I just glanced through it. Itactually has some encouraging news on the coal front - ACI gave up its lease on the Pardee mine in CAPP, and NRP has been able to re-lease the property to a new miner (something called Revelation Energy). No mention of the terms of the new lease but money will still be coming in.
And I did not know that NRP acquired another coal reserve in the Illinois Basin in June of 2014. I'm getting old so maybe I just forgot but I'm pretty certain this is the first mention of it. The property is leased to BTU and produced almost 700,000 tons of coal in half a year. Again, no mention of royalty amounts.
A few other items but the most puzzling is new disclosure on debt maturities. NRP is now showing a ton of new repayments due in 2016 (I think the new repayments are related to the oil & gas purchase, maybe) and it warns in several places: "While we believe we have sufficient liquidity to meet our current financial needs, we will be required to repay or refinance the amounts outstanding under Opco’s credit facilities prior to their maturity." Required to repay or refinance before the maturity? Why? I don't understand that one yet. But I'm giving up for tonight.
At least for a while. ARLP and AHGP just filed their 10-Ks today and 1 interesting thing popped out.
Current and former members of management as a group owned 26.9 million units in AHGP as of 2008. Over the past 6 years, that group has been shrinking. I guess that when the people retire, they are given direct ownership of their share of the units; they may not sell them immediately, but eventually they do. Whatever they do, those units become part of the public float. Since 2008, the group has distributed 5.3 million units to retired members of the group. And a lot of those units have apparently been sold. In 2014 alone, about 1.2 million AHGP units were distributed (plus more in February 2015), and I guess there's been some continual selling pressure. So AHGP has traded weaker than ARLP in recent years and probably will continue.
At today's close, AHGP yields 39 bp more than ARLP. AHGP's price would have to rise $ 3.16 just to equalize the yields. And since AHGP's distribution increases 26% more than any increase in ARLP's distribution, the discount is silly.
But no more on the discount.
I agree with you. I may very well buy back in after I see the 10-K but I do want to see what they say about a few things first. I don't think NRP is going away and the risk-reward isn't bad here.
But I have a personal 30-day rule (not the tax wash sale rule). If I sell a stock, I don't get back in for 30 days. Otherwise I find myself doing a lot of second guessing trading way too frequently. In this case, the 30 days gets me past the 10-K filing deadline so on both scores I'm waiting.
You are absolutely right. I think I complained that they didn't give us a full balance sheet so we don't know where the write-down was. But based on the Q3 inventory number, they carry a more than a few days of crude inventory - they carried at least 15 days of crude oil feedstock at that time, and maybe a few days more. And because they own a lot of their own stations, they carry more finished goods inventory as well.
My main answer to you is that if the write-down reversed in Q1 they would have said so on today's call. They didn't say anything like that, which is why I think the loss is real and permanent. And it's in the rear view mirror now, hopefully just a 1-time bump in the road.
But you raise a good point, and I didn't make my question clear. First, the write-down was equal to 25% of Q3 inventory so I suspect it's about the same % of Q4 inventory. Now I know NTI is mostly Bakken/WCS but I don't have prices for those, so I'm using WTI. WTI dropped a few percentage points (maybe 4% or 5%) in the 2 weeks prior to Dec 31, so I can't see that being the cause of the write-down. Nationwide gas prices dropped maybe 10% in the 2 weeks before Dec 31. Neither of those moves would explain a 25% inventory write-off.
So until I can see the balance sheet and maybe some explanation in the Inventory footnote, I don't know what to think. My current thinking is that NTI probably uses a standard cost accounting system with a true up for LCM at quarter end. That might make some sense, but it would mean most of the loss actually took palce during Q4 and not just at year end.
I'll take you at your word, but that explains the difference in our investing. You bought at $ 16.42 in 2003, and NRP broke $ 40 in 2007 and 2008. So you could have doubled your money (at capital gains rates) and still collected 4 or 5 years of distributions. But you held, and have lost 80% of what you could have had, less 7 years of distributions. And there have been plenty of signs of trouble in coal, certainly since the 2008 Presidential election.
That sounds like a criticism but it's not. I've done the same, but with different companies. For example, I own APL - a great buy in 2009 and 2010, rode it to $ 40 and now I'm happy that NGLS is taking me out of my misery in the high $ 20s. So I lost a lot of what I could have had. I don't lose sleep over it but I try to learn from it. If a company has problems, I'd like to sit on the sidelines while it fixes them. I don't get inat the bottom, but I try to avoid major losses.
My favorite holding period for MLPs is forever, to steal a quote from Warren Buffet. But I'm not old enough to count on dying as a solution to my tax problems. So I sell when I think one of my MLPs is hitting the skids. And NRP has hit the skids big time. Twice in 2013 and 2014 it looked like it was coming out of the skid, but they were head fakes. But it's basically a solid company and I'll continue to watch it.
Not for a while. They did some work late 2014 and that should be it for a while. From the Q3 earnings call (I don't know if they updated the timing today): "But we hope within three years, we will have the vast majority of it complete. One may lag a little bit later than that which is – which is the most complicated one as relocating the solid de-asphalter order because a couple of other projects have to have before that to really make that happen. But I think certainly in 2016 or no later than 2016, we will have the desalters done and the crude units are scheduled for turnaround in the 2016 and early 2017, so we will probably complete those projects at the same time and then our next regular catalyst change for the distillate hydrotreater and the kerosene hydrotreater will dictate the timing for the two expansions on those units and those were all in it at same time."
So I don't think they're planning anything big in 2015.
You first posted favorably on NRP back in early December when it was at $ 10. So while you might be right long term, you haven't been so far.
And I got out a little above $ 8.25 so I'm still ahead on NRP.
And to be fair, Barron's has a piece out today quoting JP Morgan analysts who believe we've hit a bottom for coal. They recommend ARLP (which I own) and FELP (which I don't). They don't mention NRP.
I don't claim any expertise in refining. But a few data points:
When CVRR announced, they had an "unfavorable LIFO accounting impact" in Q4 of $ 154.6 million. (Can't anyone just say "loss"?) CVRR's inventory at Sept 30 was $ 484 million. So I was expecting NTI to show a good-sized loss, and actually its $ 73 MM loss wasn't that bad compared to CVRR.
But here's the funny thing - I did not read WNR's release in any detail this morning. But its write-down on inventory in Q4 was $ 78.6 million. WNR consolidates NTI in its numbers so that includes NTI's $ 73 million write-down, so all of WNR's other operations only had a $ 5.6 million loss? There has to be something I'm missing, but I don't have the time or inclination to read WNR's release more closely.
The call should be interesting. They need to explain the inventory write-down. And they should include a balance sheet and cash flow statement with the earnings release so that people can try to understand what actually happened in the Q.
Most importantly, there isn’t anything surprising in the release. They had a good Q, offset by the inventory write-down, which had to be expected.
The release doesn’t explain the inventory write-down. Was it at the refinery or the stations? Was it in raw materials or finished goods? I want to stress that it doesn’t matter; the Q4 slide in oil prices was (hopefully) a one-time event so the write-down shouldn’t recur. In fact, recently retail prices have risen a bit, so maybe NTI will have a little pick-up in Q1. I’m just disappointed in the company’s disclosure.
The inventory write-down was not noncash, no matter what the company says. NTI paid cash for oil and refining costs, and the resulting product was worth $ 73 million less than the costs to make it. The write-down will never be reversed because the inventory has probably already been sold at this time, and replaced by new production.
The company should have been more honest and said something like: “Like everyone else in the oil patch, our results were affected by the unprecedented sharp drop in oil prices. We think it’s a one-time event and should not affect our results going forward.”
Next, there is no real $ 55 million “reserve” that can be distributed in future quarters. The cash balance actually declined from Q3 to Q4. The cash balance is the lowest it has been since Q4 of last year. The reserve is tied into the inventory write-down. The “reserve” is just the company’s way of describing the cash needed to fund the supposedly noncash inventory write-down. The money is gone.
This was tied into the company’s decision to start carrying its own oil feedstock inventory at the worst possible time. But that’s a business risk and I won’t criticize the decision. Just bad luck in the timing.
The inventory write-down was about 25% of the Sept 30 oil inventory number. Not a whole lot different from their competitors.
And just to be clear, I own NTI and plan to continue holding it. The basic business is strong and the WTI-Brent spread has risen again. But the company needs to re-think its disclosures.
CNX used to be mostly a coal operator, but it has developed oil & gas properties in recent years. In addition, it sold its CAPP coal mining business last year to Murray Energy. No surprise, it stresses that it is now an oil & gas operation, with a significant piece of coal exposure. It sold a partial interest in its midstream business in an MLP that launched in December.
A few months ago, CNX announced its plan to spin off part of its thermal coal operation in a new MLP. I thought it was going to use the MLP structure to sell a piece of its met coal operation, but all I can find now is that it plans to do a traditional C Corp IPO of that operation. Not sure when either the MLP or the IPO will occur.
Anyway, on Barron’s site this morning, some analysts had comments about the plans for coal.
FBR Capital Markets put out an update on Consol Energy (CNX), calling it its top pick, not only on the company’s ability to grow its gas output but to monetize non-core assets, including an upcoming master limited partnership for its thermal coal division.
Analysts Mitesh Thakkar, Megan Repine and Chase White raised their target price on the stock by $2, to $43, highlighting the stock’s ongoing asset sales in the fourth quarter (with proceeds of $270) as well as the planned initial public offering of its thermal coal MLP and met coal subsidiary.
They write that these moves put the company “firmly on the path to achieve its annual $100 million to $300 million target,” and estimate that the thermal coal MLP “could potentially provide about $3–$9/share in valuation uplift.”
More highlights from their note:
CONSOL’s Pennsylvania coal assets are currently valued at $3.8 billion within our total CNX sum-of-the-parts (gross of debt) value of $13.4 billion ($10.3 billion net of debt). While it is hard to segregate, the market could be assigning an even lower value given the CNX corporate trades at a 25% discount to sum-of-theparts NAV. Given most MLPs are income vehicles, we compare CNX’s yield potential with the peer group and believe CNX’s thermal coal MLP could be worth $4.8 billion to $6.2 billion, implying a $3 $9/share valuation lift relative to current structure.
I don’t follow CNX so I don’t know the relative size of its thermal and met coal operations. In total, they are a bit smaller than ARLP, and I saw that 15% of CNX’s coal reserves are met coal.
But strange things are happening. First FELP does its coal MLP, now CNX; not too surprising since CNX’s coal operation is quite profitable. But a met coal IPO? We’ll see.
You are probably right, but in January NRP filed an 8-K with the SEC showing its proforma Sept 30 balance sheet as though the Kaiser Francis deal closed on Sept 30. There was no asset retirement obligation liability disclosed. And the way the deal was negotiated, I would have thought that any asset retirement obligation on the date of closing would have reduced the cash portion of the deal and I don't see any such reduction. And I can't see the activities of the operation for the 6 weeks that NRP owned it creating that big a liability,
So probably it's what you say. But I'll wait until the 10-K comes out to be sure.
By itself, the $ 5 million is irrelevant. But it would be nice to see what it is, and how big the liability is likely to grow each quarter.
Hello from the NTI board. You're the second person I've seen from one of the MLP boards posting about NEWT. Because NEWT is so small, I'm surprised to see anyone from another board.
I think you're right about the impact of the stock dividend - it's meaningless to your ownership - more shares, lower price, equals the same position. But the stock dividend will be taxable in this case, and because the stock dividend will be large, relative to the stock price (maybe 20% of the stock price), people could be buying into a significant tax hit.
But the size of the tax hit depends on your tax bracket as well as the number of NEWT shares you own. Because NEWT will be distributing C Corporation earnings, I would think the dividend would be a qualified dividend. And the tax rate on qualified dividends is zero, up to a pretty high amount of income ($ 60,000 or $ 70,000, I think, for a joint return). So many investors don't need to worry about the tax. Others should buy it in a retirement account. It all depends on your situation.
I'm not sure I understand your question.
The question I had was this: assume there are about 10 MM shares outstanding right now. A $ 4.50 dividend, 80% in stock, means about $ 3.60 in a taxable stock dividend. At today's price, that would be another 2 MM shares distributed, or 12 MM in total.
When the company gave guidance for $ 1.80 per share distributions for 2015, they said the quarterlies would vary (starting at 38 cents) but end up at an average of 45 cents per Q. So my question - does that reflect the 10 MM shares or the 12 MM shares? They don't expect to issue the special stock dividend until late in 2015, so maybe the answer is that they only intend to pay the regular dividend on 10 MM shares.
I listened to the December investor call and they did not address the calculation of the dividend. Just $ 1.80 per share for 2015 and a $ 4.50 special, 80% in stock.
That's why I think you'd have to be crazy to own NEWT in a taxable account at the time the special is paid. If they do a stock dividend equal to 20% additional shares, presumably the price will drop 20% and you're left owning exactly what you had to start with. But you still have to pay tax on the stock dividend, so you're way behind if you own NEWT in a taxable account.
Was that your question? Or did you have something else in mind?
There's another dividend question you didn't ask.
In November, NEWT converted to a BDC, effective Jan 2015. In order to make that conversion, NEWT needs to get rid of all its C Corporation earnings and profits (tax-basis retained earnings). The company expects to pay a special 1-time dividend in March or April equal to the accumulated E&P. 80% of that special dividend will be paid in additional stock, 20% will be paid in cash. But all of it will be taxed as a dividend. I assume that since the special dividend is coming out of E&P that were accumulated while NEWT was a C Corporation, the dividend should qualify for the 20% maximum tax rate. The company has estimated that the amount of the dividend might be $ 4.50 per share, payable in Q3 or Q4 2015.
My point is that if you're interested in NEWT, you might want to buy it in your IRA and defer any tax on the special dividend.
FWIW. NEWT is so small, and it hasn't started paying the BDC dividend yet so I'm not sure I trust the $ 1.80 number they are giving out. So I'm on the fence. Less
Yes as to the ex date, but no as to the dividend amount. NASDAQ's ex dividend calendar shows the dividend to be $ 2.81, which makes sense with the euro amount being 2.60. I can't find any site that refers to $ 2.39. Where did you get that number?
Generally BDC dividends are nonqualified, like REITs. But also like REITs, they can pay ROC or capital gains income. It all depends on the company's taxable income for the year.
Having said that, the company said it anticipates paying a $ 1.80 dividend for 2015 and that dividend will come out of ordinary income. So I assume the plan is nonqualified dividend, but you won't be certain until next January.
The way I see things is that SSP's price reflects the deal (using today's price of JRN and SSP plus about $ 1 in cash), but JRN's price is about 8% lower than today's exchange value. But Barron's is not focusing on that, but rather the future of the TV operation, and says SSP looks like a buy. I think the article basically repeats what SSP has been saying in its investor presentation.
I own SSP and not JRN, but it seems to me that JRN is the slightly better buy today.
AHGP's probably outperformance hasn't happened yet. But both ARLP and AHGP have appreciated since my first post, so that's a step in the right direction. Right now, AHGP's yield is still 28 basis points higher than ARLP and briefly this morning the difference hit 30 basis points.
So no sign of shrinking or reversing yet, but I'm still buying AHGP as a short-term bet.
I own both AHGP and ARLP as long-term investments, so any reversal of the recent weakness is welcome.
Also from the investor village board tonight: NATURAL RESOURCE PARTNERS LP : COWEN AND COMPANY ADJUSTS PRICE TARGET TO $9 FROM $14; RATING MARKET PERFORM