Not much of interest, except that it blamed its lower-than-expected electric generating results on a few factors, including a cooler than normal summer so people ran their a/c less. ARLP does not disclose that it sells coal to AEP, and it may well not, but presumably the weather was the same in the Louisville Ga & Electric and TVA areas. Probably not much of an issue, except on the margins.
Last of my rambling comments.
The only analyst comments I have access to regarding NTI is Credit Suisse occasionally. The last time I saw it mentioned was several months ago, and I don't recall anything special, one way or another.
And finally, I doubt there's any buy out coming. NTI was acquired by a private equity firm 5 years ago or so and that firm took NTI public and later sold its GP interest and its remaining LP units to Western Refining, a C Corporation refiner. WNR also controls a logistics MLP (WNRL) so they seem comfortable with the MLP structure, Plus, since they own the GP units, no one other than WNR can do a buy out of NTI. If anything, I would think WNR might eventually drop down another of its refineries to NTI. But I can't see a buy out.
Do me a favor, please. I don't even check this board out any more because of all the loonies. If you read this message, just reply - I don't much care what you say, I just want to see if any reasonable person might still be on the board. Thanks.
NTI is unique among publicly-traded refiners in that it sources 100% of its oil either from North Dakota or Western Canada. Generally both of these oils are priced at a discount to WTI or Brent, including transportation costs. But the discount varies a whole lot. So in looking at oil prices, you need to consider the spread between Brent (which largely determines the price of gasoline) vs WTI, and then the discount between WTI and ND/West Canada Select. Several years ago, when NTI was minting money, the ultimate spread between Brent and NTI's sources was as much #$%$ 40/barrel. No longer. The spread between Brent and WTI has shrunk drastically in the past 2 years but it has expanded slightly in recent days to about $ 6 yesterday. I can only get prices/differentials for the different North American fields occasionally, and I haven't seen them recently. The last time I saw that data (a few months ago), the spread between ND and WTI was shrinking also. So NTI still has a benefit, just nowhere near what it used to be.
So it's not the price of oil, exactly, that affects NTI's margins. It's the relative prices of several oils.
If you think about it, NTI is ultimately affected by the price of gasoline vs the price of oil as described above. You can see the average crack spread each day on EIA.gov, and it has dropped a lot recently (bad). That benchmark doesn't reflect the ND/WCS price differential, though. And NTI makes a lot of low profit asphalt so the benchmark spread will only give you a rough idea of NTI's probably profitable.
As I assume you're aware, NTI is a variable distribution MLP, so there's no "regular" dividend or distribution to maintain. It jumps all over the place. Especially in Qs where they need to do work on the 1 refinery they own, when the distribution drops a lot. So last year's Q3 distribution was only 31 cents, compared to 68 cents in Q2 of last year. I hope they can keep the 53 cents they paid last Q.
I don't think the taxable gain qualifies for long-term capital gain treatment. When NCT spun of NRZ last year, the taxable amount was reported as a nonqualified dividend. You can find a detailed description of this in the Investors section of NCT's web site. The nonqualified dividend treatment (same as for NCT's cash distributions) is limited to the amount of NCT's 2014 E&P, which is its income from normal operations and its appreciation in both companies that were spun off during 2014. I don't see any way to get cap gains treatment for the gain. Which is why people might want so sell NCT prior to the spin, if you hold it in a taxable account and you've held your shares long enough.
There are no subordinated units in today's volume. The subordinated units have never been registered for public sale with the SEC and they cannot be traded on an exchange.
I am aware of several MLP situations where the operations deteriorated to the point that the subordinated units got zero distributions and had no prospects of any future distributions. Keep in mind that if the subordinated units have no prospects of getting any distributions, the IDRs are also just about worthless.
In 2010, the holders of 21 million subordinated units and the IDRs in EROC contributed those units and IDRS back to the MLP (which immediately cancelled them) in exchange for 4.8 million new common units. At the time, I thought EROC had overpaid for worthless units, but EROC's common units were not trading for a whole lot at the time and the exchange was part of a bigger deal.
OXF, another coal MLP, just agreed to a deal (subject to LP vote) that would result in the conversion of the subordinated units to something called liquidation units, which would apparently only get any cash upon the future liquidation of OXF. And since liquidation is not contemplated by OXF or its presumably new controlling owner, this means that OXF recognizes that the sub units are worthless. RNO is not anywhere near as big a disaster as OXF, but it's headed in that direction.
There was an MLP, CEP I think its symbol was, that was in a similar situation but I don't know what the resolution was in that case. I think CEP had sub units but I'm not even sure of that.
RNO's subordinated units have a book value of about $ 12.50 per unit, but they will only get cash in the case of a complete sale of the company or its assets, unless you think that we are likely to see the minimum distribution reinstated any time soon. Considering the value of coal assets today, an asset sale would be unlikely to generate much cash for the subordinated units. They are really close to being worthless.
Keep in mind that there will be continued selling pressure for the rest of 2014.
RNO generated a fully taxable gain in Q2 (capital? Section 1231? RNO hasn't said, but I think it's 1231) of about $ 4.50 per unit. RNO has not said how it will allocate that taxable gain on the K-1s - I think it gets 100% allocated to whoever owned the units in the month the deal closed, but maybe not. RNO hasn't said. Also, the $ 4.50 assumes that a portion of the gain will be allocated to the subordinated units. I think that's right, based on how the gain was allocated on the 10-Q, but I can't be sure. Whatever the number, some people will see a huge taxable gain on their K-1. If those people are smart (and some posts on this board makes me wonder about that), they will have to sell their units this year to generate an offsetting capital loss.
On top of that, people will need to take some losses to offset any taxable capital gains they have from other investments this year. RNO is a prime candidate for tax loss selling.
And after a60% drop from Monday, and probably a 70% drop from the high, some people will simply sump the stock if they haven't done so already.
So I'm expecting that any bounce back in the unit price, no matter how small, will be met by more people selling, so RNO is probably dead money for the rest of the year, at best.
I don’t really see much of a bull case, except maybe really long-term. And if you’re perspective is long-term and you like coal, I’d suggest you look at ARLP/AHGP and maybe FELP, but only after FELP reports Q3 numbers. Goldman Sachs, for one, is expecting a Q3 disappointment from FELP.
At Monday’s closing price of $ 12, I don’t see any bull case, not short-term, not long term. At today’s price, however, there’s a case to be made, I think.
RNO has not given any 2015 guidance yet, and I don’t think I would trust them if they did. But the Pennyrile mine should offset some of the met coal/CAPP coal weakness. Earlier this year, RNO projected that Pennyrile could generate $ 7 MM of cash flow based on the first 800,000 ton contract, with improvements if they could sell more of the 2 MM tons the mine is capable of producing currently. So maybe 2015 could be similar to 2014 (not saying much), with no more Pennyrile mine building expenses, and we could be looking at a significant increase in the 20 cents distribution. But by “significant, I mean maybe 40 cents, tops for 2015, with increases from there if Pennyrile is successful. I think they could do more, but I also think that’s dreaming. Keep in mind that the sub units don’t get anything until the common units get $ 1.75 or $ 1.80 per year, so there’s no sharing of the CAD with the sub units for a while.
So it’s not much of a bullish case. If Pennyrile works out, the market might get comfortable with a 40 – 60 cent distribution over the next few years. OXF is trading at about a 6.5% yield on the new distribution, assuming their deal goes through. So maybe we’re looking at a $ 6 - $ 7 unit price sometime in 2015. And the really good news is that there can’t be any more really significant cuts to the distribution – they can only cut 5 cents from here, so the downside is limited.
Full disclosure – I used to own RNO, sold maybe 2/3 after the Q2 release (obviously I didn’t sell enough) and I bought some more yesterday looking/hoping for a bounce that hasn’t arrived.
For people who think the distribution cut is a short-term issue, listen to what the company has said so far this year.
In Q1, cash available for distribution was $ 2.9 MM. If you pro forma this number to eliminate interest expense (because the company basically repaid all debt at that time), CAD would have been $ 6 MM. for a coverage ratio of about 78%. At that time, the company projected CAD for all of 2014 to be somewhere between $ 29 MM and $ 34 MM, for a full year coverage ratio of 100%.
But Q2 turned out to be a disaster, and the company’s projections for the full year dropped drastically. In addition to the generally weak coal market, RNO had a roof cave in at Rhino Eastern, losing 10 days of production, a rail tunnel fire at Mine 28, shutting down the mine (and they said the shut down would continue due to weak sales), and a $ 1.6 MM charge to settle a some legal claim and some unexpected healthcare claims. On top of these items, CAPP met coal sales were down 64% versus 2013, resulting in $ 20 MM less revenue. And finally, RNO said that it had essentially zero sale commitments for 2015 CAPP coal. For 2014, the company had sold or had contracts to deliver 1.2 MM tons of CAPP coal; for 2015, contracted sales volumes were essentially zero (actually, 75,000 tons to be exact). The one bright side was that Q3 would see the first barge shipment of coal from the Pennyrile mine. Other than that, things were really bad.
The company then reduced its projections for the rest of 2014 but changed the format of the projections so that the damage wasn’t entirely clear. If you take the actual CAD for the first half of 2014 and add in the projected CAD for the second half, you get a total of about $ 15 MM, for a coverage ratio of less than 50%. If you pro forma the number to eliminate some of the interest expense, maybe CAD for 2014 will be around $ 18 MM, tops. In 3 months, the projected CAD dropped 40% - 50%. Probably the company was way over-optimistic at the end of Q1.
And in Q2, the company started borrowing money again, after essentially repaying all debt in Q1. So we couldn’t assume zero interest expense going forward any longer.
So at the end of Q2, the new CAD number would support a distribution of about 20 cents per Q on the common units, and zero on the subordinated units. And that assumed a rebound in operations in the second half of 2014, which didn’t seem to happen.
So a cut was inevitable. The size of the cut was surprising, but I guess Q3 continued Q2’s terrible news.
So that’s the bear case, and it’s a pretty strong one; the distribution cut implies worse news to come with the Q3 earnings release, met coal remains dead, and maybe the Pennyrile mine will at best offset the continuing CAPP coal disaster.
The 1.18 p/e ratio includes the sale of their oil & gas properties earlier this year. Outside of that nonrecurring item (unless they can find oil in one of their coal mines), the company is losing money.
And they have been cutting expenses for the last 2 years.
And if RNO could sell a coal mine these days, it would. Unfortunately, everybody and his brother has mines for sale and so far, no takers that I have read about.
I would have preferred that RNO cut the distribution back in April when they sold the oil & gas properties and paid down debt. A cut to 20 cents per Q could have been done at that time without as much pain as today.
I looked at the partnership agreement and it says pretty much what I expected as to liquidation rights.
First, the subordination period cannot end until the common unit holders (that's people like you) receive cash distributions equal to the minimum distributions plus arrearages. That will never happen now. So the subordination units will never get another distribution from operations, and WLB is recognizing this by essentially giving up its nonexistent right to operating distributions.
But the partnership agreement also covers what happens in case of liquidation of OXF. This section is extremely confusing, and since I don't own OXF, I wasn't really interested in parsing it all out. But upon liquidation, the common unit holders would be entitled to receive (assuming there was enough cash available) all the distributions in arrears on their units plus the amount of their original investment less any distributions made by OXF on those units. After that, the sub units share in whatever cash is left over.
Currently, this is all irrelevant since there's no way OXF's assets could be sold in liquidation for an amount that would pay the partners any significant amount. If there were such a chance for a sale, I assume the GP would have investigated it. Further, when "new OXF" recapitalizes later this year, I'm sure a new partnership agreement will be adopted that will be based on today's values, not the values on the date OXF did its IPO years ago.
But it seems that the liquidation units will only have any value in the unlikely event that OXF or "new OXF" sells its assets and liquidates.
I'm thinking there's a similar issue at RNOl not with liquidation units (because they don't have any) but with regard to the rights of subordinated unit holders. I think RNO's subordinated units had very little value before yesterday, and today I would think they're about worthless.
Forget mid November. There are probably a bunch of owners that don't follow their investments in real time. They'll get home tonight, see RNO leading the top percentage losers list and tomorrow will be a (smaller) echo of today's trading, at least in the AM. I was hoping to see a bit of a bounce this PM but no such luck.
Neither. They continue as an MLP with a very small distribution and price.
The added problem is that we are coming into tax loss selling season, when people sell their losers to offset any taxable capital gains they might have (obviously not from RNO). So there will be continuing selling pressure for the next few months. The only question to me is whether there will be any bounce from today's debacle. If there is, it will disappear by year's end.
Hair splitting. MLPs don't have shares, they have units (functionally, they are the same as far as trading goes; but legally there are differences). In light of today's 60% haircut, the difference isn't meaningful today, but MLP investors often pick on people who use the wrong terms. Similarly, MLPs pay distributions, not dividends. There are a few others, but like I say, today it doesn't matter much. Stock or share or unit, it's down a whole lot.
So far this year, RNO's average daily volume is 60,000 units. It has 16.7 million common units outstanding.
In its trading history, daily volume has never exceeded 265,000, except for the day of its IPO.
Volume today is almost at 3 million units, or 50 times the average volume, or more than 10 times its next highest volume day, and there are still a few hours in the trading day.
I would think a lot of today's volume is people selling units they bought earlier today and deciding they had made a mistake (the falling knife issue). But the price dropped so far, so fast, that maybe that's not an issue (ignoring the guy who claimed to have been stopped out at $ 9).
Anyway, at some point the sellers have to be exhausted. The buyers might not be interested in coming back any time soon, so I'm not expecting any real bounce. But I bought some units in the high $ 4s to see what happens.
FWIW. As you can easily see, I'm not much of a technician.
When NRP cut its distribution 36% in January, the units dropped 20%. It has since stumbled lower, up and down, so its about 31% lower than where it was before the cut.
Back in 2012 and early 2013, OXF, a very small coal MLP, eliminated its distribution in 2 steps. After the second cut, the unit price had dropped 62% from where it had traded before the first cut. (Drop of 26% in October 2012, followed by a 30% drop in January 2013, when the final cut was announced.)
Last night, RNO, yet another small coal MLP, announced an 89% cut in its distribution and it's trading down around 60%.
So in the coal space, NRP isn't looking so bad.
I am certain that the 8.5 MM units were sold, and I am certain that the over-allotment (the 1.275 MM units) will be sold as long as the price stays above $ 12.02. NRP did a final prospectus filing that indicated the 8.5 MM sale was successful, with closing expected on Oct 10. If somehow it had blown up, they would have said so.
Plus, Mr. Robertson and his family have done some filings to show that they bought some of the 8.5 MM shares. If the offering had been unsuccessful for some reason, that wouldn't have happened, either.
Well you didn't read the first Risk Factor as printed in every 10-K filed by RNO for the past few years: "We may not have sufficient cash to enable us to pay the minimum quarterly distribution on our common units following establishment of cash reserves and payment of costs and expenses, including reimbursement of expenses to our general partner.
We may not have sufficient cash each quarter to pay the full amount of our minimum quarterly distribution of $0.445 per unit, or $1.78 per unit per year, which will require us to have available cash of approximately $13.2 million per quarter, or $52.8 million per year, based on the number of common and subordinated units outstanding as of December 31, 2013 and the general partner interest. The amount of cash we can distribute on our common and subordinated units principally depends upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on, among other things"... (and then they go on to list all the things that could go wrong)
As for not paying the minimum distribution and its effect on MLP status, look at OXF (stopped paying its minimum distribution in 2013; it hasn't paid any distributions at all for more than a year), CEP (stopped paying any distributions in 2009 and was eventually sold), among others. And the list of MLPs that have cut or suspended their distributions is very long. In 2008/2009, many cut or suspended their distributions. No effect on MLP status because there is no requirement that MLPs pay any distributions.
And your reference to becoming an S Corporation is simply loony. Public entities cannot be S Corporations, period. There are limited on the number of shareholder, the types of shareholders, and the different classes of stock that prohibit any public entity from being taxed as an S Corporation. And most obviously, the entity first has to be taxed as a corporation before it can elect to be taxed as an S Corporation. RNO is a limited partnership and cannot be taxed as an S Corp.
You should have read more carefully. There never was a guarantee that they would pay any amount. The "minimum" distribution was just a factor in computing distributions on the subordinated units. It was never a guarantee.
And there is no distribution requirement for MLPs.