Given Baggage of bad hedging, which limits upside in yield for another year plus, you need to buy this cheaper. $4 seems a good starting point. Better alternatives today are EROC, LRE, MEMP(price needs to be a $1 lower) because their hedging won't limit capital appreciation should prices go up before 2016. Should be able to maintain distribution levels.
Has Eagle Rock Energy Partners Become The Best Upstream MLP Value Play?
Subject headline, article by Tim Plaehn
To hold any upstream MLP, I need well over a 12% yield and some expectation it will continue at that rate. Only a few out there right now can meet that in this environment. EROC is perhaps best positioned, they are actually buying back units and reducing their float, have great hedges and will hold well in this uncertain market. LRR and MEMP look good as well. All the other upstream MLPs are trading stocks right now in my opinion.
Before I buy this, there are at least 3-4 others ahead of this in priority. Right now, MCEP is a trading stock, later, as you point out there is some potential. As a hold stock, it could be OK, but I would rather sell puts on weakness as I have done this past month.
I wouldn't buy it. At this yield and with the new hedges this is just not attractive. Too many others that offer better near term proposition. If you have unlimited capital to invest, fine will be OK longer term. I can buy a 13% yield which is pretty secure right here and no low priced hedges. The management owns a lot of this, which is good, but looks like they were panicking a putting these hedges on. Now, if oil does rise, this could be a laggard because of these hedges.
I should point out that the "cash" represents cash and Regency units(marketable securities) which are considered current assets.
EROC hedges are excellent, oil drop mostly negated.
2014E 2015E 2016E 2017E 2018E 2019E
Oil Production Hedged:
% Oil Hedged 77.00% 78.00% 66.00% 35.00% 34.00% 34.00%
Average WTI Strike Price ($/Bbl) $96.82 $89.88 $84.66 $88.02 $87.50 $87.07
Average LLS Strike Price ($/Bbl) -- -- -- $91.25 $90.75 $90.25
Natural Gas Production Hedged:
% Natural Gas Hedged 87.00% 85.00% 72.00% -- -- --
Average Henry Hub Strike Price ($/MMbtu) $4.51 $4.07 $4.25 --
You must be looking at their balance sheet before asset sale. This is their present position(Yahoo Fin.)
Total Cash (mrq): 269.57M
Total Cash Per Share (mrq): 1.71
Total Debt (mrq): 281.30M
Total Debt/Equity (mrq): 36.74
Current Ratio (mrq): 5.33
Book Value Per Share (mrq): 4.87
Doesn't look attractive yet unless we get a abrupt spike in oil prices. For example, EROC settle today just under a 13% yield, MCEP settled at just over a 10% yield. EROC's financial and hedge position is much stronger than MCEP. All things being equal EROC is a much better one to own. Now, when this drops down to a 13% yield its worth looking at.
At this price($5), the yield is only 10%. It has to go lower because most upstream MLP have a substantially higher yield with better hedging in place. I bought this when it was in the low $4 area but then got out in the mid $5s because I knew they would have to cut the payout after looking at their hedges. It thing you will have a chance to buy this at a yield of 13% after this current ex-date passes, perhaps even better. There is good long term potential in this but we need to get to a better yield and see further stabilization in crude. Looks like the Mgt. got spooked and hedged very low, but they do have a lot of ownership interest, so they are looking out after the company. This is good for the the holders. I just think you will get a better entry, about 25% less than where we trade today.
EROC is the only one I know of that is fianancially stronger.
Very few MLPs are in as good shape as this one, primarily because of a timely asset sale putting them in a good position to benefit from a collapse in oil/gas. They have very small debt and good hedges, so they have a pretty secure payout.
I am selling the February 17.5 calls. Very happy to have this called on or before the EX-DIV date early next month. I will take the gain and look at some other MLP/Stock.
I think it is likely you will see the dividend cut in half after this quarter IF you don't see some significant move up in the commodity price. I know they could continue it longer with the hedges they have, but I think they would have to consider the longer term position if things do not get better. I actually would like to see the distribution cut, it would give me more confidence in owning more of this. Frankly, I can see much upside in the share price without the commodity moving up. All these MLPs are limited by the yield, if the distribution was halved, the yield would be 14%. I think there is a lot of doubt surrounding the current distribution rate and thus it won't have a lasting effect on the unit price. There might be upside in the units to a point representing a 13% yield if oil stabilizes and the "group think" starts flowing in that direction. Right now, too much talk about $30 crude to warrant big upside in the price of the units. All these upstream MLPs are going to be under a cloud for a while until we can find a base in crude/gas. This seems to be one of the better ones along with MEMP and EROC.
They certainly had ample time to buy before the close. Anyway, it should appreciate some, but clearly we are heading for a reduction after this quarter unless something really dramatic happens with the commodity price.
BS. Schiller is the worst CEO in the oil industry. Leveraged to the hilt to buy very high priced assets. Horrible man, has made EXXI into a micro-cap stock with his bad business moves. Got to get rid of this fool.