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Linn Energy, LLC Message Board

jrad52 146 posts  |  Last Activity: 15 hours ago Member since: Jul 25, 1999
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  • Reply to

    Question for Jrad52

    by arianorusso64 Apr 22, 2016 7:59 AM
    jrad52 jrad52 Apr 25, 2016 12:46 PM Flag

    Now I get your point. I hadn't thought about the 2016 K-1.

    Just replying to your last comment - every MLP has made what's called a "section 754 election". IT is only available to partnerships. When you pay more than (tax basis) book value for your units, NRP can compute a tax depreciation deduction based on the excess amount you paid, and this deduction gets reflected on line 1 on your K-1. When you sell your units, this deduction gets recaptured as ordinary income.

    But this works in reverse as well. If you pay less than tax basis book value for your units, NRP is required to compute negative tax depreciation (that is, it increases the income on your K-1) based on the difference between the price you paid for your units and your share of the company's tax basis book value. That income gets included on your K-1. So people that paid $ 300 for their NRP units (that is, $ 30, pre-reverse split) have large deductions flowing through on their K-1s. People that got in at $ 5 (post split) will show extra income on their K-1s.

    GAAP book value is about $ 6 per unit, post the reverse split. But that includes a GAAP impairment charge last year of about $ 50 per unit, which was not deductible for income tax purposes. So my guess (and it's just a guess; no MLP gives out the tax basis information) is that the company's tax basis book value is somewhere around $ 50 per unit or more. And it's possible that this might cause the K-1 income to exceed distributions.

    All this is simplified since we don't know what NRP allocates the excess/shortfall in purchase price to. But it will cause tax problems for lots of MLPs this year.

  • Should be interesting. Interesting as in bad. The EIA has got a release on its site this AM that shows electric demand down 6% nationwide in Q1, largely due to warmer weather than usual. From the map they have, it appears that temperatures were avbout 4 degrees warmer than usual in ARLP's area. Going into 2016, ARLP's inventories were high and some customers were already pushing out deliveries. I assume ARLP was able to cut production to keep it in line with demand, but we'll see tomorrow.

    As if coal didn't have enough problems. It's only 1 quarter (maybe 2, if they don't say anything nice about Q2 demand) but I think Q1 was a bit ugly. ARLP should still cover its distribution comfortably, but nowhere near last year's Q1 1.58 coverage.

  • Reply to

    TPUB

    by hotjeff61 Mar 15, 2016 3:58 PM
    jrad52 jrad52 Apr 25, 2016 11:35 AM Flag

    How do you feel today? Hopefully, you still own TPUB.

  • Reply to

    Question for Jrad52

    by arianorusso64 Apr 22, 2016 7:59 AM
    jrad52 jrad52 Apr 25, 2016 10:31 AM Flag

    I misunderstood your earlier post, sorry. I thought you were saying that the K-1 income exceeded the distribution. My experience with NRP is that it often showed positive taxable income on my K-1, but the income never exceeded the distribution.

    Mr. Robertson has lost so much money on NRP, it's crazy. I get confused with the reverse split numbers so I'll try to be careful. In Oct 2014, he bought 100,000 units (post split) for $ 120 per unit so you can figure out his loss on those units. In addition, he and entities controlled by him have owned 2.3 million units for years that were worth more than $ 700 million at 1 point. And you know what they are worth today. Unbelievable.

    I have owned NRP off and on almost since the IPO. Luckily I got upset when they bought out the GP's IDRs back in 2010 for 32 million units (3.2 million, post split) without a unit holder vote. So since then I have never been a long-term holder. I kept trying to find a bottom and the price just kept dropping, So I've had a multitude of small losses. But every penny I didn't lose on NRP, I lost on ETE.

    FWIW.

  • Reply to

    Question for Jrad52

    by arianorusso64 Apr 22, 2016 7:59 AM
    jrad52 jrad52 Apr 24, 2016 8:57 PM Flag

    The 1231 gain is just coal reserve royalty income. There is a special tax rule that allows 1231 treatment (capital gain for net gains, ordinary losses for net losses) for natural resource royalties. And at a time when the government didn't hate coal, this tax benefit was extended to coal royalties.

    I have owned NRP off and on for years and in most years my K-1 showed positive taxable income. But I never got a K-1 where the taxable income exceeded the distributions by much. Can I ask what you paid for your units? If you bought your units at a very low price, your taxable income would be higher. Another starnge tax rule, called Section 754. It's too late on a Sunday night to try to explain it now, but the section gives extra deductions on your K-1 if you paid more than book value for your units. And conversely, the election gives you extra income on your K-1 if you paid less than book value.

  • Reply to

    Question for Jrad52

    by arianorusso64 Apr 22, 2016 7:59 AM
    jrad52 jrad52 Apr 24, 2016 3:14 PM Flag

    If you ignore unusual items like impairments (which no one can predict), NRP's income should way exceed the distribution this year. The income could easily be 4 or 5 times the distribution. The problem right now is that the excess income goes to repay debt, not to increase the distribution. At least that's the plan.

    I'm not sure what you mean by your reference to last year. In 2015, NRP incurred a huge loss due to impairment charges. The loss was $ 45.75 per unit. If you exclude the impairments, net income would have been $ 8.80 per unit, which was almost 6 times the current distribution.

  • Reply to

    Question for Jrad52

    by arianorusso64 Apr 22, 2016 7:59 AM
    jrad52 jrad52 Apr 22, 2016 12:16 PM Flag

    Not until after the earnings/guidance announcement, probably late in the week after next.

    ARLP reports on Tuesday AM. ARLP is no longer an NRP lessee, but what they say should give some indication of Q1 results for the thermal coal part of NRP's leasing business. With all the met coal bankruptcies and sales, I don't know whose news release to watch out for, to get a hint into that side of NRP's business.

    The warm winter hurt thermal coal a lot, but maybe it helped NRP's aggregates business (VantaCore). Maybe more construction could be done? Vulcan, a much larger aggregates business, will report before NRP and that should give some idea of how VantaCore did. But that won't be until the week after next.

  • Reply to

    Change in director

    by infinitidrivr Apr 19, 2016 10:07 AM
    jrad52 jrad52 Apr 19, 2016 4:08 PM Flag

    Sorry, I don't recall that. The problem with Deer Run is (1) FELP hasn't been able to put out the fire and clear out the gases, and (2) because of slowing demand, FELP has no incentive to fix all the problems at Deer Run - it can shift the production to its wholly-owned Sugar Camp mine where it doesn't have to pay any royalties to outsiders. I can't see how Murray's involvement has changed any of this. I think the fire started at the same time that Murray was buying control of FELP, so I think he's been calling the shots about the mine all along.

    If I were a cynic, I might say that FELP is using MSHA and the Illinois Mining Agency as tools to justify that it is unsafe to re-open the mine. I would normally say that the mine will eventually re-open, but NRP has 2 experiences with Cline-owned mines that closed and never re-opened due to conditions beyond the miner's control.

  • Reply to

    Change in director

    by infinitidrivr Apr 19, 2016 10:07 AM
    jrad52 jrad52 Apr 19, 2016 11:57 AM Flag

    The guy that just stepped down, Mr. Holcomb, was also Mr. Cline's pick. Mr. Holcomb was the trustee of the trusts for Mr. Cline's children and an officer at several of Mr. Cline's companies. So this looks like Mr. Cline just replacing one of his own with another one of his own.

    Mr. Holcomb is 60 years old and the new guy is 40. Maybe it's a retirement thing.

    But whatever it is, I'm beginning to think that NRP's move is for real. I'm still waiting until the Q1 numbers and (hopefully) guidance for the rest of the year, but coal and energy MLPs have been pretty strong since mid-February. Let's see if NRP can hold onto double-digits.

  • The EIA estimates Q1 coal production to be 165 MM tons compared to 237 MM in Q1 of 2015. The drop is pretty much across the board - Illinois Basin production is down 30%, App is down 40%. Alabama (NRP has a met coal mine in AL that seems to produce about 15% of AL's total coal production) is down 30%. Everywhere you look, production is down unbelievably. Eventually, you would think this will lead to higher prices but that hasn't happened yet. Utility coal inventories are still way above average levels, so the lower production is being matched by lower demand so far.

    It's anyone's guess how this affects NRP's Q1 results, but coal keeps getting uglier.

  • Reply to

    Ask on the notes are up 45% at close

    by infinitidrivr Apr 15, 2016 4:16 PM
    jrad52 jrad52 Apr 15, 2016 4:53 PM Flag

    The first big maturity comes in 2017 - the revolver of $ 290 million. They rolled it over from a 2016 maturity and today you would think they will be able to roll over again next year, although it will cost some dollars. I assume the plan is to pay down enough of the revolver to get the lenders comfortable with another roll.

    Then comes 2018 and the $ 425 million of bonds. Maybe a combination of cash from operations plus new debt will handle that.

    As long as they can avoid covenant problems they should be OK until 2018 at least. But I think it depends on the energy markets between now and the revolver maturity in 2017. By then, we'll know if we have a democrat in the White House and if the coal markets have recovered. Who knows how the lenders will react to another extension request if pricing still stinks and we have another 4 years of the same regulatory stuff?

  • Reply to

    Value of Ciner Wyoming

    by jrad52 Apr 14, 2016 6:13 PM
    jrad52 jrad52 Apr 14, 2016 8:57 PM Flag

    It's more complicated - CINR got more than the 73% of OCIR's common units for the $ 430 MM. They also got a services agreement where they are charging the Ciner Wyoming operation more than OCI did - CINR was charging about $ 500,000 per month, now Ciner is charging more than $ 1 million per month. They also got the GP units, the IDRs and control of the entire operation. So the values aren't directly comparable.

    But that's getting away from my point. I have been posting for months on this board that I thought NRP's investment in Ciner Wyoming was worth $ 500 million or so, and that NRP should consider monetizing the interest, maybe by merging it with OCIR/CINR, ir not a complete sale. There hasn't been much support on the board for a sale - people don't like selling off the best investment that NRP has, and I can see that point.

    Now there's an analyst out there whose valuation of CINR would make you think NRP's interest might be worth $ 700 million. I can't see that valuation, but it's relevant to NRP. Maybe that value can help a refinancing that puts off the 2018 bond maturity.

  • Reply to

    Value of Ciner Wyoming

    by jrad52 Apr 14, 2016 6:13 PM
    jrad52 jrad52 Apr 14, 2016 7:11 PM Flag

    I think I used the words "maybe they could ..." I don't know whether they could or not. Only NRP has the info necessary to determine the choices and values. And they aren't talking much. I was just pointing out that some analysts think the Ciner Wyoming property is worth a lot more than I thought.

  • FBR recommended CINR yesterday aith a price target of $ 35. I don't think that target is reasonable, but it would equate to a value of $ 720 MM for CINR (adding back the public company debt), not including any value for the IDRs. Since NRP's interest in CINR Wyoming isn't subject to any IDRs, this would probably equal a value of at least $ 700 MM for NRP's interest. I have been using a value of about $ 500 MM in valuing NRP.

    CINR's price isn't there yet, and I'm not optimistic that it will, any time soon. But it's good sign for NRP.

    My recollection is that when NRP extended its credit line last year, they put up everything they owned, except CINR Wyoming, as security. Maybe they could do a separate financing of just the CINR Wyoming interest to fix their debt maturity problem.

  • Reply to

    Now showing up on the Schwab Home Page....

    by deepsea21 Apr 14, 2016 11:09 AM
    jrad52 jrad52 Apr 14, 2016 11:34 AM Flag

    So we share an interest in ARLP and a frustration with SCHW.

    I like the word "intermittent"; it sounds better than the "temporary" they were using earlier today.

    I'm in the middle of closing my E*Trade account because they can't get the 1099 right. But now I'm wondering which is worse - bad tax reporting or a complete inability to access my account.

  • Reply to

    Peabody Energy bankrupt

    by ayscuew Apr 13, 2016 7:02 AM
    jrad52 jrad52 Apr 13, 2016 6:38 PM Flag

    Slight corrections - Mr. Cline paid $ 7.5 MM for the reserves, not $ 10 MM. And the purchase took place in 2004, not 2002. For an old guy, my memory was pretty close.

  • Reply to

    Peabody Energy bankrupt

    by ayscuew Apr 13, 2016 7:02 AM
    jrad52 jrad52 Apr 13, 2016 6:29 PM Flag

    Sure I do. My numbers may be slightly off but the answer bis this - NRP owns approximately 200 MM tons of coal reserves around the Hillsboro/Deer Run mine. FELP itself owns about 600 MM additional tons of reserves at the mine, and I think Chris Cline owns another billion tons. I don't think Mr Cline's reserves are adjacent or developed.

    The story is actually interesting. Back in 2002, Mr Cline bought the mineral reserves from the Town of Hillsboro for pennies. I think he paid something like $ 10 million for 2 billion tons of undeveloped reserves, plus he agreed to build a mine and bring jobs to the town. He spent $ 300 MM or more building the mine. Most of the cost of the mine was funded by NRP, which bought 200 MM tons of reserves from Mr. Cline for $ 255 MM, which was used to build the mine.

    BTW, the following is the best (and probably the most useless) investing advice you will get today - Mr. Cline is by far the best investor in coal over the last 20 years. If you read that he is buying something, you should follow him. If you read that he is selling something, you should stay as far away from whatever he's selling as you can. Just ask NRP (the 2 Gatling mines), Mr. Murray (control of FELP), and maybe SXCP (the Louisiana coal handling terminal).

    I don't know the layout of the mine so I don't know if mining could be switched from one portion of the reserves to another. But if the mine is in operation, NRP at the very least gets $ 30 MM per year in minimum royalties. Until it re-opens, though, NRP is getting just about nothing.

  • jrad52 jrad52 Apr 12, 2016 2:29 PM Flag

    Yesterday, some banks upgraded SXC to strong buy - the parent, not the MLP. So you certainly may be right about the tariffs having an effect.

    And if the reference to "shorts" was for me, I'm not short. I'm simply out. I've been tempted to buy some NRP when it drops to the $ 7 range, and the last 2 times the trade would have worked. But last year, the 2 times I bought into a drop, NRP simply dropped more. So I'm waiting for the Q1 release and hopefully some guidance. In the absence of any guidance, I think NRP is simply a gamble with my having no edge.

  • SunCoke Energy, Inc. (SXC) has divested its coal mining business to Revelation Energy, LLC in a transaction that includes substantially all of SXC’s remaining coal mining assets, mineral leases, real estate and mining reclamation costs. Under the terms of the deal, which closed April 6, Revelation Energy will receive approximately $10.3 million from SXC to take ownership of the assets and associated costs.

    The deal excludes SunCoke’s legacy black lung and workers’ compensation liabilities, and certain properties that are necessary for Jewell Coke’s operation or were unavailable for transfer based on contractual provisions. SunCoke may transfer other properties to Revelation Energy after closing, subject to required consents, for additional payment to Revelation of up to $0.7 million.

    Revelation also agreed to deliver 300,000 tons of met coal annually to SXC for 5 years at "favorable" prices; they don't say what that means.

    So SXC pays Revelation to take the mines off its hands, and SXC keeps the employee liabilities. I guess that tells us what met coal mines are worth these days.

    And this is not a shot at NRP, which still doesn't trade on fundamentals. It's just coal-related news that I thought was interesting.

  • Reply to

    New debt

    by jrad52 Apr 4, 2016 6:40 PM
    jrad52 jrad52 Apr 9, 2016 8:03 AM Flag

    Actually, EPD is 40% oil services. Per the 10-K, crude oil pipelines and services generated $ 10.3 billion in revenue in 2015, out of a total of $ 27.0 billion of revenue. In 2014, the oil-related revenue was a higher percentage of the total.

    And what I'm about to add has absolutely nothing directly related to EPD, but it's interesting, and it shows that counterparty risk isn't the only thing to worry about with natural gas.

    Tallgrass Development (related to TEP/TEGP) just agreed to buy an additional interest in the Rockies Express Pipeline (REX); Credit Suisse wrote up a large article about the deal and they pointed out that a lot of REX's legacy contracts were signed when natural gas prices were much higher and the price they get for transportation is $ 1.50 per mcf. Current recontractings are closer to 30-50 cents per mcf. REX is a very long pipeline and I have no idea how far they were transporting the natural gas. The point I took from the article was just reinforcement of the idea that lower oil & natural gas prices are working their way through the system and everyone in the food chain suffers. REX's hope is that it can increase the volume it carries by enough to offset the drop in price.

    Again, just a general comment, not specific to EPD, but it affects everyone.

    Anyway, EPD's ability to refinance at incredible good rates and for incredibly long periods of time is a really good sign.

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