BTW, in reviewing some slides from Credit Suisse, they had some comments about CVRR that you might find interesting. You may already know these things, so this may be old news.
CVRR has a turnaround scheduled for 2H 2015 which will depress distributions for whichever quarter it falls in.
Current crude spreads for Bakken and/or WCS have narrowed (also affects NTI, obviously) which provides an offset to strong product margins, but ultimately the company expects these discounts will normalize.
CVRR management expects a continued discount on their crudes realtive to WTI benchmarks over time.
CVRR also has a number of growth projects - growing their logistics business and the refining assets.
CS has a report out this morning on independent refiners. I'm not sure I understand some of their estimates, but for NTI they project Q2 EPS of 92 cents, down from their prior projection of $ 1.31, so that's a big drop. They show consensus EPS at $ 1.08 for Q2, so CS is way below consensus.
For Q2 EBITDA, they project $ 108 MM, down from their prior estimate of $ 147 MM, so that's a really big drop. They show consensus EBITDA is at $ 120 MM, so again CS is way below consensus.
They don't discuss NTI specifically (the numbers are in a chart of the entire industry), but they say "Generally, 2Q shortfalls were driven by narrower crude spreads and/or downtime vs our forecasts."
Quote from the report - "Buy the refiner MLPs. The refiner MLPs, e.g. NTI and CLMT, offer a NTM yield of 9-11%." So I guess they are are expecting reduced distributions over the next 12 months.
They have a chart for East Coast 6-3-2-1 spread based on Brent (NTI is not east coast, obviosuly). The spreads for Q2 were similar to, or slightly higher than, they were last year and about the same as in Q1 on average. They show WCS - LLS spreads as similar to Q1.
Anyway, after all the cuts in projected results, CS still has NTI at Outperform, with a 12-month target price of $ 33, and the most appreciation potential of all the refiners.
I used to own both of them. I gave up on CLMT when I thought they were over-extending themselves. And I gave up on CVRR and switched entirely to NTI when I concluded its prospects were better. I haven't followed either of them for about 2 years or so. Sorry I can't help.
That was part of the original deal, back in 2011.
My problem today is hopefully a timing thing - they didn't say much about White Oak's finances. For example, They are paying $ 50 MM for the rest of the equity ownership, but does White Oak have any debt (besides what they owe ARLP)?
I know that ARLP's management has always been really sharp (except I don 't know why they decided to make an immaterial investment in oil & gas). I am certain they know more about coal than I ever will. And I know that they didn't mortgage the house to buy out competitors during the feeding frenzy of 2010/2011 (the debt that is now choking the competition).
But I also know that ARLP has curtailed production this year to match sales projections, and that ARLP has never said anything about White Oak's contract position, so I worry.
I may have posted this before, so excuse me - I was expecting White Oak to be a great help in 2H 2015 and full year 2016 because of ARLP's preferred position, the recouping of losses previously booked, the added royalties on the reserves being leased to White Oak, etc. Now, I expect all those short-term benefits to disappear, with ARLP booking whatever results White Oak produces. Instead, on a short-term basis, I would expect ARLP to record a write-off to bring its investment down to current value. Kind of meaningless, but it will dent ARLP's debt/equity ratio and a few other metrics.
Hopefully by the time ARLP releases Q2 numbers, they will have a ton of things to say.
Baird downgraded a competitor today to Underperform - EMES. Maybe HCLP is dropping in sympathy, or maybe Baird said something (more) terrible about the sand business, or maybe Baird also said they don't like HCLP.
I think that happened on May 26. It certainly didn't happen on July 26. Not July 26 of 2015, that is. I just hope it's news of a deal that would either involve NRP (as a seller, not buyer) or a deal that indicates the value of NRP's interest.
You're right about the 39%. I picked up the original 20% but not the amounts paid for the additional Series A units.
But what "other considerations" are you referring to? The ones in the original deal - the sale/leaseback, etc? Or something current? The only other part of the deal that I saw was the earn-out but ARLP said that was expected to be nominal.
And if $ 50 MM plus a nominal earn-out is the real value of 61% of White Oak, ARLP is looking at a pretty big GAAP write-down of its existing investment, I would think.
More importantly, I thought White Oak was going to offset weakness in other parts of ARLP's business over the next 2 years, especially the special allocations of income and distributions. I would think that's off the table now.
Don't get me wrong - I own ARLP and they seem to have driven a really hard bargain in this new deal. Long term, I hope this is a good development and the fact that the units have not tanked on this news indicates that other people aren't dismayed. But the fact that the price hasn't risen much also seems to indicate that the market doesn't know what to think about the deal.
I only saw the news release so there must be a lot more to the deal. But ARLP is buying out the rest of White Oak. The only payment that was disclosed was $ 50 MM at closing. There is an earn-out but ARLP doesn’t expect it to result in any significant payments. ARLP has paid $ 275 MM for its original 20% interest, plus more in side deals for reserves, etc. So a $ 50 MM price for the remaining 80% implies a huge reduction in value of the operation.
ARLP was supposed to recoup its prior losses in White Oak’s earnings in 2015 and 2016. That’s not going to happen now. ARLP expected that its investments in White Oak would significantly decline this year and next. I suspect ARLP will now have to spend more money, not less, on White Oak over the next few years. I would think ARLP will need to write down its existing investment in White Oak by a lot, not that there is a third party agreement that shows the real value.
Considering the coal markets, this can’t be a real surprise. It just crystallizes the size of the loss.