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Pioneer Natural Resources Co. Message Board

baconcc 6 posts  |  Last Activity: Dec 15, 2014 5:34 PM Member since: Mar 16, 2013
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  • This seems very odd. Supposedly this company is hedged for 3 years and the payback is 3 years at this level. In other words, you get the stock for free in 3 years as the distributions will = the share price over that period. Seems too good to be true, so something must be not as it seems. All the MLP's are about like this. I have to resist buying more, but this does seem too good to be true. I guess I will buy more when this gets under $1, then I will only have to wait a few weeks to get my money back.

    The worst case scenarios are calling for the MLPs to cut the distribution by 20%, so you only get 25% instead of 30% payout rates.

  • Reply to

    Perspective

    by baconcc Dec 12, 2014 11:37 AM
    baconcc baconcc Dec 13, 2014 11:25 AM Flag

    A high debt ratio is not so bad if:

    1) Interest rates are soooo low.
    2) Oil prices do not totally collapse.

    Also, keep in mind that LINE is not really "losing money". They are paying huge amounts of profit out to their partners each month (us).

    Remember, there has been no reduction in the amount of energy LINE controls. It is all about price. Yes - LINE will have to make some decisions on how to play this collapse in price. Expansion options may be limited (if they decide to maintain the distribution), but they are not going to default or fail. They have too many valuable assets which in time will yield much higher returns than the stock price factors in now. Everyone is panicking that any cut in distribution is a "death blow" to MLP's, but that is totally a myth.

    Imagine if LINE paid out 2% and used the rest of their profits toward expansions, acquisitions and buy-backs. This is how all mainstream (non- MLP) businesses operate.

    I do not think debt reduction is a good use of capital with rates at these levels. I also so not think that secondary offerings are a good idea with the stock price this low.

    The spare cash must come from operations which means 1) cost cutting, 2) distribution cuts.

    When oil prices recover (which will happen eventually), LINE stock price will accelerate from these moves. Remember that oil consumption IS NOT GOING DOWN! All that is going down is the FORECAST for consumption. In each consecutive year 2015, 2016, 2017, etc. we will still see all time new record levels of oil consumption in the world.

    Of course, investors have no patience. Many are content collecting 0.2% in their bank accounts for decades in fear of stock price fluctuations, I admit, this decline is unnerving, but there is no underlying reason to panic that I can see.

    The PONZI scheme posts are out of total ignorance & the fear of distribution cuts is blow way out of proportion. In some way, any investment can be characterized as a "PONZI" scheme.

    Sentiment: Hold

  • Reply to

    Perspective

    by baconcc Dec 12, 2014 11:37 AM
    baconcc baconcc Dec 12, 2014 12:24 PM Flag

    Do not kid yourself into thinking the government does not have deep claws in the oil production game. Do you really think anybody can just go out and drill and pump oil out of the ground whenever and wherever they please?

    If you want to predict where oil prices are headed watch the Russian tension factor. It has nothing to do with anything else.

    These moves were critical to maintaining natural gas supplies to Eastern Europe this Winter. The Russians could not afford to shut off the supply, so that move was thwarted for the time being.

    Now we must wait and see what happens over the next few years.

    Likely the Russian aggression will continue beyond Putin as his successor will be a hand picked clone with the same views of reunification of the Soviet Empire.

    Can the US keep oil prices low for decades? Maybe.... Look at what has happened to interest rates. I highly doubt your returns on CD's are going to balloon anytime in the next decade.

    Likewise, I do not think you are going to see oil above $60 per barrel for a long, long time.

  • baconcc by baconcc Dec 12, 2014 11:37 AM Flag

    In 2009, oil bottomed at about $41 almost exactly 3 years ago to this date. At that same time, LINE bottomed at about $11. Oil (and LINE) rebounded rather quickly off of that low and LINE never cut the dividend.

    This current plunge has nothing to do with LINE and everything to do with the price of oil.

    Will oil go lower? Probably......
    If oil goes lower, will LINE follow?....YES
    Will oil rebound as sharply as in 2010....Probably not.

    Will LINE have to cut it's payout?.....That depends on how low oil goes and for how long.

    Personally, I think the drop in oil prices is 100% due to the tension with Russia and is being (secretly) contrived by the US to slow the Russian aggression. Don't you think it is curious why oil production is booming under Obama? Is this what was expected? Don't you remember the "Drill Baby, Drill" political debates? The Russian threat is far more serious than any philosophical political party battles.

    I question if there is really as much oil underground in the US as we are led to believe. I think we are tapping our reserves using technology to force the remnants of old wells out of the ground. simultaneously, the US is creating propaganda that we are "swimming in oil" in an attempt to break Russia economically.
    I think these low oil prices will continue until we see the Russian aggression wane...and that could take years.

    Nobody knows how low oil can go. It is dependent on supply and demand and the tap cannot be shut off, nor can you burn it all up overnight. At some point though, the cost of extracting the oil will catch up and the taps will have to be closed. Saudi oil costs is the cheapest to extract, so that will be the last tap closed.

    As with any collapse, prices will overshoot to the down side, so be prepared for a real shock. If the US government wants to completely collapse the Russian economy, oil could go a lot lower for a lot longer. That is what is scaring everybody

    Sentiment: Hold

  • Reply to

    Merger Valuation

    by baconcc Nov 11, 2014 11:21 AM
    baconcc baconcc Nov 11, 2014 11:03 PM Flag

    Right- Better to say that each QRE share gets 0.9856 shares of BBEP.

    I guess the 1/3- 2/3 is reflected in the number of shares of QRE being fewer.

    You are right, QRE is trading at a slight discount to BBEP.

  • baconcc by baconcc Nov 11, 2014 11:21 AM Flag

    Here is my simplistic read at this time:
    QRE= $15.37/Share
    BBEP = $15.70/Share

    Each bbep shareholder gets 1 share of qre for each .9856 shares of bbep:

    bbep sharholders get 15.37/.9856 = $15.59

    You could read this as BBEP is over-valued, or QRE is cheap.

    It seems BBEP produces way more to the bottom line than QRE. I would say QRE is a buy and BBEP is a sell here.

    From the 8K, BBEP contributes 2/3 of the revenue.

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