I was unable to listen to the CC this morning.
Is the 6M unit dilution given to the GP going to be an annual event?
On the surface, it appears the GP doesn't have the current unitholder's best interests in mind.
Accretive drop-downs don't mean squat if the GP takes it all and then some.
Am I missing something?
It's an annual event only if they meet various targets set forth in the agreement. Accretive means . . . accretive, to dcf, the sponsors understand their own internal metrics, it's taken into account.
Do the sponsors have the unit holders' interests in mind? Well, yes, by definition. You can't run an MLP without maintaining and growing distributions, that's what they're set up to do. That does not mean they are in business to enrich legacy unit holders. Many people seem to think that the fast growth of MWE means that because there is a bunch of excess cash flow forecast from projects coming online, that distributions will grow apace, but that would never happen. Management will use that excess cash flow to grow, and more units will be added to soak up that excess, furthering growth still. That's what businesses do, they grow, it's engrained in management DNA.
The market perception is opposite here, the fear (apparently) is that the fee structure with the sponsor will inhibit or even reduce distributions. But that will not (or should not) happen, it would be disastrous for an MLP to cut distributions, it shouldn't even happen during a crisis, due to hedging. The well managed MLP's did not reduce or eliminate distributions during the financial crisis, the held steady even through 2009 when oil touched the $20's. Management knows their internal numbers, and what dcf will be available in 2013 from the properties they have, the hedging in place and the profit sharing structure. No way do they set a distribution without knowing it can be at least maintained. This conservative management has set a 1.2 coverage target before growing distributions, but they will maintain the current distribution at all costs. I'm sure they expect to increase in 2013, so they can keep that nice presentation graph going, I would expect an increase at least to keep up with inflation.
All that said, is management altruistic? Of course not, this is capitalism, and they want to
(continued) make money, who doesn't? I want them to make a lot of money, if they do, then everything is fine. But do you really believe they have set up an MLP that is destined to reduce unit holder distributions because money is headed for their pockets? No way, they want to roll out more programs, public or private, and they will hardly be able to attract money if they goofed up like that! Trust your common sense, and believe they know their own numbers. It would be daylight insanity if they didn't. Don't ever expect to get rich from an MLP, that's not how they work, but you can expect your distribution to show up every quarter.
Yes, a bit.
It's the nature of the GP-LP relationship that the GP takes a share of the cash flow.
However, increasing distributions for the LP are in the interests of both the LP unitholder and the GP (especially when the partnership is relatively new), so your interests are to some extent aligned with those of the GP.
QRE is a bit different than the usual IDR structure and I don't know the precise details of the incentive payments off the top of my head.
Thanks Liza. I always listen to you & Ruby.
I was focusing on the new & higher expense allocation and the future preferred conversion, thus the extent of the MIF (6M units) blindsided me.
I've had a lot of luck with small and growing E&P MLPs. I hope the GP is dropping down some sweet sweet deals, so as to take care of the current unitholders, in light of their large fees. I guess I was spoiled in the past with nice distributions AND unit appreciation. I'm afraid this GP might have their sights on keeping the unit appreciation for themselves.