The problem with some of these MLPs, with options, is the liquidity and the wide bid-ask spreads. When I write options, I like to know I can buy them back if circumstances change....but in this MLP the quotes you get frequently are totally stupid. I just made a judgement call that it wouldn't make sense for this to trade much higher given what I see happening. Naturally, I could be wrong. But, Oil can't rise much while inventories are building at this rate, there could be substantial downside associated with the next two crude contracts, particularly when we get close to expiration.
Not at crude storage at Cushing is dedicated to crude deliverable against the CME contract. Total shell capacity for crude is a little over 70 million barrels, storage at Cushing as of last Friday was 48 million. With 20M/bbls of storage left we are getting close to a problem with an expiring contract possibly having some issues with serious volatility. A problem will come in advance of storage totally filling. The April-May spread spiked today and it will most likely widen further.
I got out of this, after this run, I don't think there is much upside. I don't like the the unanswered questions and the build in Cushing is approaching problematic levels. Even with good hedges, all oil/gas issues will get hit hard if we return to last month's lows. I wouldn't get back in until sub $7.
They are well hedged, but not forever. One has to guard against the idea that MEMP is without risk. They don't have much of a buffer with DCF around 1.0. I have to believe, if the commodity returns to the lows, or worse, this price level won't hold.
Spot month crude futures over 2nd month spread soared to well over $2. We are going to see Cushing reach shell capacity soon for CME deliverable oil. When that happens, the lows for crude will most likely be taken out, perhaps by a lot. That is going to put a tremendous amount of pressure on oil related equities....this won't get a pass.
Given the commodity prices, why should they be aggressive at this stock price. I want to see them buying lower, not above $16. There is no sign of a solid bottom in the commodity price, until there is they should wait for substantial pullbacks to buy. Getting costs down is more important than buying back shares, that is what I want to hear about at earnings.
But the chart looks quite awful right now. If Silver doesn't hold $14, it could fall into the single digits and that would surely result in breaking the lows of PAAS from 2014. The other major issue is the Dollar which is in a major bull market. The Dollar is very overbought, so a consolidation is likely but there is nothing to suggest the bull market is over. When I do buy Silver, this company looks like a good way to play it. I would like to see them get their cost of production down, that would help.
I can understand MEMP holding the $16-$17 area but a lot of these upstream MLPs are trading well above where they should be. People are overpaying, in some cases by a lot, given the fact there is no confirmed bottom in oil and we could easily revisit the lows or perhaps worse.
I don't know if you will buy sub-5 on MCEP, but you will likely see it in the low to mid $5's. There really is no reason to pay over $6 for it unless you just have to own it. There is still risk in these upstream MLP's that is not covered by hedging. Everyone is obsessed with not missing the bottom in oil. In reality, major bottoms in oil have taken 4-5 months. It's a process, not a precise week or month.
Thanks. I thought they might be able to substitute Natural Gas for Synthesis Gas( FT process) downstream of the FT Reactors if for some reason their Coke supply was interrupted or the FT units were out of service. I know NG is not a feed for the FT unit.
I sold $17.50 calls, not interested in buying them back. They can have my units if they are in the $ by expiration. Too much uncertainty to hold when DCF could be under pressure and hedging at these prices doesn't work. They are in good shape nearterm but ther is risk here in a number of areas. People are too focused on the distribution outlook close in. Like you, I don't need to own this too make $ off MEMP, just as happy to sell/collect option premium.
We are getting to a point where the debt or preferred on some of these might be a better buy than the units. LRR seems like the units are still good to buy, but some of the others seem overvalued given the risks are still pretty high.
With such a low distribution(12 month), I can't understand why anyone would pay the current price. They have to be expecting some sort of improvement.
I don't know much about the history of the company, but the payout is very poor over the last 12 months. I know Ag prices plummeted and fertilizer pricing went T/S, but is there more to it than that? Gas prices were high in the first part of last year, but things didn't seem to improve after they fell. I am new here, thanks.