Yes. The shorts have overplayed their hand. Survival is not the issue here. Maintenance of the distribution can be an issue, but that will return when oil prices head back up. It is not a question of "if" but of "when" this will happen.
I believe in 2 quarters the Saudis will have achieved most of what they set to achieve and further pain is not in their best interest afterall. If they cut 1M bbls/d the price of oil will shoot back up to $90/bbl. What is the point of selling 10M barrels at $45/bbl? You're 2X better off selling 9M bbls at $90/bbl.
WF is not deciding on a whim. There are covenants, which are public. If you think that their covenants will force them to cut the distribution after April, why don't you present your model and why that would happen.
Not really. Their 1.35X means about $50M of excess. But you are wrong about knocking $10 off and the rest of the argument. As I said: if you just follow their announcement and put the numbers in a spreadsheet it is very simple to see their model of the company and that is very powerful going forward. Just use a spreadsheet and you will see it.
Instead of all this back-and-forth empty talk, I actually put their January 2nd guidance numbers into a spreadsheet and had a go at it. They don't have a problem covering the distribution even if Brent goes to $45 and WTI drops to $40. I think average price will likely be above that for 2015, so I see little risk to the distribution in 2015. Note that this also assumes maintenance capex of $10/Boe to preserve capacity, which they don't have to do in the face of falling prices and assumes all expenses the same as before, i.e. no cost renegotiation for oil services etc. Their hedges will hold them pretty well in 2015.
They are not as hedged for 2016, so they would need WTI at about $67/Boe. I am assuming spot nat gas at $3/mcf (same as for 2015.) I think it is doable. EIA predicts WTI at $68/Boe for 2016. Razor thin, but they make their distribution in 2016 as well. Again, this assume no cuts elsewhere.
In 2017 and beyond they will need WTI at $75 (and nat gas at $4) to maintain their distribution. I think after 2 years of pain, oil production should come down enough world-wide and we should see oil back at that level or above.
There may be sudden drops and spikes of oil prices throughout the year, but we should be looking at averages and the level of risk.They may also have to cut the distribution by another 30% in 2016 or beyond, but at this price level, I don't think you are not compensated enough for the risk.