My first guess is probably nil and that higher profits are all about the volume and proper execution by management. On second thought though, I am wondering if it might in fact be true that their profits could shrink with higher NG prices similar to the situation the refiners are presently in with their shrinking margins. Afterall, the share price of NGLS is considerably lower now with NG near $11 than what it was in December/January when NG was in the $7-8 range.
My honest opinion is this stock should be several percent higher. This is a very thinly traded stock...therefore normal rationale cant be used. A hedge fund went out of business that caused a drastic impact on the stock....considering that...which has no "business" impact on the stock....we have rallied quite a bit since then. So all in all, the stock is performing nicely....we just need someone with clout to acknowledge this. Jeff
It looks like your thoughts are being confirmed in the last few days trading- up strong today on big volume. Hedge fund selling is drying up in a lot of good MLP names presenting some nice opportunities at attractive prices.
I think you got it..........but OIL is higher as well so margins net net satay about same. Its a bit confusing as to why these stocks are near lows except to ponder that maybe the street things that the spread between oil & NGAS will narrow and so will NGLS & WPZ's margins.
The answer is not a simple one. NGLS benefits, like many midstream companies, from processing margins which are at historically high levels right now. The key is not the price of gas, which does drive volume demand somewhat, but the spread on processing and liquids extraction.
They do hedge a lot of their exposure. This is straight from the 10-K:
"The primary purpose of our commodity price risk management activities is to hedge our exposure to commodity price risk inherent in our contract mix and reduce fluctuations in our operating cash flow despite fluctuations in commodity prices. We have hedged the commodity price associated with a significant portion of our expected natural gas, NGLs and condensate equity volumes for the years 2008 through 2012 by entering into derivative financial instruments including swaps and purchased puts (or floors)."
That doesn't eliminate exposure, but limits it. NGLS hasn't been as forthcoming as some other MLPs about the exact sensitivity of operating profits to swings in commodity prices.