just viewed the video and he did point out the chargeable cost escalation...put up a graph of it.
I've been saying the same thing for years. It is a huge issue and is going to massively cut into distributions starting in 2018 with the impact getting greater each year until potentially distributions may go to zero some years later - even though the trust may still keep producing for years afterwards.
This is all built into the trust structure and explained in the prospectus.
The interviewer here was pretty lame but essentially the Hedgeeye guy has it right this time.
The only place where I differ is when to sell. He says sell as soon as possible. My idea is to wait till close to 2018 as most investors haven't a clue that distributions will start dropping off a cliff in 2018. EVEN THOUGH IT IS EXPLAINED IN THE TRUST PROSPECTUS.
I am long and holding for now but plan to seriously review that as 2018 approaches.
Emotion at play! Nothing has changed. The oil is still flowing, the ships still hauling oil to the refineries. Next week the Kaiser's video will be history and the Market will be what it is . . .
BPT hit this price range during early 2012. That was a purchase opportunity. Perhaps it is such once again?
Liza, what are your thoughts on the reserves? I went back through the annual reports and the reserves can flucate a LOT. When oil is up, recoverable reserves seem to jump 30% or more and BPT may be worth over $90. When oil is down, this thing may be worth less than $40 like the Hedgeye guy says.
I do agree with the cost escalation though. People don't do their due diligence so no one can short this for four years on that logic. At these levels its an okay long for a few years yet.
reserves are supposed to fluctuate along with oil prices since they represent what can be extracted economically AT THOSE PRICES. I don't worry about BPT reserves too much. The chargeable costs is a far greater concern, however as you say, doesn't start to hit the fan for another 4 years.
4 years from now I might start checking out the puts.
thats interesting, liza
kevins chart shows estimated $46 of distributions between now and 2022 by which time units should go to near zero... holding at this level shows guts and high level of certainty about the behavior of the retail investor... if this sells off... i might jump in on the greater fool theory :)
Distributions will start dropping in 2018 or soon after but I suspect they won't go to zero till a few years after that. Kevin's chart did not include potential for increased oil prices which will offset partially the costs issue (but not completely).
The reason I am not concerned for now is that this issue is not so easy to understand. You have seen most people on this board don't believe it even when it is explained. With GNI and WHX we have already seen that even when the issue is much clearer (a fixed termination date or a fixed production limit), the market does not start to pay attention till 1-2 years before the final deadline. In this case, I think there is no significant visible impact till 2018. So even the portion of the market that understands it does not feel it is necessary to sell yet. Secondly, the majority of retail holders will not even realize there is an issue till 2018 maybe 2019 and will then ask why distributions are dropping. Yes, the occasional article or report like this may knock the price down a bit but it likely recovers as new yield buyers with no idea of this obscure issue find it.
Anyway, my basis is pretty low already as I've collected quite a few years of distributions.
I continue to hold, probably for another 4 years but not adding at these prices.
Interesting that the report was only able to knock the price down 4% or so.
Not sure if
a) Kevin Kaiser has lost credibility due to bad calls on LINE and MLP
b) not many people have seen the video
c) even if they've seen it, the prospect of distributions dropping after 2018 seems to far away to care about
I don't think he won many people over, he had a lot of talk on depletion rate for the oil fields which everyone should know its non-sense. Look at the video again and compare his depletion rate oil against dividend drops. The charts he created were off and he was nervous. I agree the trust will devalue as all trust do but BPT has a longer time then what he is stating. The video came out at 3:39pm and todays volume was the highest in 6 months and that's all I checked was 6 months back. I hope those who shorted on his advise get burned, good luck
Agree that Kevin doesn't have a whole lot of credibility and he didn't really explain it well, and also the interviewer was lame and kept interrupting with dumb comments. Most viewers probably didn't really understand what it meant. Depletion is not the issue in my opinion, the issue is the chargeable costs escalation which won't really get going till 2018. He did mention that, but it sort of got lost among the other stuff he mentioned. Then he put up a chart showing distributions dropping to zero but didn't really explain how the increase in costs leads to that result.
As for a longer time than he is stating...yes, I believe it will be a few years later than his chart that it would stop paying distributions altogether because he was not accounting for any future rise in oil prices (he just used current futures curve). It's reasonable to use the futures curve rather than making up a number for future oil price, but personally I expect oil prices will rise and partially offset the costs issue. But only partially. I don't think oil prices can rise enough to make the costs a non-concern.
Secondly, don't confuse the trust properties continuing to produce economically with the ability to pay distributions. BPT could still keep producing for another 40 years. But distributions may stop in a little over a decade because the escalation of costs would eat up all the distributable cash flow.
Also Hedgeye is saying oil prices will stay the same based on his calculations which I find hard to believe just as an SA author just wrote,,,, As we can see from the above bullet points, Kevin proposes two different scenarios based on the future price of oil and the overall annual inflation rate over a 10 year time span. In his bearish scenario, he proposes the price of oil will remain "within its current price strip" over a 10 year span, while the overall inflation rate will check in at a rather benign 1.5% rate. I personally don't see how this is possible