2 points. Thermal coal exports were down 34% in 2014 vs 2013. And FELP, which is one of the largest Eastern thermal coal exporters, has said that it has not sold a single ton of coal into the export market since 2013. Mostly it's the strength of the dollar, but also the overall price of coal has dropped, which makes transportation costs all the more important to buyers. So you're right - people are working off old contracts. FELP also gave a year in which all of its export contracts would end - it might have been 2015 or early 2016.
And 2. It's not necessarily the customer that suffers. Again, using FELP as an example (because they give this disclosure), FELP sold its coal in foreign currencies (mostly euros) and then immediately hedged the euro to avoid any risk that the euro might decline in value. In the last 2 quarters, FELP reported huge gains on their euro hedges, which offset the reduced price they were getting for the coal. So FELP's customers priced the contracts in euros and got a nice benefit when the euro tanked. But US producers aren't willing to paly that game right now, with the euro as weak as it is.
I assume most people on this board already, but OCIR owns 51% of OCI Wyoming and NRP owns the remainder. So when OCIR announced a (very) slight increase in its distribution this morning, it means that NRP's share of the income was also probably steady. I was a little concerned that the strength in the US dollar would have hurt OCI Wyoming's business (67% of their sales by tons are into the export market). But I guess the damage was limited.
So that should be one less worry for NRP's Q1 DCF.
I'm not sure what you're saying about White Oak. ARLP owns 20% of White Oak, so it gets 20% of White Oak's profits, which include shipping the coal (assuming White Oak is able to sell it). Plus, ARLP gets special allocations of White Oak's profits until it makes up for losses that ARLP funded during construction.
So it is very important to ARLP that White Oak ships coal, by any means possible.
Or were you saying that ARLP doesn't handle shipping for White Oak, so it doesn't get paid for shipping?
The only thing I care about either CSX or NSC is coal, and CSX reported pretty bad coal numbers. Coal revenue for Q1 was down 4% from Q1 2014, part on a drop in volume but mostly on lower pricing. That doesn't sound too bad, but Q1 2014 was a bad time to be shipping coal, with the freezing weather and all. Q1 2014 coal revenue was down almost 10% from Q1 2013, again a combination of volumes and pricing.
As an investment, CSX handled the coal problem better than NSC did, but I don't own any railroads. What I'm taking from NSC and CSX's reports is no surprise - Q1 was a lousy Q for Eastern coal.
I think ARLP was basically sold out for its Q1 production. But just as the company warned in its Q4 earnings call, it was holding back on production to try to protect pricing. I suspect the lower production didn't help pricing, So I'm expecting pretty much a flat comparison to Q1 2014 but not much good commentary about the prospects for new sales, etc. I don't think it will help the price, unfortunately.
ARLP relies more on CSX than NSC for rail transport, but this moring's profit warning from NSC can't help. From NSC's release:
"Revenue decreases reflect reductions in fuel surcharge revenue in each of NS' three commodity groups, continued reductions in coal volumes, and a lower average revenue per unit related to the mix of business."
"Coal shipments continue to experience downward pressure, weighted by a significant decline in export coal volume." (My comment - ARLP doesn't export much, but there was talk that White Oak might try to sell into the export market.)
"Following the weather related challenges of the first quarter, volumes are expected to rebound in the second quarter, with the exception of coal, which will continue to be pressured given current market dynamics."
Too simple. First, I have owned ARLP and AHGP practically forever and have done very well with both until a year ago. Since then I have been suffering like everyone else on this board.
But the days of 5-year rolling contracts are over. When ARLP went public, it had contracts for 7 years worth of production and they disclosed that some contracts went out as far as 11 years.
5 years later, the contracted sales amounted to 5 years of production and one contract (with the TVA) went out almost 20 years.
But since then the contracts have been shortened a lot. The TVA, for example, renegotiated its contract (they upped the current purchases, but cancelled the later years of the contract). In the most recent 10-K, ARLP discloses 91 million tons of committed sales, mostly in the next 2 1/2 years. Considering that 2014 production was 40 million tons, this works out to be about 2 1/4 years worth of production. They still have some contracts that go out to 2021, but they don't seem to be priced; certainly, ARLP does not give any disclosure of purchase commitments in the out years.
And ominously, 1 customer has cancelled its contract on the basis that ARLP's coal does not meet the EPA MATS standard. That dispute is in litigation and ARLP said it would be a while before a resolution was likely to be reached. The truth is that some of ARLP's contracted sales volumes are probably above market and the customer wants to renegotiate price, but there is a risk that some of the contracted volumes might be at risk. (ARLP does not include the purchase commitments from this customer in the totals.)
And I don't know anyone who has any information on the White Oak contracting situation. I hope it's good, but ARLP isn't talking.
So no more 5-year rolling contracts. I wish that were true, but it's not.
My last message's formatting was a mess so I'll say this in a separate message.
You think they won't reach the DCF projections. I think they will reach the low end of the DCF projections, at least. I don't think they will hit the operating income number, but I think they will hit EBITDA and DCF.
NRP has a history of always reaching their projected coal royalty guidance. This makes sense because its coal leases are generally longer term and contain minimums. That is, it's not as though they have a significant lessee that is working on a month-to-month deal, where NRP doesn't know what the lessee's intentions are. As far as I can tell, substantially all of their leases go beyond 2015. If they didn't, NRP would include that in all the Risk Factors they show in the 10-K. And their lessees probably can't shut down their mines (absent a bankruptcy filing) because shutting down the mine would accelerate their mine reclamation liabilities. So NRP's 2015 risk in this business is just pricing. And I would guess (and it's strictly a guess, since NRP doesn't disclose this) that a lot of their lessees are already paying the minimum per-ton royalty; it certainly looks like FELP is paying the minimum and it is NRP's biggest lessee. So I figure NRP is probably really comfortable with its (low) 2015 coal royalty guidance, absent a bankruptcy.
And OCI Wyoming has been pretty steady since NRP bought in. The risk at OCI is just the strength of the US dollar. OCI exported about 65% of its 2014 production so I would guess that will hurt them a bit this year (paying costs in dollars, but getting paid in other currencies). I'm not expecting great things from OCI this year, but it looks like the guidance is secure. At least OCIR thinks so.
And NRP has been pretty conservative in guiding for the oil & gas, using $ 52 as the projected oil price in the Bakken. If our deal with Iran goes through (big if, lousy deal), oil price may tank again. But with the problems in Yemen and Bahrain, the price of oil could just as easily spike. But $ 52 sounds reasonable.
And I know nothing about aggregates.
But overall, I think the DCF number is reachable. I just think it’s not high enough to pay the current distribution and service the debt safely.
I'm not sure what you
re reading from. My copy of the Q4 release does not have page numbers. But here is what I see from the release:
The following table sets forth NRP's guidance for the year ending December 31, 2015:
2015 Guidance (Range in millions)
Coal production (mm tons) 44.0 - 51.0
Coal-related revenues(1) $ 207.0 - $ 221.0
Aggregates and industrial minerals revenues(2) 163.0 - 179.0
Oil and gas revenues(3) 56.0 - 66.0
Equity and other unconsolidated investment income (soda ash revenues) 47.0 - 50.0
Total revenues $ 490.0 - $ 535.0
Operating income $ 176.0 - $ 206.0
Interest expense (net) $ 88.0 - $ 91.0
Adjusted EBITDA (4) $ 280.0 - $ 310.0
Distributable cash flow (4) $ 175.0 - $ 200.0
That's the only place I saw the projections and it says it's in millions.
And I'm guessing they should come close to the low end of the projections, at least.
Slight correction. You've misplaced a decimal point. Operating income (that's before interest expense) is projected to be between $ 176 million and $ 206 million. Your decimal point makes it look like that's a per-share number. If you subtract the projected interest expense, the operating income works out to net income of between $ 85 million and $ 118 million. On a per-unit basis, that would be between 68 cents to 94 cents. But net income isn't usually a metric that MLP investors put much weight on.
You're right about the long term. But until the market trades stocks on the long term prospects rather than the last (or next) quarterly earnings release, I'll focus on the short term. And my comment wasn't that negative - I pointed out that maybe AEP wasn't using the coal-fired plants (the ones that are scheduled to be closed) all that much currently. And I own a lot of ARLP/AHGP so I'm not entirely negative about coal.
And I found something strange this morning in the EIA's new Short-Term Energy Outlook Report. It was so strange that I have to mention it. A chart in the report shows all the new power plants that are scheduled to come on line this year. The biggest plant coming on line this year? "Tennessee Valley Authority's Watts Bar 2 nuclear facility in southeastern Tennessee, with a summer nameplate capacity of 1.1 GW, is currently listed as coming online in December 2015. When it comes online, it will be the first new nuclear reactor brought online in the United States in nearly 20 years."
And TVA has announced the closing of 2 coal-fired plants, scheduled to occur sometime in the 2016/2017 time frame. Those plants are partly supplied by ARLP, my favorite coal MLP. I thought those coal-burning plants were going to be replaced by natural gas-fired plants. I have no idea what the nuclear power plant will replace.
There were reports yesterday that American Electric Power has issued WARN notices to employees at 6 of its coal-fired power plants informing them of closings that might start in May. The closings are apparently required by the EPA's MATS rules and are part of the numerous closings around the country caused by the rule.
The AEP closings look bad, but maybe not as bad as it looks. From what I read, the 6 plant closings involved issuing WARN notices to only 250 employees, so maybe the plants weren't operating anywhere near capacity? It's tax season so I can't do searches on the individual plants to find out, but I guess we'll learn of the impact as time goes on.
I think AEP is the largest operator of coal-fired power plants in the US. It is also starting a new campaign against the EPA rules, FWIW.
2 stories this morning. One on Bloomberg says that Murray Energy is having problems selling enough debt to finance the FELP transaction. The lenders want 10% - 11% on the new debt. I don't see that anyone has disclosed the maturity of the new debt, so I don't know how long out it goes. And for all I know, Murray might be over-leveraged to start with, considering the deals it has done in the last few years.
The other is an announcement from the companies themselves; they are shrinking the deal a bit and changing a piece of it to reduce the amount of debt that Murray has to incur. The new deal also means that Foresight won't undergo a change of control so that its debt won't be accelerated.
More fun times in coal land.
The parties have stressed that FELP won't be increasing its leverage in the deal. The new debt will sit of Murray's books, although I assume it will be secured by Murray's interest in FELP and Foresight Reserves.
FELP is NRP's largest lessee; its minimum payments to NRP for royalties and rentals over the next 20 years or so is $ 817 million, so any change has to be concerning.
2 stories this morning. One on Bloomberg says that Murray Energy is having problems selling enough debt to finance the FELP transaction. The other is an announcement from the companies themselves; they are shrinking the deal a bit and changing a piece of it to reduce the amount of debt that Murray has to incur. The new deal also means that Foresight won't undergo a change of control so that its debt won't be accelerated.
More fun times in coal land.
I'm not sure that's a minority view. Right now, I think NRP's problems are (1) coal, (2) smaller market cap that makes it less likely to get analyst attention, and (3) the fear of a significant distribution cut. NRP can't fix the first 2, but if they were to cut to 20 or 25 cents and explain what they will do with the savings (at 20 cents per Q, the savings would be about $ 70 million per year; a bit lower at 25 cents per Q). I can't see anyone as taking that as bad or unexpected news and some would take it as good news, myself included. So I think the price might very well bounce higher and stay there.
If the cut is meaningless (like 30 cents per Q or no cut), there might be a short-term bounce, but I would see that as just delaying the inevitable and the fear would tank the price again, IMO.
If the cut is huge, like to 10 cents per Q (I don't expect anything that drastic), I think the price tanks.
But if the cut is reasonable (down to 20 - 25 cents per Q), I think the reaction would actually be positive. As long as management puts a good spin on it.
There's no new borrowing.
Back in October, NRP issued $ 105 MM of its 9.125% debt in a private placement as part of the funding of the oil investment. They promised to register those bonds for public trading (probably within 6 months) and that's all that happened. They registered the bonds. So no new money and no new debt.
But NRP also did a shelf registration, allowing overnight issuances of units or debt. I can't believe they would issue units at anything close to today's price, so I think this is just a protective filing. But if there's ever a jump in the unit price, I would think an overnight offering is likely.
Happy Easter to you, also.
No real thoughts on Q1, but I remind you that Q1 is always the weakest for NRP's coal DCF. Last year Q1 accounted for only 18% of the year's DCF; in 2013, Q1 was even less - only 14% of the year's DCF.
That's just a seasonal thing - all year long, NRP accrues for property taxes and incentive comp, and it pays those amounts out in Q1. So Q1 has always been weak for DCF and isn't indicative of the year to come.
They will have the new oil properties for a full Q, and maybe the higher production will offset lower prices. But again, that wouldn't be indicative of the what the rest of 2015 is going to look like. Also, I'm guessing oil production in North Dakota slows down a little in January and February.
OCIR should continue to do well and it isn't seasonal. And I have absolutely no idea how VantaCore will do.
But what the guidance they give in their earnings release will be more important than the Q1 numbers. I do wish they did earnings calls and took questions, but this would be a bad time to start that practice.
Today's trading is answering my question - JMG down a lot on heavy trading. I guess TV station investors don't want the newspapers.
Just for my own edification, for when I forget.
SSP closed at $ 28.44 yesterday. Today, we get .25 share of JMG and $ 1.03 cash dividend (neither of which has hit my account yet). Yahoo shows the opening value of JMG #$%$ 8.74 so the .25 share is worth $ 2.185 per SSP share, and SSP opens down $ 3.215 today. It's down another $ 1.35 as I write.
I would think JMG should show some weakness in the near future (altho Yahoo shows it's up so far today) because some SSP and Journal shareholders might want to keep the TV stations and not the newspapers. It could work in reverse also; it's possible that some people want the newspaper business and will sell the TV station company. That's happening right now, but I suspect that won't last.
BTW, are there any reasonably long-term SSP shareholders here, and if so; do you plan on holding both SSP and JMG or just 1? I'd be interested in hearing if anyone is keeping their JMG when it shows up in their account.
I think it's April 1. The announcement says that SSP shareholders that sell their shares before the closing date (that is 4/1) are also selling their right to the dividend and the spin-off company shares.