This stock has completely failed fir it's investors who bought into the hype of management in their slick December 2010 Investor Presentation which I read cover to cover:
High component of fee based cash flows
Solid balance sheet and clearly defined financial growth strategy
Smaller MLP entity + lower IDR Burden = higher growth profile.
Strong demand for storage
I could go on and on. Why is this stock tanking?
Why is it down when the market is up 322 points.
Management owes an answer to stockholders who are down 35%.
Storage margins are compressed in part because there is an oversupply of production. Until natural gas producers start laying down rigs, natural gas production will continue to rise as developments in horizontal drilling and hydraulic fracturing (frac'ing) are resulting in increased efficiency in drilling wells which results in more wells being drilled cheaper.
PNG made a huge acquisition when it bought Southern Pines. Frankly, I think they overpaid, but PNG wanted Southern Pines I think in part because the location was so close to Henry Hub and close to their existing storage. They will struggle to cover the distribution. They, just like Inergy, bought storage at the top of the cycle and paid a premium and also, just like Inergy, the acquisition was large relative to their existing business. A triple whammy. If the deal had been small, it wouldn't have mattered as much, but they bet big and were wrong.
Spectra also bet big on storage at the top, when they bought BobCat, however, at least the parent company bought it rather than Spectra Partners.
All of that being said, the natural gas storage market is horrible right now, and PNG is still doing ok in part due to booked storage. I can't speak for 2013 when contracts start rolling off, but I suspect PNG will survive, though growth seems unlikely until storage margins recover.
They paid 750 m for Southern Pines through equity and debt deal with their parent PAA. PAA owns 65% equity of PNG so I think your being extremely negative in terms of the out look. PAA is currently in a sweet spot and performing very well. That being said until the natural gas industry corrects which eventually it will (currently sitting at 6% above 5 yr historical averages for total supply) there might not be much short term movement. For the longer term investment at these prices, there is a huge opportunity here imo.
Southern Pines is a FERC-regulated, high-performance, salt-cavern natural gas storage facility located in Greene County, Mississippi–approximately 60 miles north of Pascagoula and 30 miles east of Hattiesburg. The facility was placed in service in 2008 and three caverns are currently in operation. The facility is permitted for 40 billion cubic feet (bcf) of working capacity from four storage caverns. The fourth cavern is currently being drilled and the facility has the capacity for further expansion, subject to permits and market demand. Southern Pines has an aggregate of 48,000 horsepower of compression and is permitted for peak injection and withdrawal rates of approximately 1.2 bcf and 2.4 bcf of gas per day, respectively. Southern Pines connects directly or indirectly to eight major natural gas pipelines servicing the Gulf Coast, Northeast, Mid-Atlantic and Southeastern markets.
"Southern Pines' strategic location and excellent pipeline connections provide an opportunity to optimally serve the Southeast market–one of the fastest growing gas-fired power generation markets in North America," said Greg L. Armstrong, chairman of PAA Natural Gas Storage. "Additionally, Southern Pines has substantial ongoing organic growth potential, underpinned by a strong portfolio of long-term firm storage contracts."
Armstrong noted that Southern Pines is fully contracted for the 2011/2012 and the 2012/2013 storage seasons and is estimated to have approximately 85% and 70% of projected working capacity contracted for the 2013/2014 and the 2014/2015 storage seasons, respectively
Management is doing FANTASTIC:
(Barclays CEO Energy-Power Conference)
Now is nothing but a buying opportunity! 8% dividend + forcast 4-6% distribution growth by EOY 2011 (squint on slide 27 and you'll be surprised by their goals, and listen carefully to what is said... keyword="only")! 50% contracts filled till 2014 + volume growth to compensate for decreased volitility!
Just sit back and say WOW!
Well there is only one distribution left in 2011, so you are saying the next distribution will be 4-6% higher. Seems kind of doubtful considering they have been at the same distribution level pretty much since inception over a year ago. And we keep hearing that storage fundamentals (spreads) are so poor at the moment. I can't imagine any distribution increase in 2011.
Not saying mgmt doing anything wrong, just doubt that fundamentals of the business would allow a distribution increase at the moment.
About 95% of PNG's
storage capacity is contracted to third parties for the 2011/2012 storage season
and 80% for the 2012/2013 season.
This provides some good insulation from current weak market conditions.
Management can't control market conditions nor can it control the stock market. This is an income vehicle, not a short term appreciation vehicle. Over the long haul it will trade on the ability of mgmt to increase payouts over time and on the general level of interest rates.
Mgmt appears to making some smart long term moves, which is their job. Their job isn't to worry about short term moves in the stock price. If you're going to fret because some mutual funds, levered hedge funds and other institutional investors are selling for their various reasons, then get out of the market and put your money in a CD (and let it get eaten up by the inflation coming up down the road in a few years).
Come on. Management just secured a massive credit facility based on performance! This so the company can grow! All you're seeing is some shorts take advantage of the market situation and your're buying into the panic. Do you really think demand for Natural Gas is going to go down long term? That's like saying we have endless supplies of oil. Or that interest rates will forever stay low. Or that solar and wind will someday rule the energy source market. http://naturalgas.org/overview/resources.asp depicts there is 2,587 trillion cubic feet (Tcf) of technically recoverable natural gas in the United States. These dips aren't management or stock failure, they're opportunities for those with cash to get in. And a lot of cash is sitting just on the sidelines all panicked like you. It's just a matter of time...
So far it has been nothing but downhill for this stock which was hyped by Management in 12/10. Did you expect a 35% decline while PAA was up 10%? These companies are tied at the hip. Read the 12/10 Investor Report and you get nothing but good things and when the stock drops 35% Management should come out with some public relations news but you cannot even get a hold of the IR guy. DISGRACE.