Seems that they are ok this year with hedges that nets gas to $3.58 and oil at $74. Haven't looked at next year but would guess it's somewhat less but probably ok. They are breaking even on cash at those prices and $60mm of capex. If they get to 17 and gas is $3 and oil is at $60, they will have a problem. Or even gas at $3 and oil at $74. Imo, nat gas doesn't look healthy for years but things could change. At $4 gas and $74, cash flow is only increased $35 mm over this year. Unless gas moves up considerably, seems the most you can hope for is the distribution. There are the drill partnership moving pieces that I don't have a real feel for and gives them an advantage over other MLPs. I don't know what they could do, buy liquids reserves at a cheap price, which maybe is possible, shales cos selling conventional oil assets to fund shale drilling. But seems they would sell gas assets first. i wouldn't think the drill partnership business would be very good with gas drilling. Bottom line for me, too many things need to go right for upside vs just stuck as a MLP trying to cover payouts. I would bet Cohen does a deal, whether it's a good one or not, I would guess it's hard to find good assets right now.
btw, they had a $8 nav on DNR. Again, the yield strategy makes little sense. Oil with a strong dollar may not get back to $90 for a few years, the new $90 with a strong dollar could be $75, a good but not great env for DNR. Thing that bothers me is all of the pros think energy is a great buy now. Same ones that didn't see the collapse coming.
An energy bank sees DNR neutral, 10x ev/ebitda next year, not much growth in reserves until 17, Webster. And they see that debt covenants could be in jeopardy in 16. This co shouldn't be paying any dividend until the commodity price stabilizes.
Comments from CS today, you get 15% growth for the next 10 years, that's about as good as it gets. A backdoor way to play Devon without the commodity risk. ENLC is a c corp, no k1 issues.
ENLC Valuation: Our $44 target price for ENLC utilizes a 19.1% distribution CAGR in the first five years, 14.0% in the second five years and a 2.0% terminal growth rate discounted at 8.5%. Our $44 TP indicates ~39% total return potential over the next 12 months based on $1.08 in distributions over the NTM.
Cash, I posted a response by mistake to the ATLS board. Bottom line is ARP is ok for a while, their assets are not that great, the drill partnership fees make up for some of the negatives. But it doesn't work for the long term imo. And management is a big negative as well. But I would say that about the whole class. Good luck.
Jerry, it does seem a mess. But we are far and away the best place to live on the globe, that's why we can't have open borders, everyone on the planet dreams of living here. I've asked myself where I would move to in the world and there's not even a close second, although Vancouver is enticing. Maybe if Texas were to secede. We do have the Permian Basin. Someone told me today that Houston is expected to double in size in the next two decades, if it doesn't sink into the Gulf of Mexico. I did look at KSU again today and that could be a great bet if Mexico ever gets its act together. Saw a blurb that labor costs in Mexico are lower than China's now. Mexico could be a powerhouse. And KSU would be the corridor. Also pipeline opps in Mexico for KMI, EPD, OKE..... Another thought to chew on, a gas marketer thinks gas will be $1 plus this summer. Not sure the midstream cos would take that very well.
didn't print all of the message. $60 mm is not enough to keep prod level. 75 cents less in nat gas gets you $60mm less cash flow. Just talked to a gas marketer that thinks gas will be in the $1s this summer. If you like ARP, I don't, buy ATLS instead. But my rec is stay away from the MLPs unless they have top tier assets, most don't. And don't expect the dist to survive this downturn. Buy VNOM the royalty trust operated by FANG, no debt, royalties in the best wells being drilled in the Permian and great management.
Looked at their last q report, the thing that makes ARP hard to compare is the drill partnership business. Imo, the e and p assets are crummy, $3.50/mcfe costs to produce, op, GA and interest, x finding. Revenue should be around $4.80/mcfe at guidance. Leaves $140mm for $170mm capex and $110 dist. But the drill partnership fees could add $50mm of cash flow, just a guess based on q4 numbers. So you have $560 mm cash in including fees and $540mm cash out with maintenance capex of $60mm. But it's curious that they spend another $110mm on growth capex but the prod for the year is 289.5 mmcfe/d and q4 was 285 mmcfe/d. Where's that extra $100 mm coming from. And I'm not sure $60 mm isn't a bogus number, if you are producing 106 bcf this year and $60mm replaces it, that's
I'll see if I can find it, probably the hedges. I'd probably make the argument that every MLP should be suspending the distribution until the strip rights itself. The long term holders would probably be better off but the market would trash the unit price.
Listened to the Indiana house speaker, said 19 states and the Fed govt have the same language, law on the books. This is the culture we live in now, exacerbated by instantaneous viral communication- accuracy, truth becomes irrelevant. We have too much media space, time to fill. The CNBC set this morning looked more like Good Morning America and the topics were just as lame. Seems if you can keep the focus on the relevant isssues for the longer term, investing isn't that difficult a process. I may buy some more OKE or PAGP today and then see what happens over the next couple of years.
Tony Crescenzi Pimco on CNBC, imo probably one of the best commentators on macro issues. Mentioned the fact that doesn't seem to get a lot of attention, the negative rates around the world. And if we raise rates, a bigger differential, ECB keeps 0 rate to '20. How does this unprecedented time normalize. I can't begin to get my head around likely scenarios and when. If we have 5 more years of zero rates globally, seems asset value will continue to inflate. Historically, the market is over valued but considering the discount rate, the market is undervalued. Do you sit on cash for years waiting for another crisis, there is risk in that approach as well. And for oil price, if the dollar continues to appreciate, not going to be good for oil prices, lowering the equilibrium price, maybe $75 vs $90??? We get find ourselves in another bubble, the challenge is exiting, some are still waiting for a repeat of the 09 crisis years later.
Doesn't include the hedges which does give them breathing room. Just seems the MLPs were made for high price environments, obviously. I don't think nat gas recovers for a long time and not sure how long it takes for oil. As the Chevron CEO said, no one saw this collapse coming, which makes me think the recovery could be a surprise also, most think it is a one year process. A bunch of smart people thought gas would rebound and it's still in a hole. Time will tell.
Am fully invested + in equities, 102%. 10ry T note yield is 1.9%. China's new growth target 7%. The middle east will never be stable. German bond rates on the shorter end are negative and .20% for the 10 year. Inflation is not an issue so far. Saw a sign in front of the neighborhood bank, home equity loans 1.99%, line of credit 3%. Even the banks can't find borrowers.
If you don't buy US equities, what do you buy, real estate ain't cheap, REITs are expensive. Homes are mediocre investments. Oil seems to have bottomed, oil was down today and more stocks were up than down. Fed is confused, I don't think they know what they will do and when, inflation target met a few years out, they aren't any better at forecasting than the rest of us. The CNBC clowns seem to be disappointed when the market is up substantially. Better news in a negative/panic scenario. A guess, the market will be up more this year than last year. Some one tell me a better investment than US equities at the moment, not saying they are great but what is the alternative.
I didn't spend a lot of time, $1.90/mcfe operating costs, $1.50 G and A and interest, .$55 for maintenance cap plus $1.05 distribution, that's $5 /mcfe. At $3.50 and $65 prices, comes out to around $5/mcfe revenue, needed to cover the distribution. Current $2.60 gas and $48 oil doesn't cut it. And If I remember correctly they are spending another $1 per mcfe on additional capex, that's $6 /mcfe needed to cover outflows. And seemed the y/y exit rate production was about level so question the maintenance cap number. Best investors can hope for imo is the dist is maintained, better bets are elsewhere. Investors are blinded by the distribution which imo is not that safe longer term. The top tier shales can break even at $40 and the Marcellus producers can make money at $2 gas. ARP's assets don't stack up.
Do think the worst of the oil decline is behind but doesn't mean the recovery comes quickly, at least not fast enough for ARP. Looking at the five year strip for gas and oil,
Assume $65 oil and $3.5 nat gas for the next five years, today's strip roughly. ARP needs $5 /mcfe just to keep production level over that period with no cash to pay any distribution. If you value it as an e and p, there is little equity value. Prices don't recover above the strip and this is a $1 option on survival. Who would buy this without a distribution. There are better places to get a yield without the commodity risk. My guess is Cohen bails soon and starts over.
Commentary from Argus, seems about right, the top tier shales are profitable at $40 or less. DNR reserves are cheaper than deep water or oil sands. A good business but not the highest margins.
The problem is that the very large upfront capital
requirement for a CO2 flood means that Denbury needs
more certainty on long-term prices to approve these types
of projects. We believe Denbury can harvest cash flows
from existing production comfortably with prices at around
$55 per barrel (WTI), but the full-cycle tertiary
development of an oilfield with its CO2 methodology
probably requires at least $65/bbl long term.
Blue, EOG and PXD imo are best in class. And WMB, I have owned it for a long time. Probably not objective but they have been forward looking. I've always felt that they should combine with EPD which I think maybe is the best managed in the sector. This boom will cool at some point but still seems we have a few years to go. As for DNR, I can't see a good reason to buy it over the top tier shale players, which have lower costs. Seem DNR has become a proxy for oil in the short run but seems they need higher prices than the shale cos need to grow. I definitely don't think the yield strategy makes sense, maybe at $100 plus, but definitely not now. Have looked at the e and p MLPs and I can't see how they do much, am betting that most never recover again, as most are driven by gas prices which look anemic for years. I used to own ATLS/ARP and looked at their cost structure, 80% gas, 10% oil. They need $5 mcf gas prices to stay where they are, pay the dist and struggle to maintain production. LINE looks challenged as well. The MLP reserves can't compete with the Permian, EF and Bakken shales and Marcellus/Utica gas. The RRCs can make money at $2 gas. There is the prospect that the shale boom peters out in the future and we are back to the marginal barrel being the conventional oil reserves. In that case DNR would have good prospects again. Too far out to see right now, but it would be ironic if we were talking about peak oil again in a decade. In the short run there is still a contingent that sees $30 oil, I don't but it is possible. Laying down 700 rigs should show declines. We will look back on this time and probably say we should have seen the outcome, but who could have seen a decade of $3 gas. And the same thing affecting everything, technology will affect the energy business as well.