Update. API reporting a larger than expected inventory draw of 2.4 million barrels. We'll see, the real report comes tomorrow at 10:30.
This has moved the market back about halfway from the brexit stumble - quite an accomplishment with the firm dollar.
we are still importing more than 1 million barrels a day from the Saudis - i think the average is about 1.2 - used to be closer to 2 - but, since aramco now owns the largest us refinery, they have established a powerful beach-head in our market and will always be a big part of our imports.
"The problem is US inventories don't necessarily reflect the market, as we import so much oil."
You are right of course. But the inventory haze cuts both ways - Saudi inventories are down 38 million barrels in the last 6 months. Their ambitious plan to punish the frackers and Iran has greatly diminished their stocks - in effect, that inventory was just transferred from their tank farms to ours....
But we are still steadily progressing toward balance of we are t there already. Likely to see some big inventory draws in crude and gasoline this week.
Yep, some shifts in the relative values across the capital structure. If LGCY can flow $1.50 at $65 oil - think that was your number - then we can put a $15 target on the equity - in which case we are nearing a 10X. Preferreds have slipped to a 6X and notes are at 2.5X.
Pick your poison.
its all relative, but i don't consider $.20 cheap considering most of us own the debt at less than a dime.
these aren't individual investors. the institutions, etfs and funds are long gone, so, maybe hedge/vulture funds? whoever they are - welcome aboard!
Thanks for raising this issue. I think a lot about this - is the upstream MLP model flawed and thus doomed? or, did most upstreams wrecklessly chase yield in the pursuit of accretion and leave themselves hopelessly dependent on unsustainable energy prices? in the case of the latter, was it bad management as opposed to a flawed model?
The idea of owning mature producing assets in a tax advantaged vehicle makes a lot of sense. Look at the royalty trusts - a favorite of mine. Many of the older ones were supposed to be gone by now but their production is actually up in some cases - this is because the efficiency of maintenance capex has gone way up and many of these assets are more rich than many originally thought.
Some day energy prices will recover and credit will again be available to the upstreams that are still standing - i think that will be LGCY, MCEP and maybe VNR and MEMP - question is whether management will then be able to exercise restraint and discipline.
Good points cheap. Kind of hard to really benchmark sales to pv10 anyway, with PUD and many other intangibles like lifting cost etc. - I just had the MCEP deal at 1.5 X but you are right the strip has moved - somehow 1.2 seemed reasonable to me but it's only the back of my envelope.
In light of the fairly strong demand for the bonds I have been trying to decide whether I should lighten up or take another bite. In my mind the numbers support at least the current pricing and maybe more, so I am feeling better.
Using my back of the envelope math, BBEP has total debt of $3b - 1.85b secured (including the 2L) and 1.15b in the unsecured notes. On the asset side there is only the hedges at 500m and the NPV10 which was at 1.3b as of 12/31/15 (based on $45 oil and $1.76 gas). So, if we have to scorch this thing to the earth, there is no money for the notes, preferred or equity.
But I think there are 3 things that mitigate the above 1. strip pricing is much improved and trending up, 2. looking at recent sales by competitors VNR, LGCY and MCEP, they have all traded above the respective NPV10 valuations for the assets sold, and 3. since there is no imminent harm to the secured creditors, it appears the court will keep extending the stay and work to protect all of the creditors.
If we look at a 6-12 month BK period, I am going to use $60 oil and $3 gas to come up with a $2B NPV10 (I got this by extrapolating 2014 NPV10 of $4.5B based on $95 oil and $4.35 gas). Next, assuming a conservative value of 1.2X NPV10, I get $2.4B plus the hedges which might be only 300m by then, so we are at $2.7B which might be 850m or about 80 cents on the dollar for the notes.
With the notes currently trading at 15 cents, I am considering adding to my position.
IB. Is that a recent switch? Seems I remember you had mentioned you were with somebody else... Are you happy? I think IB handles fixed income better than some other brokers that I have had some experience with....
take a look now. the erocs are showing a bidder at 21 for $20 million of bonds - isn't that 40% of the whole outstanding?
or maybe a new retail bond investor made a mistake....
No dopey. You said they must maintain hedges - that statement shows that you really don't understand the process - but you talk like you do. Just because they haven't liquidated them doesn't mean that they can't. Hedges are highly liquid and a sale would likely get quickly approved by the judge. Mgt is making the right decision by not pushing for a sale, though, in my opinion, because paying down cheap 1st lien debt without concessions is not accretive.
Wrong again dopey. Cash flow was and is positive - they filed because the lender was pulling the plug on their LOC - so it was a liquidity issue - big difference.
Since you have such a big mouth and are so rude to others, you should at least try to be accurate.