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EV Energy Partners LP Message Board

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  • marklibera marklibera Aug 11, 2009 11:50 AM Flag

    This is what I was writing about!

    If you look at the earnings report, you will see that last year they had a $6+ loss due to hedging, which was much worse. Again, noncash means its just accounting mumbo-jumbo. It has more to due with the extreme movements in the price of oil and gas than whether the company "overhedged" as you say. Remember, in the last year, oil has gone from the $50s to $150 back down to the mid $30's and now to $70. Nat gas went from the $5-6 range to $14 last year and is now under $4. So you can imagine what that kind of movement does to the value of hedges.

    When you invest in energy companies, you need to decide whether you would like your company's stock and its distributions to swing with the fluctuations in the price of energy or whether you would like a company to lock in a price and pay you a fairly constant distribution. Many of the MLPs prefer to hedge and lock in a substantial distribution (in the 15% range). Their growth (in both the share price and distribution amount) comes from being able to buy undervalued properties using a combination of debt and equity, thereby increasing the amount of production that can be sold at a profitable price.

    So don't get alarmed when you see these mlp's issue debt and equity -- that's part of the plan -- since the tax rules don't allow them to retain earnings to plow back into the business. As long as they don't overpay for properties, this is a good plan.

    One other thing: You have to understand that the reporting media (Yahoo, Reuters etc.) don't do a good job of explaining the difference in GAAP EPS and discounted cashflow. They just flash a headline "Company posts greater loss" without explaining the implications. Some investors, like you, panic, thinking they own another Enron, and sell on the opening. My suggestion for you is to do some reading about your investments before you commit either way. There are many knowledgeable posters (BadBernanke was very good for EVEP and LINE) who can explain some of this "inside game" that most brokers cannot or will not explain.
    There are numerous other industries for which GAAP earnings per share is not the best way to measure the success of the company's business, but the investment media does a poor job of educating the small investor.

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    • Anybody hear what the dividend coverage is?

    • I read the report and they did not explain it as well as posters here! While on this hedging subject; why don't they hedge by having a contract to sell x amount for y dollars during some period. TGB does something like that, to hedge copper, and doesn't get clobbered with net losses that need to be explained away. When you buy and sell derivatives you get no guarantee of revenue and must guess at your expected volume/price. It (the report) actually sounded like they had this type of hedge, and speculated in options on top of that! I wish they would explain it better. Most of it reads like mumbo jumbo so only a caveman can figure it out!

      • 1 Reply to jrfillion
      • If you listen the the cc webcast a shareholder asks your same question towards the end of the call and they explain it very thoroughly. Earnings aren't all that relevant to many income stocks. For example with REITS property depreciation is booked as a loss in earnings when normally properties actually appreciate. With REITS you care about AFFO, and with MLP's you care about DCF. Those criterea, combined with leverage ratio, the ability to borrow more and be aquisitive, and a stong parent comapany, are why I bought more EVEP today after listening to the cc. The credit factors and borrowing base are very crucial, because a MLP with better valuation metrics such as P/DCF may be prevented from paying distributions or aquiring properties at firesale prices by their lenders. That's why I bought EVEP not BBEP.

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