Why would anyone get bullish on ARP with nat gas not showing a futures price $3.50 until '22 and oil is still in the $50s beyond that. I'm sure Eddie is going to layer on some more hedges to solve the problem or float more pref's, guess Cooperman would buy some more. ARP doesn't have prospects that can make money at those futures prices, third tier assets. You are not serious about surviving without eliminating the distribution now, ARP might survive but not his ATLS strategy. This will all be obvious in the next few months, maybe weeks.
There is no futures price above the $50s on the strip. Read Yergin's Fortune interview, think is probably the consensus at the moment. Iran coming back prolongs the recovery. China is a mystery, not sure I believe anyone who says they have a good read on their future. OPEC is toast, the Fed is irrelevant. I sense that we are in the bottom but doesn't feel that this is going back up quickly. Not sure there is a playbook for the recovery.
DNR should eliminate the div, doesn't make sense to continue it with the uncertainty. And there are better bets if you assume $60 oil for a few years.
I can imagine the release, elimination of distribution will be buried in some "big deal" event notice, probably the merger of the two entities. That way, Eddie gets his hands on all of the cash flow.
Been going through my mind also. I think ETE still wants the assets and probably at this point, the old offer is probably all they need to do. ETE could sweeten the deal by merging WPZ into one of their LPs, I think. That is the approach that is speculated about with Spectra. I don't think the collapse again of oil will kill the interest, more a matter of who has a currency to do it. I've been trying to justifying buying more WMB but I have way too much, and own ETE also. Bids supposed to be in this week.
I don't follow service cos but looked at a couple of commentaries. The deal is expensive, but CAM is only 15%ish value of SLB. I guess SLB feels that deep water market will be part of the equation in the future, can't argue with that, kind of like Exxon's long term view. The deal will be accretive next year, SLB should be high teens, not cheap but they are the best service co in the business. Also, it does take them more into manufacturing which seems is more risky. Not sure it changes SLB's near term performance or detracts from it. If I was going to buy service sector, I'd buy SLB and HAL. I do think that in five years, we will be talking about peak oil and where we will get future reserves, deep water has to be a factor. Also think that the North America will be energy independent or close to it. In that context, the deal will look good. $40 oil can't begin to supply the world. If you had a 5 year outlook, buying everything oil would be a good bet but I think I'd stick with the best of breed cos.
Figure out what you would pay for ARP with no distribution. Still feels $4 is about right. If you believe the strip, the value is $2 at best. But probably dips into the $2s again. If you were a director of this co, would you payout 40% of the equity value annually. The rational answer is cut the dist now. Eddie may prevail for the benefit of ATLS and ARP is hung out to dry after the hedge values are paid out.
My posts have nothing to do with influencing value, it's $50 oil and $3 gas for several years that's driving the unit price. They just paid out $10mm in dist, that could have paid the interest on $100 million of debt for a year. I am old and owned the units until I got my fill of Eddie's empty statements. You'll find out. There is no way out of this without cutting the dist but he needs the cash at ATLS. Another solution is $75 oil and $4 gas in three years, I think oil will be there but not gas, and in the meantime volumes will dwindle. I think the whole e and p MLP sector will be gone in five years. Crummy cos with third tier assets.
Hope you're right for but don't see it with the dry gas coming out of Appalachia, EQT had a 72mmcf/d well. The Utica is just cranking up and the Marcellus keeps growing at lower prices. ARP can't compete. Won't see $3 average next year. The futures show a $3 handle into the next decade. What would you pay for this co without the distribution, most don't know. $4 value at the most. And most of that's in the hedges. Cheers.
Good question, that is the risk with the infrastructure cos. KMI says it has 88% or something like that fee based revenue, and some exposure to oil with their EOR operations, with hedges 95% of revenue is fixed. Risk is over time if the e and p s can't get a decent price for their commodity, pipes will suffer. And some of the gathering and processing MLPs have more commodity exposure to NGLS. Williams sees most of the projects for the next few years will be fee based. The G and P companies are more risky, less than e and p s but more than interstate pipelines. Varies by company. Some pipes have less volumes, some have been reversed to No to So for the Appalachian growth, some gas pipes have been converted to oil. The big risk is that the shales don't keep growing. The infra cos need volumes and not as concerned about price. If shale volumes increase a million barrels per day annually, they will do well, whether the oil price is $80 or $60. Seems to me that we need a million barrels /d more each year from the shales to supply the globe, and companies this year say they can make money at $60 now and volumes have stayed up. That's oil and gas keeps growing at lower and lower prices. Gas production will be up low single digits again next year, if we don't get LNG going at decent prices, the App gas could overrun the market. The gas infrastructure cos should continue to do well even with $2 + gas. I don't think ARP and many of the debt laden e and ps can survive, but the dist will blind people to that until they can't any longer. Add Cohen to the mix and you have a additional risk.
No one that is savvy shorts a $3 stock that is paying out 40% of equity value each year. There will be maybe a couple of e and p MLPS that survive but ARP won't.
Not hard to figure out, $2.14 /mcf gas rev won't cut it. Hedged was $3.30s, coverage of dist was 80s%. OIl hedged at $80s, $40s now. Gas prices for futures doesn't get out of the $3s for years. Only thing that bails them out is $4 plus gas. This is a $4 value at best and most of that is the hedges. I'm sure Eddie will figure something out. Keeping ARP value up temporarily before ARP buys ATLS for a premium. If you were going to invest with him, buy the GP, ATLS over ARP. A merger is coming with a cut in the dist.
ARP's average sales prices for natural gas before the effects of financial hedging were $2.14 per Mcf and
$4.13 per Mcf for the three months ended June 30, 2015 and 2014, respectively, and $2.34 per Mcf and $4.39 per Mcf for the six months ended June 30, 2015 and 2014, respectively.
Another perspective is the dist is around $1.25/mcf. And the current price of gas is around $2.70, that leaves $1.45/mcf for all other costs. Won't cut it. Even with hedges, didn't come close to covering the dist and maint capex was questionable imo. Glta, you'll need it with Eddie, will be interesting how he does it again. And it won't be to the benefit of ARP owners.
Actually the 2nd q HH price was a bit higher $2.74 and they netted $2.14. $2.70 less 60 cents, $2.10 /mcf less $1.25 /mcf for the distribution, 85 cents to cover costs. Just a matter of time if nat gas prices don't increase. Could happen but the futures sure aren't betting on it any time soon. ARP's value is the hedges and zero at best for everything else with projected futures pricing.
I think OXY might be one of the best e and p bets now, their EOR is double DNR's, have 2 mm acres in the Permian, so great shale potential, and debt is 10% of EV. They have the capital to grow. DNR doesn't. Also pays a 4% div, no risk of being cut.
I hope that this works out for those who are long term holders. But I'm afraid that Eddie will do a number again on his owners. I remember when my ATLS was $50 plus and not long afterwards, he sells out at $32 so he could pursue his e and p dreams. Bad macro, same for the micro and questionable management, not a good combination. See you at $4, gas that is. Glta
DNR is a good bet with a recovery in oil but the shales are lowering their costs. The oil futures don't show a price out of the $50s until the next decade. The best shale cos will outperform. And the certainly don't need to pay a dividend, that was a flawed strategy.
With oil dipping below $50 a barrel, it's a tough time for
any exploration and production firm, but the impact is
particularly acute for tertiary specialist Denbury
Resources. The firm's carbon dioxide flooding process
sacrifices cost advantage for more predictable resource
recovery. The high up-front capital cost and delayed
impact on production mean the economics of these
projects don't stack up well against those of nontertiary
drilling in the shales. Profitability is marginal at around
$60/bbl, which means Denbury's expansion projects are
on hold for the time being.
Book value for an e and p is worthless, works kinda for a bank. If you overpaid for all of your assets, the book value is inflated. The reserve value this year will be cut dramatically. ENI just found 20x the gas reserves that ARP owns, LNG may not do much for US gas. Reserves don't cover the debt at $3 gas.
Just saw a blurb that Permian operators are bullish at $60 oil. The question is how much can the cores produce. Just saw an analysis that US prod could be 8mmb/d by end of next year. That and $50 oil, even $60 oil doesn't cut it if the US shales are the swing producer.
Hofmeister came up through human resources, not that savvy on operations. Not sure I would place much weight on what he says. Boone maybe and will see if $70 is the end of year number. Looks like it could be deferred to mid '16. We really don't have a play book for this recovery, OPEC is irrelevant, the swing production is short cycle shales and we really don't know how fast they can come back with a price cue. Still think DNR is a second tier asset compared to the shales. Will be part of the mix but not the low cost marginal supply. Do think in five years, it will be up multiples of $4 but so will a bunch of companies.
DNR hires COO, guess they figured out they needed someone with a tech background. They need to jettison the CEO, cut the dividend and hunker down.