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Inergy, L.P. Message Board

jrad52 98 posts  |  Last Activity: 3 hours ago Member since: Jul 25, 1999
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  • Reply to

    Gets worse by the hour

    by ayscuew 6 hours ago

    We need a scorecard to keep track of the players. NRP didn't buy its interest in the properties from Whiting, it actually bought its interest from a different company - Kaiser something-or-other (Kaiser Francis maybe?). NRP has a part-interest in the wells themselves - it doesn't lease the properties to anyone. Whiting operates the properties on behalf of all the owners, including itself.

    The oil & gas properties were an unfortunately timed investment, to say the least. But in Q1 the properties produced $ 15.6 MM of gross revenue (at $ 40/barrel) and about $ 7.5 MM of cash expenses. If you consider depletion, NRP probably didn't make any money on the properties in the quarter, but they had cash flow. And Whiting said its average revenue per barrel in Q2 was higher than in Q1. So they will probably show some cash flow.

    The big issue is whether NRP will finally tell us about the state of its lessees, with ANR filing this week. The oil & gas properties are too small to matter. I think part of VantaCore's aggregates business is also dependent on oil well drilling, so I don't expect much from that operation this Q. OCI Wyoming will do just fine. But the 800-pound gorilla is the coal business. FELP said on its earnings call that its Hillsboro/Deer Run mine (leased from NRP) has been closed since March due to a "combustion event" (can't they simply say "fire"?). They have reopened the mine and I'm sure that they paid minimum royalties while the mine was closed, but that's not a good sign. NRP management must have some idea of ANR's plans, but I doubt they will share that information with the outside unit holders.

    I think it's about time for NRP to start impairing some of its reserves. It wouldn't be terribly important but it would be honest.

    We'll see soon enough.

  • Reply to

    Can someone explain to me?

    by cscorona84 Aug 3, 2015 1:31 PM

    Just to be clear, I'm not trying to argue for investing in ARLP as opposed to FELP. I have owned ARLP since before FELP IPO'd, which is why I'm invested there. I bought some FELP just after the IPO but in a moment of sanity (or good luck) I sold it soon thereafter. I don't think the market invests enough time to put a proper value on either company - these are 2 of the last 3 coal MLPs (I'm ignoring Westmoreland because of its size) and people are just dumping.

    Yes, I agree with your read of the subordination period resetting, and I think there's a good risk that period resets no matter what. It's not enough for FELP to pay the minimum distribution on all units through the start of 2017. The distributions have to come out of operating cash flow to count for ending the subordination period. So unless Murray decides to drop down some good assets to maintain the distribution, I think the subordination period is likely to reset.

    As to reclamation costs, I think they only kick in as a cash cost when the mine has closed. So FELP has accrued for the costs and it has some surety insurance but I don't think they are paying anything now so I don't think it affects their cash costs. ARLP has a very large liability recorded for reclamation costs, but it is only paying out a few million dollars per year and they expect to only have to pay $ 2 - $ 3 million per year for the next 5 years. It's a long time before the big costs come due. My point was just that ARLP treats those costs as contractual and includes them in the minimum payment schedule even though they won't get paid for years. FELP doesn't seem to include the costs in that schedule, and its contractual minimum liabilities are still twice as high as ARLP's.

  • Reply to

    No obvious explanation

    by ferdinando_cortese Aug 3, 2015 4:52 PM

    If it means anything, TNH is also tanking today, so the problem seems more than just UAN. With TNH it's especially weird because its parent company, CF Industries, is actually up on the day. Both TNH and UAN make nitrogen fertilizers. UAN uses pet coke to make most of its fertilizers, while TNH uses old fashioned natural gas. So I doubt it has anything to do with the emissions rules.

    FWIW.

  • Reply to

    Can someone explain to me?

    by cscorona84 Aug 3, 2015 1:31 PM
    jrad52 jrad52 Aug 3, 2015 8:20 PM Flag

    When times get really bad, like now, I look more to the downside on the balance sheet. FELP, which produces about bhalf as much coal as ARLP, has $ 1.5 billion of debt, with no really big repayments until 2018. In total, FELP has contractual obligations (principal and interest and minimum take-or-pay contracts) totaling $ 3.3 billion at December 2014. At the same time, ARLP has debt of $ 875 million and minimum contractual obligations of $ 1.3 billion as of December 2014. Further, ARLP includes reclamation costs in its numbers while FELP doesn't, so the difference is bigger.

    FELP went public with essentially zero equity - part of the IPO proceeds were used to pay donw debt and Mr. Cline took out every other penny of the proceeds. I know they are incredibly efficient (actually crazy low costs) but FELP's IPO was designed for better times than we are living through.

    Don't get me wrong - I am struggling with my reasons to hold onto my ARLP as well. Both FELP and ARLP said similar things on their last calls - coal will struggle until 2017, at which time both companies think there will be a pick up in coal demand and pricing. But if I estimate that the second half of 2015 will be similar to the first half, and 2016 will be worse than 2015, both balance sheets will deteriorate a lot. And if coal markets don't improve, the companies' lenders will force distribution cuts. And I think the damage will be worse at FELP because of its higher leverage.

    BTW, FELP leases a lot of its reserves from NRP and its minimum royalties are about $ 4 per ton. So if you take that number out of the $ 22 total cash costs per ton, the actual cost of mining is incredibly low. Great business model, but an absolute disaster of a coal market.

  • Reply to

    Can someone explain to me?

    by cscorona84 Aug 3, 2015 1:31 PM
    jrad52 jrad52 Aug 3, 2015 3:52 PM Flag

    I don't see why you say the market is anti-FELP but not anti-ARLP. Over the past year, ARLP is down almost 50% while FELP is down 57%. Those are Yahoo numbers, so take them with a grain of salt, and I don't know if they include distributions. But the pain is being shared pretty equally.

    And CNXC is too new and has a really tiny float to be a fair comparison. A good deal of its drop happened before the IPO, when the price was cut from $ 20 to $ 15.

    I think the issue is that these are the only profitable coal companies out there so they aren't trading under $ 1. So it looks like one is trading better than another, but I don't think that's true.

    FWIW.

  • Reply to

    Model for 2016

    by sublimesubprime Aug 3, 2015 1:48 PM
    jrad52 jrad52 Aug 3, 2015 3:46 PM Flag

    I think you're leaving out SG&A, which is on a run rate of $ 25 MM per year including the Murray cost savings. Also, you're light on interest expense - it's running $ 30 MM per quarter this year, and the debt balance is growing (it was $ 1.35 billion at Dec 31, now it's $ 1.5 billion) so I don't see interest expense dropping. And at 38 cents times 130 MM units, I get a cash need of just under $ 200 MM.

    As a suffering ARLP unit holder, this isn't a good time to be own either ARLP or FELP. Different specific issues to an extent (can FELP crack the Illinois market?), but all I see for both is pain for the next 2 years. And depending on who gets elected next year, maybe the pain lasts even longer.

  • Reply to

    Earnings? When is it?

    by keving1001 Jul 30, 2015 8:21 PM
    jrad52 jrad52 Jul 30, 2015 9:54 PM Flag

    I don't see that the company has announced a day or time, but it should be before the market opens on August 6.

    OCIR reports after the market closes on August 5th and that will tell the world how NRP's investment in OCI Wyoming did. So I'm guessing NRP reports the next morning before the market opens. At least that's how it worked last quarter. OCIR reported after the close on May 6 and NRP reported before the open on May 7.

    But that's just a guess. Like I said, I don't think NRP has publicly given a specific date or time.

  • Reply to

    You know when i would buy this stock

    by econ1216 Jul 23, 2015 6:14 PM
    jrad52 jrad52 Jul 30, 2015 2:06 PM Flag

    I don't know how old you are, so I don't know what the "rest of your life" equals.

    Just 2 points. 1. Mr. Craft owns a lot more than 700,000 units of ARLP. In addition to the units he owns directly, he owns about 35% of AHGP's units and AHGP owns 31 million ARLP units. So his real ownership stake is somewhere north of 10 million units.

    and 2. Unless or until there is a permanent and significant reduction in coal production, we will have coal miners fighting for a piece of a shrinking pie. On the call, ARLP said that there were mostly OK through the end of 2016 (95% sold for this year, 65% sold for 2016) and they believed that by 2017, the coal markets would have stabilized. They aren't much contracted for 2017 yet, and that will be a real problem year unless production is removed by the competitors. ARLP is counting on the hope that coal won't drop below 30% of the utility market, mostly for the reasons you mentioned. Right now, I think we're getting paid to take the risk that ARLP might be wrong. We'll see in the next year or so. Especially we'll see who the next president is and whether we will start to export LNG.

  • Reply to

    Earnings out

    by jrad52 Jul 30, 2015 8:57 AM
    jrad52 jrad52 Jul 30, 2015 10:00 AM Flag

    Thanks. Now I see the prior announcement.

  • jrad52 by jrad52 Jul 30, 2015 8:57 AM Flag

    A little confusing, mostly due to the Murray deal impacts.

    I don't see any announcement of an earnings call. They have done quarterly calls in the past. Does anyone know if they will do one today? The Q&A sessions on prior calls were very informative.

  • WLL operates NRP's oil wells in the Williston Basin. WLL reported that in Q2 its realized price per barrel was $ 44, compared to $ 38 in Q1. That's still not enough to make NRP's purchase last year look good, but it's certainly a sign that NRP's oil & gas operations should be better than in Q1.

    We'll see when they report.

  • Reply to

    BTU credit rating cut

    by ayscuew Jul 27, 2015 5:05 PM
    jrad52 jrad52 Jul 27, 2015 5:14 PM Flag

    ARLP reports tomorrow too. It should be interesting, especially on the call (unlike NRP, ARLP does earnings calls).

  • jrad52 jrad52 Jul 27, 2015 3:23 PM Flag

    From your mouth to God's ear, as they say. But 2030 is way beyond my investing horizon. I'll be happy to be up over the next few months.

    2 things I'm really interested in - 1. the status of the contract dispute where a customer is trying to break the contract due to EPA requirements about the coal that ARLP is delivering. I'm not expecting any real update. I'm more concerned that other customers might try to join the dispute because their contract prices are way above current spot.

    2. White Oak - who are they selling to and what's the sales contracting status.

    Good luck to all tomorrow morning.

  • Credit Suisse has a report out on CNXC this morning, with an Outperform rating and a $ 22 price target. You can see it on E*Trade's or Schwab's site, and probably a few other brokers as well if you're interested. Basically they say that things are bad but not as bad as the current price indicates.I doubt this will mean anything to CNXC's price today.

    Full disclosure - CS was one of the firms that handled CNXC's IPO.

  • jrad52 jrad52 Jul 27, 2015 8:14 AM Flag

    We'll see the Q2 numbers tomorrow AM. I don't know when we will see m$ 30, though.

  • jrad52 jrad52 Jul 23, 2015 9:42 PM Flag

    Doesn't the subordination period end with the next distribution in October, as long as they pay 47 cents in October?

  • jrad52 jrad52 Jul 23, 2015 4:26 PM Flag

    3 points:

    The current owner of the terminal, Raven Energy, purchased the facility in June 2011 for $ 73 million. At that time, its capacity was 4 MM tons. It has now been expanded to 10 MM tons and obviously Raven spent something for that expansion. Now SXCP is buying the terminal in the worst market for coal in anyone's lifetime for $ 412 million. I suspect SXCP paid an optimistic full price.

    The current owner of Raven, Mr. Cline has a track record of selling coal assets at full price. He sold reserves to NRP for several hundred million dollars that turned out couldn't be mined. He also sold most of his NRP units in the $ 20s and $ 30s, compared to the current $ 2.60 price. He sold a controlling interest in FELP to Murray Energy a short while ago, and FELP's price has tanked since then.

    The major user of the terminal seems to be FELP, based on statements in FELP's 10-K. There are other customers because the numbers don't match up otherwise. But FELP is the biggest customer. And FELP said in February "Our international sales are legacy transactions that were entered into several years ago and are either hedged or fixed prices contracts that are impacted by the current price weakness in the international market." Later they added "So with the declining sales book into the international market from the 6.5 million-ish tons last year to 4.5 million-ish tons this year." And somewhere they added that with the strength in the US dollar and the drop in coal prices, they had not signed any new contracts for the export of coal since 2013.

    I was tempted to buy back into SXCP until this announcement came out. But not now.

  • Reply to

    What's nxt?

    by ayscuew Jul 21, 2015 5:28 PM
    jrad52 jrad52 Jul 21, 2015 6:52 PM Flag

    Actually, in a bankruptcy, the bankrupt estate can choose to continue or cancel its existing contracts. Until very recently, most coal companies that filed for bankruptcy were still cash flow positive at the mine - the bankruptcy was due to overleveraging or employee post-retirement costs. So the companies had an incentive to continue the leases and keep mining.

    With prices where they are now, it's a closer decision. But in NRP's favor is that closing a mine accelerates all the miner's remediation expenses, among other things. So the miner's creditors have some incentive to keep the mine going, if only so they won't have to split what little they may get with the reclamation obligations. So right now there's no easy answer.

    And as polytechic said, lower production will eventually lead to higher prices.

    At current prices, NRP is not trading on any fundamental data. It's all stock trading driven. It could be up or down 20% tomorrow and I couldn't say I would be surprised.

    But it's better today to be up 20% than yesterday (or last week) when it was down 20% in a day, to state the obvious.

  • Reply to

    Sale of OCI Wyoming?

    by jrad52 Jun 23, 2015 9:18 AM
    jrad52 jrad52 Jul 20, 2015 12:28 PM Flag

    SO OCIR's parent sold its GP interest and its LP interests in OCIR to a Turkish company. I didn't see a price. But all the Turkish company bought was the parent's interests - it didn't offer to buy out the public unitholders. And presumably NRP keeps its interest in OCI Wyoming.

    I still think NRP would be better off selling its interest in OCI Wyoming, depending on the price and multiple, of course. But not today.

  • Reply to

    Taking the other view

    by ayscuew Jul 19, 2015 5:32 PM
    jrad52 jrad52 Jul 19, 2015 6:11 PM Flag

    If your reason for holding is the expectation of $ 100 oil, why not skip NRP, with all its coal baggage, and just buy an E&P company/MLP?