Thought I would post a few interesting items for the board to ponder.
Pipeline quality gas is around 1050 BTU/cu. ft
BTU content of methane is around 900 BTU/c. ft
ethane is around 1600 BTU/cu. ft
propane is around 2400 BTU/cu. ft
butane is around 3000 BTU/cu. ft
So, if you took a mix that is say 88% methane, 5% ethane, 4% propane and 3% butane, you would get a BTU content of around 1250/cu. ft.
Keep in mind that MHR already gets a premium to Henry Hub due to better basis differentials on the east coast, then they get a nice uplift from the liquids, especially the propane on the east coast. Overall, between the higher basis differential and the liquids uplift (remember ethane, propane and butane are more expensive per cu. ft thatn methane), MHR is likely to be getting the equivalent of $7.00/mcf for its production. That is BEFORE hedges!
If you look at the IP rate, then assume a certain factor for the well, say 35% (i.e. you multiply the IP be 35% and assume that is the average daily production for Yr 1, then assume a $7.00/mcf sales price and net out the lifting costs) you can easily see how these wells will payout in 18 months or better.
Yes I agree LINE has gotten too big to keep growing DCF 10pc/yr. Everything has to be almost perfect. However, I still hold it for the current income and don't think I will be disappoited in that respect. MHR is my aggressive play in this sector. I plan to add but don't know if this is a good entry point. Hate to wait for the pullback that never comes. It seems to me from what I have read that the dividend will be safe for quite a while in the preferred since they seem to be firing on all cylinders now. I appreciate your informative post. Some day LINE will have those 100 wells in the Granite Wash. We will just have to wait longer to reap the benefits than we would have had they not made the acquistions. I would be thrilled if MHR's chart over the next 2 years matches LINE's for the last 2. Thanks for your insight.