I sold my shares this morning, as my conviction is selling CVRR OTM puts will provide more income than owning shares for (at least) the short/medium- CVRR options have a pretty high implied volatility even now, with the VIX at very low levels- and I bet we will not see a sustained return to the record crack spreads prevalent when CVRR was IPO'd. Including distributions and calls sold, I made a small profit since purchase. I await for a dip in price and a spike in volatility to sell OTM puts
wow time to get away from the computer and get some exercise- lifting the export ban would RAISE WTI prices, most likely. If the US WERE to permit export of domestic oil, that would add to world supply, applying downward pressure on Brent price- while exporting domestic oil would reduce domestic supply , raising domestic oil price (same thing as seen with propane- EPD's recent boost in export of propane has helped raise US propane prices) - simple supply/demand econ 101. Thanks for catching my totally backwards thinking
but the point of my original post- analysts forecast Brent-WTI spread to contract (and thus refiner crack spreads, which tend to track the WTI-Brent spread) in 2014 - stands, FWIW
ok have a good one-
if the forecast spread collapse does happen, US refiners are propbbaly goign to start screaming to congress to repeal the ban of US exports of oil. That would drop brent but probably drop WTI a lot more....whats more likely, US easing sanctions on iran or beginning to export oil? (My take is the Russdians are not going to be pushing for the US to start exporting oil lol)
Invezz reported yesterday that The current Brent-WTI spread is ~$15 (Brent at 107, WTI at 92) but reported dec 20 that for 2014, Barclays forecasts the Brent-WTI spread to fall to an average of of $8.30; Goldman Sachs Group foresees $9 average spread and expects volatility in the spread; The Bank of America expects an average spread of $13 citing the surplus of US oil output; Commerzbank AG says that “the continuing arbitrage for oil products out of the US is going to move WTI higher” and “we’re likely to see negative surprises for Brent because right now the market is not yet pricing in the return of Libyan and Iranian barrels” in their forecast for a $6 Brent-WTI spread in 2014. The lifting of sanctions on Iran could add ~one million oil barrels a day to global supply
And, if US bakken and permian oil production continues to grow and lowers US imports of Brent, that would also apply downward pressure on Brent pricing
the price of WTI may also increase once TransCanada's additional transport capacity of 700,000 barrels a day from Cushing to the Gulf Coast comes online in the next ten days
I am debating selling my CVRR shares and just selling CVRR puts, and rolling them forward for income (the bid on March 22.5 puts is 1.05, the jan '15 22.5 bid is $3.60- who expects $3.60 in distribution from CVRR this year?) as put income will likely be higher than distributions for 2014 if the spreads do contract like analysts are forecasting?
Huh, I just calculated the 3-2-1 crack spread for the week ended 1/3/14 directly from the EIA's average price for WTI Cushing oil and gulf coast gasoline and diesel as 16.35, what did they use for gasoline and dielel prices I wonder?
chris damas expects it to be released with the Q4 earnings release and 2014 guidance during the week of February 17; he estimates a 32 cent distribution for Q4, at the lower end of the range, and in-line with the average estimate for five analysts listed by S&P/Capital IQ of 31 cents (range 25-37 cents).
He estimates 2014 cash available for distribution is $1.68, which would represent a decline of 10% from estimated $1.87 for 2013, as UAN prices are lower on average than in 2013, but have rebounded since September. Given a fair risk-adjusted yield should be 8% , his six month target for CVR Partners is from $19 to $21
Hi liza thanks for the input. I agree that a conservative way to figure if WHZ is worth buying into at today's price would be to model total expected production goign forward as not exceeding the minimum stated in the prospectus, especially since WHZ could slow drilling (although they have capex allocated for that) or plug producing wells (WHZ has already paid $1.2 million in plugging and abandonment costs the 9 months through sep 30), although I'd think they'd only do that if the wells were uneconomic? But looks like Whiting does not own any units in WHZ, so Whiting does indeed not gain by overproducing
you may be right but I sold the shares I bought last friday after further evaluation. I am maintaining my short put position (sold july 15's for 0.70- yields more than owning shares and a basis of 14.3 if put to) as I am much more comfortable with the downside protection of out-of-the-money puts than owning shares
I am allocating the exact opposite way barron;s is recommending! I'd be in tech and health before telecom's
Is Barron's positive on utilities and negative on MLP's becasue they see domestic oil production growth leading to lower oil and nat gas prices?
in any case, any drop in oil or ng prices won't impact highly hedged MLP's like LINE.
I give as much credence to Barron's as I pay to subscribe to them (zero)
the latest 10Q estimates WHZ will produce 9.46 MMBOEmore (which happily exceeds the original amount estimated in the prospectus, due to higher than expected production to date) by the time the trust terminates, presumably on Dec 31, 2021; and estimates a decline rate of 9% (which is higher than the 3% decline in oil and 10% decline in nat gas cited from last 10Q). I could use these figures to recalculate the total revenue expected over the life of the trust by assuming the trust's oil, ng and ngl production profile will stay constant going forward and 2) use the projected selling price values of $87.30 per bbl of oil, $68.75 per bbl of natural gas liquids and $5.00 per mcf of natural gas in WHZ's last annual report (or whatever speculative value I want, for that matter- WHZ will be unhedged after 2014)
what i am struggling with is how to forecast COST of production. For example: Lease operating expenses jumped 10% YOY for the the first 9 months of 2013 ( Ad volarem taxes jumped by $1.8 m (presumably because the assessed value of the producing properties jumped?)- will this trend continue?? Also, oilfield goods and service costs jumped $0.7 m (as demand for services increased on -- will this trend also continue?), so the cost/BOE increased from 22.41 to 25.90 for the 9 month period YOY (LOE was 20.31 for all of 2011) . So
The $26 m in Capex budgeted as of Dec 31, 2012 is to generate production from undeveloped land, I presume this estimate includes the increases in oilfield services I mention above?
As future production decreases, fixed cost /BOE produced will continue to increase, so margin (and distribution) will continually go down as production winds down . Does WHZ have a table forecasting quarterly distributions somewhere? I couldn't find one in WHZ's filings,
ok these were my initial thoughts after reading filings, will post more if I remain uncomfortable after more DD
thanks for the insights, got me scrambling to consider stop losses. I also wonder where the catalyst for increased coal prices needed to turn NRP's prospects will come from- not from the ongoing increase in US natural gas production, or tepid demand from china (the chinese are on the verge of boosting exports of cheap fertilizer made from cheap coal). And US auto demand in dec was weaker than expected, that may tap the brakes on US demand for steel (and thus met coal)
FWIW the only time NRP traded lower than today since mid-2003 was at the depths of the 2008 market crash, when price dipped under 16 for a few trading days
but the distribution was over $2/yr then. The distribution has never been lower than now since at least 2006 (as far back as my broker shows data) and your points regarding 'flexibility to grow" suggests it will stay low, until coal prices pick up
cut of distribution to 0.35/qtr makes sense (gives NRP latitude in buying non-coal assets to diversify) but now yields only ~8.4% annually, way less than many upstream MLP's (LINE, BBEP, QRE, MEMP, VNR, etc) so I would not be surprised to see price fall further. Management estimates the new distribution has a coverage ratio of 1.24-1.47x so the "new" distribution looks very safe and today's 12x normal volume (so far) looks climactic. I will be interested to see what kind of follow through we see on monday, I doubt there will be a rush to buy given falling revenues, profit, and distribution
that said, I did initiate a small position today, given that the bad news is out. I sold june 15 puts for 0.70 (yields same as owning shares!), and bought shares at 16.8 hedged by selling July 17.5 calls for 0.65. I plan to roll calls forward, so I can increase my annualized yield above the 8.3% from distributions
selling 17.5 puts now with plan to roll forward for income is also tempting, the july 17.5's going for $2 yield 22% annualized but I'll wait until monday, no sense in catching a falling knife with both hands and if the broad market does correct in 2014, there will be better opportunity to sell puts- the VIX is very low now at 12.3
minyanville is suggesting go short LNCO above 32 based on technicals (i.e., price has been unable to rise above that resistance level ever since it fell below it) so not everyone is hyping the long side
wednesday, 2,500 March 14 strike puts were bought (i.e., price traded at or near ask)
yesterday, over 800 June 11 and 12 strike puts were bought
today, 1,579 Feb 10 puts and quite a few Feb 11 and 12 puts were bought
And two big down days in a row. The shorts aren't conceding
from the same report:
"UAN again followed urea higher on the wholesale market, adding $10 to the price of 32% solution at the Gulf, which was at $255. Swaps for early spring were $5 to $10 higher.... Updated retail prices were running $280 to $325 on the southwest Plains for 28%, while USDA put the average cost in Iowa at $343, in a range from $296 to $390. Fair value is at $325, with fundamentals pointing to $310 in my pricing model of supply and demand"
an unknown is how the likely increase in Chinese urea exports (which could swamp world markets?) due to the reduction in the Chinese export tax to 15%- which kicks in January 1, 2014- will affect uan pricing
from Chris Damas's seeking alpha article from yesterday: "LSB Industries (LXU) Pryor, Oklahoma nitrogen plant, which also produces UAN, was taken out of service Jan 8. This was unexpected, as the plant had just been restarted on December 30, and although management says the plant will be restarted by the end of January, past history has shown these projections to be optimistic. I would have expected Pryor to make 20,000 tons of ammonia in January and build as much as 50,000 tons of UAN inventories for spring application season. Now, that product may not be available, and if the plant shutdown is extended, the market may be tighter than expected".
this is not a lot of production (TNH and UAN together produce 3 million tons uan/yr) but doesn't hurt
PLatts reported yesterday tthat Gulf Coast propane was trading at $1.2950/gal ($674.70/mt) on Thursday, which was 1.75 cents ($9.11/mt) higher from Wednesday and 6.5 cents ($34/mt) higher from Friday. Not sure why thais price is so much lower than the wholesale price listed by eia, but is a lot closer to the number CS estimates as the average Q1 propane price
"Increasing propane exports out of the US, along with colder weather, have drawn US propane stocks out of storage at a blistering rate over the past four months and sent prices up. Data released Wednesday from the Energy Information Administration showed that Gulf Coast propane stocks were at 23.24 million barrels in the reporting week ending January 3. The stock level is 37% under 2013 levels and is the lowest in 11 years for the first reporting week of the year"
search for "PGP polymer price" to find barchart's quotes of futures contracts for polymer grade polypropylene. the last january '14 contract went for ~0.72 , down from its high of ~0.75 at end of Dec but still well above what PDH's management was forecasting their last cc. The nearest month futures contract price is the only proxy for spot price that I have found so far, but it does seem to correspond reasonably well to the occasional mention of proplylene prices I have found from trade groups (like Platts) on the web.....the price for future months steadily drops the farther out in time, with the low of ~0.69 for the dec '14 contract.
Separately, POLYpropylene prices also moved higher in December 2013 according to Plastics News, following the price increase of propylene; with expected price volatility going forward: "Total price volatility for North American PP – including increases and decreases – was 37 cents in 2013. That's the most of any major commodity resin in the region, but actually is about half of the volatility that hit the market in 2012....In both years, PP prices were rocked by frequent, turbulent swings in price and availability of propylene monomer feedstock. Propylene supplies have been impacted by increased use of natural gas as a petrochemical feedstock instead of crude oil. Natural-gas based ethane produces less propylene per unit than crude oil-based naphtha does...PP volatility —shows little sign of changing as the market heads into 2014, according to Phil Karig, managing director with the Mathelin Bay Associates LLC consulting firm in St. Louis. "It's kind of like a stock with volatility," Karig said of the regional PP market. "A stock with higher volatility has more risk."
i.e., expect volatility in PDH stock price!
iea states propane wholesale price for the week through 1/6/14 was $1.686
propylene futures give an estimate of what the market expects for PGP prices. The last quoted price for Jan '14 PGP futures was for 0.72, whereas the June PGP contract was at 0.7025; this small 2.5% drop is much less than the ~25% drop in propane price CS is forecasting for the same time period
if these data turn out to be accurate, the propane-propylene spread should expand significantly into summer, bullish for PDH
there probably is a way to use this data to model/estimate PDH's distributable cash flow for Q1 and beyond but I have not attempted to do that