Carl Icahn said that the distribution for the first year of CVRR is looking like 19% distribution rate.
He said he thinks the distribution can stay up there. Since he is the largest investor in the LP with the most interests I just stepped in to go along for the ride. I will not mind a 19% distribution until investors shove up the price to drop the yield down, I will just go along for the ride.
Hope this information helps other Linn investors. Do your own due diligence because Icahn is wrong about 25% of the time, the rest of the time he makes a killing.
Oil is up somewhere near $96 now, and I was wondering if you know where the CVRR refineries are?
Do you know if they use less expensive Canadian oil, or Bakken oil or what they use and what the differential is about roughly?
And, how it might compare to NTI & ALDW?
the crack spreads for CVRR's two refineries near Cushing are much lower than those of NTI's single refinery in Mn, looks to me. CVRR does use some bakken but NTI is much more a pure play on bakken-wti spreads. CVRR's crack spreads may be more insulated from wild swings than NTI's? although both are variable pay MLP's. The options market is signaling that the yield of NTI will be a fair bit less than CVRR's ~19% at today's prices, but NTI's first distribution yielded much more than 19%, and conditions have remained nearly as excellent this Q so there is a disconnect (arbitrage opportunity?) there. I've sold OTM puts on NTI and bought shares of CVRR. Today's news of the significant cash flow coming from CVRR into CVI is going to fuel the buzz around CVRR, which has seen an 18 million share day so far. CVRR insiders bough shares on the open market at $25. There could be solid upside for both NTI and CVRR, but CVRR's yield seems more visible
I predict CVRR's share price will be more volatile than LINE's, given LINE's hedges and thus predictable payouts, as CVRR distributions will vary with crack spread and the price of refined products
but even with an outlook for shrinking crack spreads though, CVRR could yield more than LINE for at least the medium if not long term
there are lots of evolving conditions that will affect CVRR distribution- US production growth, new rail and pipeline infrastructure, the change in price of Brent (with interplay of saudi supply cuts, shrinking norther sea production, with expanded production in US/Canada/iraq etc)- so its yield should be high to compensate for risk
that said, most of the MLP's etc. I have purchased recently with high yields (MMLP, QRE, NRP, PSEC) have all recently jumped in price, now a;; yield under 12%. Even many mreit's aren't yielding much above 12%. Is CVRR yield that much more levered to crack spread than mreit's are to interest spread, to warrant the higher risk premium?
CVRR is an independent downstream energy limited partnership with refining and related logistics assets that operates in the mid-continent region. CVRR owns two of only seven refineries in the underserved Group 3 of the PADD II region of the United States.
CVRR owns and operates a 115,000 barrels per day ("bpd") complex full coking medium-sour crude oil refinery in Coffeyville, Kansas and a 70,000 bpd medium complexity crude oil refinery in Wynnewood, Oklahoma capable of processing 20,000 bpd of light sour crude oils (within its 70,000 bpd capacity).
In addition, CVRR also controls and operates supporting logistics assets including approximately 350 miles of owned pipelines, over 125 owned crude oil transports, a network of strategically located crude oil gathering tank farms, and over 6.0 million barrels of owned and leased crude oil storage capacity.
The strategic location of the refineries, combined with supporting logistics assets, provide CVRR with a significant crude oil cost advantage relative to competitors, according to CVRR.
The Coffeyville and Wynnewood refineries are located 100 miles and 130 miles, respectively, from the crude oil hub at Cushing, Oklahoma, and have access to inland domestic and Canadian crude oils that are priced based on the price of West Texas Intermediate crude oil ("WTI"). In the nine months ended September 30, 2012, the crude oil consumed at the refineries was at a discount to the price of WTI of $2.81 per barrel.
CVRR's refineries' complexity allows the company to optimize yields (the percentage of refined product that is produced from crude oil and other feedstocks) of higher value transportation fuels (gasoline and diesel).
Part of what makes this a better opportunity (than ALDW and NTI) is that the main player in the IPO is Carl Icahn. Icahn Enterprises is indicated in the IPO to be taking 4 million of the 20 million offered shares without a discount to other subscribers and the underwriters have options for another 3 million.
One is a refinery and Linn is basically a purchaser of existing production that then drills in fill wells next to the exiting production. I am asking which will be the better investment in 2013 and 2014 and I think a 19% distribution compared to an 8% distribution says something.
Playing devils advocate is what I am doing. How long can a refinery pay out 19% before investors shove the price up and yield down. I merely believe that Linn Energy is not going to see much of a change in yield or price over the next 1-2 years. I thing the yield in CVRR is going to catch investor interest.
Icahn took $100 million of the $600 million in CVRR LP interests. He expects to get a better return on that $100 million or he would have bought Linn interests. I suspect his investment will outperform Linn. Icahn has billions invested in energy. He knows every major energy player including Linn Energy and he knows a good investment opportunity when he sees it. I suspect he will be right, and his investment of $100 million will outperform Linn Energy over the next few years. Keep buying Linn if you think it will outperform Linn. I own both, but have not purchased any additional units of Linn during the last three years.