.
The best thing we can do is to execute and keep DCF growing in double digits. The unit price will lag but it will follow.
A couple of comments: Low rig count has thus far been matched with increased drilling efficiency (i.e. shorter spud to spud times, plus greater recoveries and IPs) Both of those items have kept gas supplies high.
I think the one major item though as been the high liquids prices. Now that NGLs have collapsed, we will see more producers shift to oil. It was all fine and dandy as many E&P producers touted "liquids" trying to convince investors they were oily, when they were really producing NGLs and some light condensate. Those that were really oily will do fine, those that chose to chase NGL rich plays will not fare as well.
I think this will help firm up gas prices, but I too struggle to see sustained $4.50-$5.00/mcf. I can see pops to those prices, but I doubt we ever see the $6/$7/mcf values of a few years ago.
I too was upset with the EP deal. It was pricey, too large and coal bed methane. No synergy. I have seen several other deals made recently of similar size that I would think would have been better fits.
I think they were pushing too hard. But, this is Ed Cohen we are talking about. He manages to screw up just about everything because he lacks patience.
In the meantime, I think the Marble Falls will likely be the crown jewel that helps them make the numbers. We are talking about one of the best plays in the whole sector in terms of risk/reward profile. Well cost of $800K, IRR's of 50%, payback in 12-18 months. They are producing in multiple pays, including the Barnett and the Marble Falls plus others I would imagine, so we are getting a nice comingled production of oil, gas and NGLs.
I wish they would have discussed the area in more detail. Sounds like 12 wells online, 10 more awaiting completion. I think another 20+ left to be drilled this year. These aren't monster wells and after first year, production is probably in the 15 bbl/d range, but you are talking about a 50 well program, so this can be 750 bbl/d after Yr 1 decline.