MLP's Not Affected By Fiscal Cliff - Credit Suisse
(There is a hint in the article as to why SFB's theory of doubling of gas prices do not lead to doubling land prices.)
We will provide our take on the fiscal cliff, tax reform and the potential impact on master limited partnerships.
In summary, there have been no specific proposals so it is not possible to say what if any impact discussions on avoiding the fiscal cliff might have on master limited partnerships (MLPs). As the legislation currently stands, MLPs are not impacted.
Processing margins closed at 71 cents per gallon last week, down from 73 cents per gallon in the prior week, above its five-year and 10-year average of 72 cents per gallon and 48 cents per gallon, respectively. The downside was driven by lower natural-gas-liquids (NGL) prices.
Of the 30 companies under coverage reporting so far we have seen eight beats, 14 in-lines and eight misses on discounted cash flow (DCF) per unit. Median DCF growth has averaged 2.7% year-over-year, earnings before interest, taxes, depreciation and amortization (Ebitda) growth was 12.5% year-over-year, and distribution growth was 6.6% year-over-year.
Looking past the fears that have enveloped the MLP space over the last week regarding the fiscal cliff, we continue to believe that an increased focus on crude-oil infrastructure should drive performance given the coming boom in North American crude-oil production.
Our favorite names all have substantial exposure to the coming oil boom: Plains All American Pipeline (ticker: PAA); Magellan Midstream Partners (MMP); Enbridge Energy Partners (EEP); Enterprise Products Partners (EPD); Genesis Energy (GEL); and Kinder Morgan Management (KMR)/ Kinder Morgan (KMI)/ Kinder Morgan Energy Partners (KMP).
We also believe that high-quality names with exposure to the NGL market warrant consideration despite the price headwinds of the next few years, due to the strong growth associated with adding a large portfolio of contracted fixed-fee assets. Names for consideration include DCP Midstream Partners (DPM), Oneok Partners (OKS) and MarkWest Energy Partners (MWE). We also like El Paso Pipeline Partners (EPB) on the natural-gas side.
As a group, MLPs remain undervalued relative to other yield oriented securities such as the U.S. 10-year Treasury and investment-grade and high-yield bonds and fairly valued from the standpoint of overall yield and several names are attractively priced. The infrastructure/logistics that are more closely aligned with liquids transportation also fit our recommendation that investors pursue a more conservative posture of focusing on names with large asset footprints, diverse cash flows, and limited direct commodity price exposure. We continue to advocate a more-conservative position for the long term owing to unsustainably high deficits being pursued by most rich, developed countries in the world including the U.S. and Western Europe.
It is irrelevant what the current market price of the assets are.
The question posed was the economic VALUE of the resources not the 'LAND'.
LINE did not acquire the asset so much as the cash margin on production. Buy and hedge out five years which completely changes the valuation equation. Certainty replaces risk.
LINE does not require a doubling in prices to double the value of the acquisition but a doubling in the cash margin. As higher ng prices are all margin for these acquisitions one needs to first understand what the assumed ROI cash on cash return was. The answer appears to be no more than $3 per mcf.
At $3.70 per mcf and set low cost capped production the operational leverage to prices shows the assumed cash margin has doubled for LINE owners. Cash is after all what we have invested for and the five year hedging reduces risk therefore a lower discount rate.
Why land values have not doubled is not the current price of domestic natural gas prices but all the uncertainty Obama has introduced into economic growth and therefore stable demand. IE no rational person is sure the current prices will hold in the short to medium term.
So congratulations RLP you are completely wrong and do not even know enough to understand the key points of the explanation why.
Sand was so far out in front of you he let you make a public winged monkey of yourself. But given your churlish character we all know you will keep trying to sell your personal delusions to us.
Just as Ron^3 comes on and claims he does not understand the value of deferring taxes which is a direct admission he does not understand the most basic concept of compounding.