From today's NY Times, part of a longer article:
The Federal Communications Commission on Friday said it reached its greatest hopes for the amount of spectrum it would be able to offer to wireless carriers in an auction scheduled to begin in late May. Television stations flocked to provide the spectrum, promising to sell enough of the valuable airwaves they use for broadcast programming to reach the agency?s maximum target for the auction. The airwaves will be reconfigured for the next generation of wireless services for mobile phones, cars and other devices that will connect to the Internet.
The auction is drawing attention because of the kind of spectrum that is becoming available: low-band spectrum that is valuable for its robust qualities and capacity to penetrate thick walls and travel far distances. The sale of such choice spectrum is rare; the last auction in this band category was in 2008, and there are no plans for similar offerings in the near future.
Now my comment:
On an earnings call last year, SBGI said that they could raise as much #$%$ 2 billion while only giving up spectrum that generated 3% of its income. I assume that because so many stations agreed to take part in the first leg of the auction, the prices are coming down. The FCC said they would inform the stations that satisfied the requirements for the auction this coming week. None of the participants (or failed participants) are allowed to disclose anything, so we won't get much info from SBGI for a while (I think not until after the second leg of the auction closes). But maybe on Wednesday's call, SBGI will at least confirm that they are part of the auction process.
To finish - And before anyone else says the following, let me say it - even with the rebounding price, NRP still trades at ridiculously low multiples of earnings, EBITDA and DCF. Because of this, I doubt that the actual operating results are that meaningful to NRP's unit price. What is meaningful is whatever NRP can say about its debt repayment plans. I assume the 2 announced sales of assets took place and that NRP used the proceeds to reduce debt. One of those sales might not have closed until April, but NRP should still be able to say something about it.
WLL operates, and is the majority partner in, all of the Williston Basin wells that NRP has an interest in. So WLL's Q1 results are a pretty good indication of NRP's Q1 oil & gas operations. Notable comments from WLL's Q1 release:
1. Average price per BOE was $ 25.82, down from $ 34.12 in Q4. NRP's average prices are always a few dollars higher than WLL because WLL has lots of other wells that NRP is not involved in. So I'm guessing NRP's average price per BOE will be about $ 28 or $ 29, down from $ 37.29 in Q4.
In Q4, NRP's oil & gas revenue was $ 10.2 MM. I think volume will be up slightly this quarter (WLL talked about getting more production from fewer wells, so I guess oil & Gas revenue to be about $ 8 or $ 9 MM. I don't think expenses will be all that much different, so I think DCF from oil & gas will be around $ 4 MM, down from $ 5 MM last Q.
Based on these numbers, I think oil & gas is basically irrelevant to NRP just now. WLL seems to be focusing on wells outside of NRP's area - they talked about 2 other counties but not Mountrail County, where NRP's wells are located. They also talked about cutting back rigs throughout 2016 and especially after Q1, until oil prices recover.
Also, ARLP reported Q1 numbers this week. ARLP is no longer an NRP lessee, so this does not directly affect NRP. It just gives some idea of what NRP's lessees are feeling right now. Thermal coal is still pretty much dead. Pricing is bad and demand is weak. Because NRP's leases contain minimum royalty amounts, this probably just affects the average royalty amount received. The weather in Q1 2016 was better than in Q1 2015 (which was a really hard winter), so normally you would think production would be up, but without demand I don't see that happening.
I think his last post was on April 15. The title of his post was "Last Word". Maybe he meant it? He hasn't abandoned the board before when NRP rebounded. I suspect 13 days is the longest he's ever gone without posting. I seem to recall a vacation/sickness/whatever a few years back when he didn't post for a week but that's about as long as I recall him not posting.
I miss his posts; not the continual forecasts of disaster, but he raised questions about NRP's operations that were relevant, even if he usually took the negative side of things. I hope he's OK.
Why compare ARLP to CNX? CNX is mostly natural gas these days. In Q1, coal was a bit less than 50% of revenue, and that included the Buchanan mine which is being sold. Natural gas stinks right now, but people are more optimistic about nat gas than coal.
AHGP owns 42% of ARLP's common units, plus the 2% GP interest plus the incentive distribution rights. The IDRs entitle AHGP to a payment that increases as ARLP increases its distribution. At a quarterly distribution of 43.75 cents, ARLP pays out about $ 32.5 million each quarter to the common unit holders. AHGP gets 42% of this payment. In addition, I compute that AHGP also receives another $ 19.6 MM on the IDRs each quarter.
So when ARLP cut the distribution from 67.5 cents to 43.75 cents yesterday, it lowered the total distribution by $ 17.7 million. At 42% ownership, AHGP suffered about $ 7.4 million of this cut. In addition, the cut reduced the IDR payment by $ 17.7 million. So while every other unit holder suffered a 35% reduction in distributions, AHGP got hit twice, for an overall reduction of 42% in its quarterly income.
Mineral rights are a real property right. We don't have them here on Long Island, where I own the real estate that my home sits on. But in other, mineral-rich, parts of the country, the land owner can split his ownership into 2 pieces: 1 for the normal use of the land, and the other which owns all the minerals under the land. This second part is called mineral rights or mineral interests. So there's a company (AllDale Minerals) that invests in the mineral rights and ARLP has invested with them. The minerals we're talking about are mostly oil & gas in OK and TX. AllDale does not do any drilling; it leases the rights to operators that actually drill for oil in exchange for royalty payments, which can be an upfront bonus royalty or a percentage of the oil proceeds, or both.
ARLP has agreed to invest $ 150 MM in the deal so far and on yesterday's call, they said they expect to earn returns in the high teens, starting in 2017. So my simplistic calculation is maybe $ 25 MM of profit per year until the oil runs out. ARLP is projecting total EBITDA this year of about $ 600 million, so I don't see this investment as being very significant.
An agreement reached with seven major health insurers in New York eliminates a stumbling block that barred hepatitis C treatment for scores of patients with early-stage disease, the state attorney general’s office
Eric T. Schneiderman said the new pact ensures that health plans will no longer restricttreatment to people exhibiting only the severest forms ofthe viral infection. Some companies waited
until the disease caused cirrhosis — liver scarring — or other devastating symptoms before coverage kicked in. Beyond cirrhosis, advanced cases of hepatitis C can lead to liver cancer and liver transplantation.
Waiting until advanced disease ensues has become common among insurers nationwide, a complaint lodged against the industry by advocates. “This situation is unique. It’s the only disease in which you have to get really sick before you’re covered. It would never happen with breast cancer. No one would ever say we aren’t
going to cover you because you aren’t sick enough,” said Jill Wolf, a clinical social worker and hepatitis C patient advocate with Caring Ambassadors in Chicago.
They said the coverage ratio for the last 3 quarters of 2016 would be 2X. Including Q1, when the coverage ratio was 0.97X, the annual coverage ratio is expected to be 1.6X.
2 things - ARLP computed the Q1 coverage ratio differently from every other MLP that I follow. They compared the Q1 2016 DCF to the distribution that was paid in Q1, but that was based on the Q4 2015 earnings. So they were using the old 67.5 cents distribution in the computation. Every other MLP that I follow compares the Q1 DCF to the distribution declared on the Q1 income but which will be paid in May. On that basis, the Q1 coverage ratio was 1.6X and the 2016 projected coverage ratio is 1.8X. But those are my calcs, not the company's.
And my other point - a lot of MLPs have families or management teams that own massive numbers of units. Take a look at Mr. Robertson, the controlling manager of NRP. That coal royalty MLP has tanked so that Mr. Robertson has lost something like 95% of his investment in NRP over the last few years. It isn't the ownership itself that matters, it's the intelligence (and being hard nosed when he has to be doesn't hurt). ARLP avoided all the trendy things in coal over the last 15 years - they stayed away from met coal for the most part and they avoided leveraging up to make overpriced acquisitions, as 2 examples. ARLP eventually got caught in the coal downdraft; there's only so much a manager can do when his industry tanks. But I really admire him and his team.
They didn't get into much detail on the call, but I think you're exactly right. And think about it - the customers that buy thermal coal are regulated utilities. They can presumably pass along the cost of the coal, so you would think price isn't the biggest issue. If they pay an extra dollar for the coal, no one will notice much. But if the coal miner fails to deliver coal when the utility needs it, the utility's customers (you and me, and the public service commission) will complain about service problems. So yes, I think bankruptcies matter a lot to the customers that are buying thermal coal.
This has to be the shortest ARLP earnings call I've ever listened to. I need nto check the transcript later to see if my notes were correct.
The distribution cut was not dictated by the lenders. However, ARLP has started discussions with the lenders about renewing the 2017 maturities and it was clear that something needed to be done to get them comfortable. The level of the cut was designed so that the company expects to be able to maintain the new distribution thru 2017 even if prices don't recover.
My question - the coverage ratio for 2016 as a whole is expected to be 1.6X. That understates the ratio because it includes the higher distribution paid in Q1 out of Q4 2015 DCF. By my estimate, the 2016 coverage ratio should be around 1.8X, just considering the new distribution. But they said on the call that if prices don't recover, and they maintain the new distribution thru 2017, the coverage ratio would be 1.2X, and that assumes that they pick up some business from competitors. I need to check the transcript to make sure I've got this right, but that would mean they expect a large drop in 2017 DCF, even if prices stabilize at current levels.
They think 20MM tons of coal production still needs to be cut.
Interesting comment about the BTU and other bankruptcies - customers are concerned about the stability of supply, so this helps ARLP, but the bankruptcies have got lenders scared, so that hurts. In the past, even bankrupt mines could get financing, but that's not true now.
They are happy with the mineral (oil & gas) leases; they have had a little cash flow already but expect it to ramp up in 2017. They do not have an option to continue investing in new properties, so they have to decide if they want to negotiate an extended deal. Those negotiations would start in Q3. They are in the STACK (OK) and the Permian (TX).
You may not have been off that much. I'm impressed by ARLP's strength so far (of course, we haven't heard yet what they will say on the call) and I'm really impressed by AHGP's strength. I would have expected more weakness from AHGP, not more strength.
The release does show contracted sales volume numbers. During Q1, they added 400,000 tons of contracted volumes in 2016 and 2.4 million tons in 2017. So currently, they have sold 21.5 million tons for 2017. A year ago, they had sold 28.5 million tons for 2016, so the year-out volume is down about 25%. But at least they are adding some volume.
Well, the results/guidance/outlook for coal were worse than expected. Cut the distribution 35% and cut AHGP's distribution by 43%. Maybe the market will react favorably - yield is now 12% with 2X coverage. Maybe the reaction will be negative - why couldn't management see what was happening in late January when they maintained the distribution? There's a comment in the earnings release about the competitive situation being tough; I guess their bankrupt or nearly bankrupt competitors (think FELP) are accepting really low prices just to keep the mines open.
As to me, I'm sticking to my idea that ARLP is the best managed and best positioned company is a really unpopular industry. They are still making decent money in an ugly market.
I did a quick read of the release and didn't see any comment about new sales contracts. Maybe I missed it, but I'm sure this will come up on the call. What won't come up on the call is the presidential campaigns. If it becomes apparent that either Clinton or Sanders will win, I'd stay away.
We are talking about different things. I was talking about Q1 results and you're talking about the stock market's reaction to those results. I gave up long ago trying to guess how the market will react to news, so for all I know, you might be right. The units may continue to rebound.
But I still think that the Q1 numbers will be weaker than the company hoped for and that the contracted sales figures for 2016 and 2017 will still be lower than they hoped for. I'm sure they will still have a positive coverage ratio because they gave 2016 guidance 1 month into Q1, so they must have had an idea of where the Q was going. But I think the coverage guidance for 2016 will be reduced to the lower end of the previous range.
We'll see tomorrow.
TPUB’s TTM adjusted EBITDA is $ 157 MM. Based on the cost cuts/synergies that GCI saw in Journal a few months back, I think GCI is paying 4 times adjusted EBITDA and that’s too low. The buyer could sell the LA papers for a decent portion of the overall purchase price. So I think Gannett would be willing to raise its offer. But the question is whether TPUB's major shareholders are willing to sell anywhere near $ 12.25.
GCI just acquired Journal Media, as you probably know. It looks like they paid 4.5 times adjusted EBITDA, if you include the immediate cost savings that GCI saw. Excluding those items, it looks like GCI paid 5.5 times adjusted EBITDA. My numbers are soft since I had no interest in that deal. But I think I'm close.
So 4 times looks low for better properties.
3 groups own a bit less than 50% of TPUB: Oaktree and PRIMECAP are experienced in deal making and together own a little less than 30%, as private equity funds, they have zero loyalty to the current company, but they certainly won't let it go for less than what they think it is worth. And it doesn't look like Michael Ferro is willing to give up TPUB so soon, though.
So my dilemma - if GCI goes away, TPUB's price drops to $ 8 again. But $ 12.25 looks too low.
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.
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.