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Crosstex Energy, Komandit Şirket Message Board

  • ross.john51 ross.john51 Jan 26, 2011 10:52 AM Flag

    Trying to understand the IDRs and the .375 cap and other effects

    Geo In a message down below I think you mentioned that once the distribution hit .375 that IDRs would kick in causing ? (this is what I am not clear on and Google was of no help) costing the company not only millions for the additional money it would be paying the LP in distributions, but also the GPs (?) would start getting how much in distributions
    that would cost the company additional millions of dollars.
    The question is: is XTEX limiting itself to Haynesville,Barnett, and La. and not looking into spreading its pipelines and mid-stream processing into other areas close to their already existing infrastructure so as not to be to far away from the flagpole? I brought this up in a question re: the Eagle Ford but it was either you or someone else who said that Eagle Ford had KMP,and Campano and someone else already in place, so the question becomes if they had a place in the Woodbine/Eagle Ford region to build a mid level fractionating plant close enough to tie into the rest of their pipelines do you think they would be interested in trying to move into the area or are they just nice guys and don't fight dirty in the oil patch, and that wasn't a smart @ss statement either, since Ash Robinson and Walter Mingden were next door neighbors of my folks and I knew what the persona of the old wild catters was like.

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    • evep. Although researching and comparing continually, I have not been able to find a better gas & oil that pays more. EVEP was a lot cheaper when I started with it but not as cheap as xtex at 1.44. XTEX gave me a head start by more than covering the mistakes I made on other stocks.

      re nly, morningstar gives cim (my first financial) no stars and the dividend is huge

    • ...and your favorite stock is?

    • I don't know about the other newsletters but have noticed valueline at our public library.

    • I just wish I had about 10-15000 shares of Annaly REIT which gets about 1.6 stars from Morningside and looks as safe as a bond. It has currently been selling in the upper $17 almost $18 range, but it has been paying $2.56 a year in dividends about half of KMP at what a quarter of the price almost.

    • Ross,

      XTEX's IDR's call for XTXI to get an additional 13% of any distribution between $.25 and $.3125 per quarter, an additional 23% of any distribution between $.3125 and $.375 per quarter and an additional 48% of any distribution above $.375 per quarter. Since XTXI runs XTEX, there is a strong incentive for XTXI to raise the distribution as much as possible without getting into another crisis like 2008. If I have done the math right, and I am not sure that I have, XTEX needs at least $.255 DCF per unit to distribute $.25 to the LP's, $.327 DCF per unit to distribute $.3125, $.408 DCF per unit to distribute $.375 and $.648 DCF per unit to distribute $.50 per unit. These numbers assume a 1.0 coverage ratio; my guess is that XTEX will target a coverage ratio of at least 1.2 or 1.3. Thus, to increase distributions from $.375 to $.50, XTEX must generate at least $.24 DCF per unit. This is not to say it can't be done, but the higher the distribution, the more DCF has to increase to raise it.

      I am sure that XTEX managment is looking for opportunities to grow XTEX, either through acquisitions or through establishing new systems. The acquisitions I have seen reported recently seem pretty expensive. You can't pay $.50 on the dollar any more; you have to pay a premium. This makes it hard for acquisitions to significantly raise distributions in the short term. You mentioned just building a new system in the Eagle Ford and I mentioned the problem of competition from KMP, CPNO, EPD and others. This is not a question of other companies fighting dirty. It's is just the competition have commitments from producers to their systems and they have pipelines to their fractionation plants in place. XTEX would have to sign up uncommited producers and build new pipelines and new fractionation facilities in order to compete. I just don't see that happening. NGLS recently announced a Memorandum of Understanding with two small G&P companies in the Eagle Ford to build a new pipeline back to NGLS' Mt. Belvieu fractionation complex and expand it. Time will tell if they can actually pull that off. One of the good things about MLP's is they have a pretty significant economic moat around them, i.e., a competitor can't just come in and put a new plant in place next to them and start competing on equal terms. That's great for existing assets but it is a challenge if a company like XTEX wants to grow.

      In your next message, you ask if I think XTEX can raise their distribution above $.375. I hope they can, but I don't see it happening in the next couple of years. I hope that I am wrong about that, but I just don't see the big growth engine that is going to get them there. I am sure that their management team is going to try to raise the distribution as fast as prudently possible. We will see what guidance they give in the next conference call.


    • My seizure meds were overworking so I will try again... do you think XTEX will have the growth to have dividends that will exceed or reach .375 per unit.