I'm still around, still debating whether to add more. The only issue I have is the macro, think the shales do well with $70 oil or $90 global oil, good for CEQP and other midstreams but have to work through this slump. Have been buying TRGP, SEMG, PAGP and OKE. Just a matter of buying less risky ones with more clear sight of growth. But at a 9% yield for a GP, if they can get decent growth at CMLP, say 60 cents dist next year, 4% yield, $15 unit price, or even 5% yield, 100% upside it seems. ENLC is yielding
MLP yield spread currently at over 4% pts suggests expected return of 25% over the next 12 mos based on history for the MLP sector. If you believe the 10 yr rate stays stable, probably as good a return as you will find. OKE div at $2.50, 4% yield, $63 stock price, 40% total return. Risks are interest rates and oil price.
The current 406bps yield spread (AMZX) is above the 10 year average of 347 bps (Exhibit 5). We remind in
vestors that the most common yield spread tranche for the AMZX/US 10 Yr spread is 200-249 bps (Exhibit 7). The yield spread would need to narrow 157 bps through either higher US 10 yr yields or lower MLP yields to reach this threshold.
Another piece on storage, Cushing is 70mm bs while total US is 450mm bs, may be another 100mm b available. Showed 11 weeks to fill based on last few weeks. Cushing doesn't matter as much as it used to. And there is 80mm bs of tanker storage, only 10mm stored. Right to think this is more of a media event than real but it could come close while supply starts to drop.
The Forbes article on storage. There always seems to be more to the story. Gist of article is that storage is filling up because of contango. At some point barrels will come out of storage but filling up doesn't seem to be a big issue???
So with weak demand it looks like U.S. oil storage will just keep filling up. The good thing is that outside of Cushing there’s still some room. According to the U.S. Energy Information Administration, 60% of total U.S. oil storage is currently filled, compared with 48% a year ago. Cushing, they say, is 67% filled. Drillers should count on some tough weeks ahead for oil prices.
Analyst comment below on e and p MLPs, think it about sums the issue. Can work but doesn't work. It's not a growth vehicle so why would you have a GP taking IDRs when there isn't any growth. My advice is sell now and find another e and p altermnative, Exxon pays almost a 3% div and had returned 15% annually for the past thirty years.
Conceptually a fixed payout upstream MLP that maintains a prudent acquisition strategy, low leverage, a realistic capital expenditure deduction approximating finding and development costs, and high distributable cash flow coverage could work, but we've yet to see a cycle-bucking example.
Don't know, there is more storage than just Cushing. Plains said there storage would fill in April I believe was the claim. It's all short term and is not that important except if you are betting on short term oil prices, then it's a big deal. The more important issue is what the equilibrium price will be, I wish I knew. Whether oil drops to $39 in April won't be an issue, but whether it rebounds to $90 or $65 long term is more important, imo. I used to be in the $90 camp and now it's going to depend some on how much oil we can produce in the US at $65. If you extrapolate EOGs double digits to the industry, that would be maybe a million barrels per day of increased global supply. Increased demand at 1% is about the same but then how much oil will be supplied by the rest of the world at $65 when you need maybe 5 million just to replacement natural decline. I don't think $65 cuts it. But then you have Iran that has a half a million barrels to start pumping. In that scenario, $65 is too low and $100 was too much. Maybe the $90 before becomes $80 per barrel. Still a good business for the shale cos. And as good a business for the infrastructure companies, maybe better.
Cooperman believed Cohen's bs, I am just glad to be out of ATLS/ARP. The merger forced my hand. Have bought a bunch of TRGP, good management that will do what they say they will. Guess I shouldn't feel too negative since my buys were mid single digits but this could have been a better story with good management. Buyer beware.
See if I can get this right, last Friday ATLS was $32 per share. You got or will get $9.12 in cash, 1/2 half sh in the new ATLS, value today of $8.76/2. $4.38 and .1809 shs/sh ATLS of TRGP, .1809x$98.60, $17.84. Total value today is $31.34. The value in the new ATLS is down some and the TRGP value is about the same. Was not a good time to do the deal for ATLS owners but not sure Cohen had a clue and still doesn't. Probably will be a great deal long term for Targa.
But you see how the stock reacts, not really dinged for it, lessens leverage risk and reduces upside gain. Seems an issue if you are making a higher risk leveraged bet and they take away that scenario. Less risk and less upside. There are some that have no choice, it's either sell equity or march to bk if prices don't recover quickly, GDP was in that boat, saw analyst say they are good through 16. Selling equity is good for the debt holders would think. I think I would be suspicious of any levered co right now, more secondaries to come?
XOM analyst day pres, always interesting, the best capital allocator in the sector over the long haul. Shows costs per completion stage over time, costs have gone from $250k to $150k and prod per stage has gone from 700 b/d to 1200 b/d. Oil at $100 allowed cos to bring costs down. And would bet the trend continues. And XOM engineer says they can break even at $40, would bet that goes to $30 in five years. And they lead with the Permian Basin but they do have a huge acreage position over the entire basin. Midland could supplant Houston as the energy capital of the world. Another data pt, repeated, is the growth in developed countries over next couple of decades will be nil and growth in emerging countries gets us to 1% growth annually. If you wanted a long term forget about it bet with good income, about as good as it gets. And the will make money in the downstream as well.
Thinking about all of secondaries, new debt, high grading drilling, feeling that production is not going to fall the way some predicted. Plains see $70 oil for a few years. Bottom line for me, but it is my bias, is the infrastructure cos continue to do while the e and p s do ok but not as well, the absolute low cost operators, EOG, PXD... the smaller marginal, high debt players stumble along. All of this could be the new paradigm, the short cylcle nature of shale vs long lead time projects. Noticed that Anadarko will drill lots of wells this year but defer completions, storing oil in uncompleted wells? Interesting times.
CNBC has a reporter in Cushing. All of the forecasts for a blow out to $30s tells me it's not going to happen. If it does, it will last a day. There does seem to be a lot of private equity, hedge fund money that thinks energy is still a great buy, another piece of conventional wisdom that makes me nervous. I would like to see more pessimism, Carlyle said that have billions, KKR same....
Best bets today, EOG, DVN, PXD, CXO, FANG. Permian is king. EF, Niobrara and Bakken top tier. With EOG you get Delaware, EF, Bakken, Niobrara, can inc prod double digits at $65. DVN has $7 billion of Enlink midstream value. Combination of EOG, DVN would be interesting, won't happen but interesting. Or PXD, CXO, that would be Permian powerhouse.
Looked at DVN pres, may be in the EOG class, 1.2mm acres in Permian, good EF asset, OK, oil sands. Well managed co, good balance sheet. $7 billion of Enlink value. CS makes point that there is a CXO imbedded in DVN for the Delaware assets. Anadarko called their Delaware asset world class. EOG, DVN, CXO, PXD would cover the basin and some, plus EF and other plays, EOG and DVN both see the Powder River potential. Not sure we don't have another dip as storage is filled but who knows. EOG says it can grow double digits at $65 oil, that could be telling for future oil price if US is truly swing producer, interesting times. 10 mm barrel build at Cushing, surprised oil is not down more, maybe we have bottomed, betting not.
CS analyst $56 oil this year, $72 next year. Seems that is the convention now, lots of private equity money looking for bets. Something doesn't feel right, seems we haven't had enough pain yet, he did say that investors are looking through $30 oil in the spring. Today, I don't agree, it will be painful, to what degree, not sure. I just don't see equity investors ignoring a $30 oil price but could be wrong.
If it weren't for Cohens, I'd say this is an interesting play but I'm not sticking around to find out. Lessons learned, the CEO does matter, MLPs for e and ps don't work in the long run, still think that is the case. Schwab said new TRGP will show up by Thurs. Seems they should merge ATLS and ARP to make it work. He will find out how to screw it up, how long is the issue.
Now it's 30%, stock is down 75% and you sell 30% new equity, that seems irrational to me. Lots of smart? money, SPO taking 25% of secondary, Carlyle says it has billions to invest, putting money into sector. Will see how smart they are in a couple of years. Aubrey looking for more capital. Again, e and p execs love to drill and increase production. ?????
OAS dilutes by 25%. Seems most will do it. Curious why you wouldn't just operate through the slump. Probably good for the midstreams as the e and ps keep on producing, I guess.
OAS dilutes by 25% with a secondary. Not sure I understand why they are all doing it, if you thought oil was coming back soon. The issue I always had with e and p execs is they like to drill and produce sometimes more than thinking about shareholder returns. Seems like every co will do the same, at this point, no one is penalized.
Andy Hall, ex Phibro, says low is in for oil, does feel the sentiment is changing, may be premature. He likes EOG and Permians cos, agree with that. Seems the levered names should do well if the bottom is really in.