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EV Energy Partners LP Message Board

  • ruby.thedyke ruby.thedyke Feb 17, 2011 7:13 PM Flag

    I thinking this is a good candidate to sell here.

    I need to raise some cash for a land purchase I'm closing, and of all my holdings, this looks the weakest. Not weak now, of course, it's performed amazingly well, I'm up more than 3X on the investment, not including cash flow.

    But, I believe natural gas is going to be stagnant for years to come, before we finally come to our senses and start to use what we have. EVEP is hedged above $7 for most of its production this year and next, but hedging falls off dramatically past 2012, and EVEP is 72% gas, the only majority gas MLP play I hold (all the rest are old heavy upstreams or midstream processors).

    I think EVEP will do well in market price for awhile, depending on the markets, but eventually low gas prices are going to hurt cash flow, and this could take a real tumble. I could be wrong, I hope that I am, some of my other MLP's certainly derive material cash flow from gas, but I need to ring the register, as that f wad on TV says, and this seems to be the logical place.

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    • You would think, but I've read a couple of articles that point out leases signed in the past few years will be lost unless they are drilled, so even though a given company might lose money by doing so, they have no choice. It would have to get to the point where the lifting and transportation costs would actually create a loss, where no net cash flow would be created by producing gas, otherwise some companies would continue to produce to try and hang on.

      Fortunately, most of the upstream MLP's I hold are not up against that, LINE for example is hedged out for years. VNR is in trouble on gas, but handled that problem by becoming substantially more "oilier", and management claims they can navigate over the gap and maintain distributions. Of course, it depends how wide the canyon is, how long can gas stay depressed? Some say a decade, obviously no one is hedged that far out!

    • I am thinking the same thing, but with one difference. In past conference calls, when asked how EVEP would do with low NG prices Walker has always responded by saying that low prices can be an opportunity to buy more NG production at bargain prices that can be hedged in the current market. If enough new production was acquired with new hedges at the current market rates, the effect of cheaper hedges on post 2012 production can be diluted. I am going to call Walker to ask about this and post his answer.

 
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