I'm with those who are expecting a slightly better Q2 distribution compared to Q1. My reasoning takes a lot of space so feel free to ignore the rest of this post.
In Q1, NTI’s average daily production was 94,000 barrels. There were 2 unplanned maintenance events which lowered production. NTI had forecast Q1 production to be between 90,000 and 94,000 bpd so they came in at the high end of guidance. And they gave that guidance at the end of February, when 2 months of the quarter were already in the books. So I assume that, similar to the past, they are conservative in their guidance.
NTI has guided Q2 production to be between 95,000 and 99,000 bpd. They said this at the end of April, so there were 2 months when things might have gone a little wrong, but I’m assuming they will hit the higher end of their guidance.
In Q1, NTI also sold 4,000 bpd beyond production. They also held back some asphalt sales because they thought pricing would improve in Q2 and Q3, which is the only time asphalt can be put down in Minnesota apparently. So again, I’m expecting some amount of sales out of inventory in Q2.
So overall, I’m assuming sales of about 99,000 bpd, with a hope that they will be higher. This should be a record Q for production for NTI.
As everyone on this board probably knows, NTI compares itself to the PADD 2 6:3:2:1 crack spread because of location and because asphalt is a much larger portion of NTI’s production than it is for most other refineries. I have no wa6y of tracking the PADD 2 6:3:2:1 spread.
But in Q1 of 2015, the PADD 2 spread was $ 12.81 per barrel and in Q1 2014 it was $ 11.47, all per NTI. EIA posts the Gulf Coast crack spread which has nothing at all to do with PADD 2 or asphalt – it’s all Gulf Coast pricing for oil, gas and diesel. But in Q1 2015, the EIA spread was $ 13.56 per barrel and in Q1 2014 the EIA spread was $ 11.47. So maybe it’s coincidence, but I’m going with the spread published by EIA until it stops working.
In Q2 2015, the EIA spread averaged $ 17.41. So before factoring in North Dakota or West Canada pricing, I assume the benchmark spread will be up about $ 4 per barrel.
Finally, in Q1, NTI picked up about $ 6.50 or $ 7.00 per barrel from using West Canada or North Dakota oil. On the last call, they said pricing in North Dakota had tightened due to lower production. I didn’t see that they said anything about West Canada pricing. So I’m guessing (and that’s all it is, a guess) that the benefit from using ND/WCS oil will drop at least $ 1. I’m hoping there won’t be any drop, based on pricing I have seen on PAA’s site.
Long way to say I think NTI’s refining gross margin per barrel (which was about $ 19.50 in Q1 ignoring the LCM adjustment) should improve by maybe $ 2.50 to $ 3 per barrel, which should add between $ 25 MM and $ 30 MM to the gross profit. NTI should give back maybe $ 5 MM in added direct operating expenses, based on guidance. They should give back $ 12 MM in extra cap expenses. And they might give back $ 5 MM in discretionary cash reserves.
Overall, I expect DCF to be similar to Q1, with a hope that maybe it will be $ 10 MM or $ 15 MM higher, if I’m wrong about oil feedstock prices. The distribution will follow DCF.
Actually, I think it's great news, although the benefit to NRP will be limited due to its reliance on met coal. I thought last week's coal miners drop might be due to people's expectation that the Supreme Court would decide in favor of the EPA. But there hasn't been any real bounce in ARLP at least.
I see that someone at the Wall Street Journal also thinks the upcoming Supreme Ct decision is causing this week's coal disaster.
Also - CNX's thermal coal MLP was supposed to price yesterday (actually, the night before, I think) at a price between $ 19 and $ 21, yielding 10%. Apparently it priced this morning at $ 15, a 25% discount to the expected range, and a yield of almost 14% (vut who knows for how long), The scary part is that CNX accepted the lower price. They clearly don't need the money (they're only raising $ 120 MM) but they obviously want out badly.
Today's decision upholding the ACA subsidies has absolutely nothing to do with the decision expected in the next few days regarding the EPA's decision to regulate power plant emissions without considering the costs of implementing the regulation. But the way coal stocks (continued to) trade today, one might reasonably think that investors are expecting a similar pro-government decision supporting the EPA.
Got it. The problem was that I was reading the transcripts from the Q4 and Q1 earnings calls, and you presumably were listening to the conference call that dealt specifically with the purchase of the soda ash operation. From that call: We paid a good price to FMC but because we have the ability to have some synergies that other people don't have we were able to pay the price and still produce acceptable returns.
They talked sort of inconsistently about the "synergies" - a few times they stressed they were going to run the soda ash business as a separate unit, which would lead you to think the operational synergies wouldn't be that great. At other points they mentioned some operating synergies because both TROX and the soda ash business have similar structures. And of course, they mentioned the tax savings but said they weren't the driving force behind the deal.
As to OCI Chemical wanting out - OCI is a Korean company with operations all over the world. I can't know how well they are doing overall or what pressures they may have at home. Maybe they need a sale to fund some other operation? They bought their share of the operation in 1996; I don't know what they paid. When OCIR went public, OCI Chemical's investment was $ 175 MM. OCI took out $ 95 MM in the IPO and probably another $ 80 MM since then. If they can sell the rest for something like $ 450 MM (net of debt), they will have more than tripled their investment in 2 years. Maybe that's a good reason to exit now.
Sorry about the math error. It would cost NRP about $ 450 MM to buy out the parent company's interest in OCIR, plus something for the IDRs. I thought the parent owned 50% of OCIR's common units, but the actual percentage is 75%.
Look on the bright side - maybe there's something going on and they're in a quiet period and not allowed to trade.
Not real likely, but now that I'm a unit holder, I can hope.
Yahoo has these problems quite often and it's happening again today. I have had maybe 4 or 5 posts disappear shortly after I posted them, and none had any links in them. For a while I changed to really short 1 or 2 sentence posts and that seemed to work. The message boards seem to be working now, though.
I used to own TROX when they first did a restructuring a few years back - I sold it when they disappointed on their projections and cut their dividend projections.. So I know a little about the company. I just did a quick scan of the earnings call transcript.
TROX's has a lot of tax issues - although they have a large US operation, they are headquartered in Australia, which confuses their GAAP tax provision. But on a cash basis, they have huge NOLs in the US (from the litigation settlement that was funded by Anadarko) and most of the profits they make are outside the US so there's a mismatch. And yes, the soda ash business they just bought fits in nicely because all the income is in the US so the NOLs can be used.
But I didn't see where they said they paid a premium over market value for the operation. I will re-read the transcript tonight to be sure, but I didn't see that specific comment.
And they got FMC to agree to make a 338(h)(10) election on the deal, which means TROX gets a full tax basis step up for the assets it purchased. The depreciation on that step up will also shelter a lot of tax. Usually an (h)(10) election is worth a 15% - 20% premium to a buyer. In this case, because of TROX's NOL carryover, I would think they would only pay a smaller premium but I'm not sure.
Both OCIR and NRP can offer a buyer a full tax basis step up as well. So can OCIR's parent company, for that matter.
My feeling right now is that the parent company wants to sell out and OCIR will continue as a publicly-traded MLP. Sort of like last eyar when WNR bought out NTI's general partner and NTI continued as a separate MLP. If NRP can find the financing, it might want to buy out OCIR's parent. I'm hoping, though, for a complete sale of NRP's interest.
There hasn't been any movement in OCIR's units either. But the story is official now, but a little different – OCIR filed an 8-K saying that its parent company is exploring strategic alternatives with regard to its stake in OCIR. The 8-K doesn’t say anything about a sale of OCIR’s 51% interest in OCI Wyoming..
Buy you asked whether I intended to buy any NRP units. I bought some this morning. Probably just a short-term fling while I wait to see if anything develops with regard to OCI Wyoming.
I think the idea of NRP buying out OCIR is pretty unlikely. On one of its recent earnings calls, OCIR commented on TROX buying one of OCI Wyoming's competitors. They said that an equivalent price for OCI Wyoming would put OCIR's units in the low $ 30s. At that price, it would cost $ 600 MM to buy out all of OCIR, plus a little extra to buy out OCIR's parent's IDRs. NRP would have to sell a ton of units at $ 3.50 to raise that amount of cash. More likely, NRP would raise debt for most of the price plus do a private placement for the equity piece. I don't know if the lenders have an appetite for that. Alternatively, it would cost NRP about half that to buy our OCI Chemical’s interest in OCIR. Still a chunk of money.
But the specific language in NRP's 8-K about the revolver makes me think something is up
Last post from me on this subject - the Bloomberg report said OCIR was considering the sale of its 51% interest in OCI Wyoming.
But the 8-K actually says something different. It says the controlling partner in OCIR (OCI Chemicals, whatever) is exploring strategic alternatives for its interest in OCIR. So that could just be a sale of the 50% of OCIR that OCI Chemicals owns, plus the IDRs. It may not have anything to do with any sale by OCIR itself. So maybe no real impact on the OCIR unit holders.
On the last earnings call, OCIR mentioned that TROX had purchased one of OCIR's competitors, and an equivalent price for OCIR would be in the low $ 30s.
I posted about this earlier today but Yahoo is eating my posts if they are longer than sentence or 2.
Anyway, on the weekend Bloomberg reported that OCIR had hired Citibank to explore a sale of its interest in OCI Wyoming.
So put 2 + 2 together (probably to get 5), maybe a deal is in the works. Good or bad? IF NRP is selling its interest, it will have a huge gain (taxable to the unit holders); it will be able to pay down a lot of debt and it will be an uglier company going forward. If NRP is trying to buy out OCIR's interest, no taxable gain, lots of new debt and a better looking company going forward.
Late last week, when NRP announced its amended/extended revolver, it mentioned 3 separate times that the revolver would be secured by liens against all of NRP's properties except its interest in OCI Wyoming.
My posts on this board are disappearing again, so I'll try this in twitter-type posts.
Late last week, Bloomberg reported that OCIR had hired Citibank to explore a sale of its 51% interest in OCI Wyoming. No confirmation from the company.
Tempted to buy SXCP? Yes, but I hope I resist. I owned SXCP from the IPO until last year. I made a good profit, but sold when the stock had already started its slide so I would have done better selling sooner. I follow the company in general.
My general reason for not wanting to buy is that I don’t see any possibility of growth in SXCP’s distribution. Even assuming that its current contracts to provide coke to the 3 steel companies keep going as planned (no buy-outs, no bankruptcies), you’re getting paid 12%, let’s say for 10 years. Present value that income stream at say 6% and you get a value of about $ 16 plus whatever SXCP might be worth in 10 years. And considering the risks in the business, I think a 6% discount rate is too low. Considering the shrinking blast furnace steel making business, I think in 10 years SXCP isn't worth very much.
I like OCIR much better than SXCP, for example. You’re getting a 9% yield, the business is growing slowly, no one is yelling to ban soda ash. There are risks to the business just like there are risks to every business. But blast furnace steel looks like a shrinking industry, and the risks to SXCP are just too much for my taste.
Considering how ugly the trading has been for coal stocks and coal MLPs for the last 2 years, it's strange to see 2 new coal MLP IPOs.
CNXC is expected to price next week. A cynic would say it's CNX's way to exit the thermal coal market. It's expected to yield 10% at the midpoint of the IPO range.
And something called Bowie Resource Partners, a really tiny western coal miner, just filed an S-1 to take the MLP public.
I can see why the sponsors are doing the IPOs; I can't quite see who the buyers will be for the IPOs.
Anyway, more supply + no added demand means more ugly pricing in coal MLP-land.
NRP could make the comparison easier, but it looks like the extended and amended revolver:
1. Increases the interest rate by 1.5% per year. It's a variable rate based on different standards (prime, LIBOR, etc) that NRP can choose, but the add-on amount looks like it's up by 1.5% per year.
2. The annual commitment fee on the unborrowed amount has been increased slightly.
3. The financial covenants look like they have been relaxed a little, starting next year. On the other hand, it looks like NRP had to secure the revolver by everything it owns except OCI Wyoming. The lenders may place mortgages on the coal properties to secure the debt.
4. The accordion feature (the amount NRP can ask to have the revolver increased to) has been dropped from $ 500 MM to $ 350 MM.
Overall, it will cost NRP a few million dollars more per year depending on the amount borrowed at any given time. But considering the state of coal these days, getting the revolver extended even for 1 year is a good accomplishment.
They announced their intention to invest $ 50 MM in oil & gas properties when they announced Q4 earnings. The investments are supposed to be made over several years, with about half of the money spent this year. The amount is so small as to be silly for ARLP to bother with the investments. But that's what they said.