Oak Grove's production was way down in 2011 due to tornado damage, but in calendar year 2012, production was 2 million tons. So each dollar drop in the royalty rate costs NRP about 2 cents per unit in earnings and DCF. On a quarterly basis, that amounts to nothing.
But with a drop in production (which won't be quantified until NRP files its 10-K next February) could be more meaningful, depending on the size of the cut. As a pure guess, I'll guess that CLF's mine will cost NRP maybe a penny, maybe 2 cents in Q3 earnings. Hopefully this will be offset by production in the IB.
CLF specifically singled out met coal sales decline (tonnage, not dollars) at Oak Grove, which is the mine that CLF leases from NRP. CLF did not say how big the drop in tons sold was at Oak Grove, they just said the decline happened. But the average sales price for CLF's met coal dropped off a cliff again - down below $ 100/ton. This has to affect royalties, unless CLF was already at the minimum, which seems unlikely.
This is the first piece of bad news that I can't put a good spin on, other than to say that it just continues the trend. Southern APP, which is where Oak Grove is, had average royalty rates around $ 8/ton in 2012. So far this year, the rate has dropped to $ 7 in Q1 and $ 6.30 in Q2. Somehow, this ties into CLF's average price for met coal around $ 108/ton in Q1, and $ 104/ton in Q2. With the average price at $ 98/ton in Q3, I suspect we will see the Southern APP royalty rate down to $ 6/ton this Q.
PVR effectively abandoned coal when the new management came in. So they haven't added reserves in almost 3 years or moved into better areas like the Illinois Basin. Finally, they have no met coal. So it’s generally not a good indicator of NRP’s results.
PVR's average royalty/ton traditionally is about 50 cents lower than NRP's thermal coal royalty rate. In recent Qs, PVR's royalty rate has equalled NRP's thermal coal royalty rate, but that's because 1 of NRP's lessees has been increasing production at a NAPP mine that happens to have a very very low fixed royalty rate.
I see the rise on PVR's royalty rate (vs Q2 and Q1) as a positive (could also just be a 1 time event) for NRP's Q3 results. Again, maybe we’re hitting or have already hit the bottom. The only part of PVR’s production data that concerns me is that even its small Illinois Basin production is dropping. But that’s been going on for 2 years now, while NRP’s Illinois Basin production has been rising because of the new mine that opened.
I’m actually pretty optimistic about NRP’s Q3 results. Not that they will be good, or anything close to good. They will continue to be far below the 2011 peak, but that they should be better than Q2 was, and that's a start. I’m not any good at projections, though; I got blown away by PDH’s results last night, which completely surprised me.
Propane price up 12 cents from Q2, Poly prices up a nickle, but the productivity really saved the day. About 90% of capacity, compared to only 73% last Q. Best Q since Q2 2012, when they going public and then hit a brick wall. Let's see if the market believes they've got their act together.
Actually, I read that as a positive for coal and NRP. In Q2, NSC's coal revenue was down 17% and coal volume was down 4%, both compared to Q2 of 2012. NSC's Q3 coal revenue was down only 9%, and coal volume was down 2%, compared to Q3 of 2012. If you play with the math, Q2 2013 coal pricing (for freight, not for coal, but there should at least be some amount of correlation) was down about 15% compared to 2012, while Q3 coal pricing was only down 7%.
Maybe we are seeing the bottoming process.
You should tell the IRS. On August 30, the IRS issued interim final regulations under various sections of the ACA, part to address the premium credit issues and part to address the individual mandate penalty/tax - they call it "liability for shared responsibility payment" which I guess covers it whether it's a tax or a penalty. It goes into effect next year, and the IRS will handle the charge as part of your tax return when you file it in April 2015. The law certainly does not specifically prohibit them from being involved.
The IRS says they will do it as part of processing your tax returns. There are lots of questions as to whether they will be up to the task, but that's another question.
OCIR's IPO was only 10 MM units. The total outstanding units are 20 MM, actually a little less. If you acept OCIR's price as an indication of the value of NRP's investment in OCI Wyoming, each dollar change in OCIR is worth maybe 20 cents to NRP's price.
But OCIR can't really be used an indication of value, unless NRP decides to create a mirror MLP of its own for its interest in OCI Wyoming. In addition to OCIR's outstanding units, its sponsor created and kept IDRs issued by OCIR, so there's kind of a drag on increases in OCIR's distributions. NRP's interest in OCI Wyoming is not affected by any IDRs. Also, OCIR's sponsor has subordinated the units it owns to the public units, to "kind of" guarantee the 50 cents per Q distribution. And finally, OCIR's public units are mostly owned by retail investors who don't know much about the company other than its planned distribution. If NRP were to sell its interest in OCI Wyoming, its most likely buyer would be OCIR and its sponsor. In that kind of deal, the public price would probably not mean much.
OCIR is a gamble - 1 location, very concentrated cartel of companies that control the US soda ash business, which has been declining in recent years, with inconsistent international sales (meaning China) making up for the shortfall in domestic sales. But for now, its $ 2 distribution looks safe, only because of the subordinated units. I only post about it because I have nothing to say about NRP until Q3 results come out. OCIR is definitely not a core holding. Of course, I said the same thing about XTEX and XTXI, so what do I know?
I'm sure you were waiting with bated breath. But OCIR (NRP owns half of the underlying operation, OCI Wyoming) is up another 15% since the last time I mentioned it on October 4. It's up a total of 22% since its 9/13 IPO. In the same time span, NRP is up 4.5%, and it has struggled to do that.
So OCIR now yields less than NRP, using OCIR's targeted distribution rate. And OCIR has a better chance of maintaining its distribution, at least during the subordination period.
And to make things a little confusing, OCIP (another MLP with nothing to do with NRP or OCIR, except that its name is very close to OCIR's) is up 18% since its October 7 IPO. I bought a little of that as well, but I'm not a long-term holder. PDH cured me of marrying variable-distribution MLPs.
Mt bigger point is this: I know, Mr. Ayscuew, that you follow other companies besides NRP, but they are all coal-related. I don't know if you invest in them, or only in NRP. But widen your horizons, and look at other MLPs. At any time, some of them are doing well, even if I can't figure out why.
And I missed XTXI. I used to own it but gave up (too soon) earlier this year. I own DVN, though, so that announcement wasn't a total strike out.
It's always rights after the 15th. Last few Qs on the 17th, and same for the Q3 2012 dividend.
This might not help NRP much. NRP discloses the production from its mines in each year's 10-K, and in 2012 the only mine it showed that was leased to CNX was Hibbs Run. In 2011, production from this mine was too low to make NRP's disclosure list. In 2012, production from the mine jumped to 3.8 million tons, making it one of NRP's larger mines. Nut NRP noted that it had a very low fixed royalty rate for the mine, which caused NRP's average NAPP royalty rate to decline. In earlier years, NRP disclosed other mines leased to CNX but they all dropped off the annual list several years ago, leaving only Hibbs Run now.
In the 10-Qs, NRP doesn't give the same mine-by-mine disclosure, so the rest of what I'm saying is a guess.
So far in 2013, NRP's NAPP production has almost doubled compared to the same period in 2012. Total royalty revenue from NAPP was also up at June 30, but the increase was nowhere near the doubling in production. So I'm guessing CNX increased production again, but this hurt the royalty rate again. Maybe CNX activated the mine because of the low royalty rate?
You're basing your belief on your misreading something from Zack's? Do yourself a favor and go to SEC.gov and read the agreement. Or go to PVR or RGP's websites and read the summaries.
From PVR's presentation about the merger - "Purchase Price - 1.020 Regency Common Units for each unit of PVR (includes Common Units, Class B Units and Special Units)" The goes on add 1-time cash payment - "One-time cash payment to PVR unitholders estimated at $40 million".
Then it explains that the $ 5.6 billion "assumes market data as of October 9, 2013." That is, it is based on RGP's price from last Wednesday, not any future price.
You will get the same information from RGP's web site. The $ 28,68 was announced just to tell PVR's unit holders that the negotiated price was higher than PVR's price at the time the deal was negotiated.
I really don't care if you don't understand any of this, or if you can't be bothered to read the agreement. But if you don't understand something, you should be more civil to people who do understand and have read the docs. I don't expect that to happen, though.
Read the agreement, or at least the full announcement, not just the headline. 1.02 RGP units plus a little cash for each PVR unit. No floor, no ceiling, and not much of a way out. And no, PVR management isn't stupid, just a little desperate as the PIK period comes closer to the end. I assume this was the best deal they could get.
The fee is $ 134.5 million. The merger agreement is pretty complicated in this area - 1 sentence alone goes on for about 15 lines, so I could be wrong in my next sentence. As I read it, if PVR unit holders vote the deal down (1) without someone else bidding for PVR, and (2) without PVR's board campaigning to kill the deal, there is no fee. Otherwise, the fee applies to a breakup caused by the PVR side.
The fee is about 3-4% of the equity portion of the offer, depending on where RGP trades. That's high, but not outrageous. But I think it shows that PVR certainly wasn't dealing from a position of strength.
Sorry, but no. The agreement is for 1.02 RGP unit (plus a little cash), whatever RGP units are worth, for each PVR unit. There is no floor or ceiling built into the deal. So watch RGP's price because that's what you're getting.
And the $ 5.8 billion includes RGP's assumption of PVR's debt, which has nothing to do with what the PVR unit holders will get anyway.
So if RGP's unit price tanks for whatever reason, PVR's unit holders' only recourse is to vote the deal down. Certainly, the agreement doesn't give them any additional RGP units.
The price per share doesn't tell you much. CVRR has many more shares outstanding. It's market cap is $ 3.6 billion today, and its EV is $ 3.7 billion. NTI's market cap is $ 2.0 billion and its EV is $ 2.2 billion.
I agree 100% with you. I don't think NRP should get deeper into coal, especially when the reserves are all thermal coal and mostly in CAPP. I just raised the issue because the PVR deal made me think of the possibility. RGP would have to basically price the reserves at a give-away price to make me change my mind. And I don't see that happening because PVR's reserves throw off a decent amount of cash that can be used to fund the Marcellus development.
On the call, they indicated that the drop in operating margin was mostly 1-time expenses like consolidating warehouses and some severance, among other items. I don't know if that set off the buying, or if it was just the market's strength, but the price certainly ended nicely.
Depends on the reserves. In the early/mid 2000s, when coal's prospects were looking better than do today, NRP paid anywhere from 15 cents/ton to almost $ 2/ton (another great buy from Cline). $ 1 could be way high or a bit low. PVR's royalty rate is always lower than NRP's, because it doesn't have met coal, and CAPP, where most of PVR's reserves are located, has been a disaster for coal the last few years.
But PVR's carrying value for the coal and natural resources business was $ 665 MM at June 30. And this year. it's on a run rate of $ 90 million of gross royalties and maybe $ 65 million after cash expenses. Especially if those expenses can be eliminated by consolidating with NRP, maybe $ 1/ton might be OK.
I don't at all like the fact that PVR's reserves are mostly CAPP, so if it's up to me, NRP should pass unless (or maybe even if) it gets an unbelievable price. And since I've got to think that NRP is the only logical bidder for the coal reserves if RGP puts them up for sale maybe NRP is in the cat bird's seat on this one.
I'm not complaining, tho I am puzzled. I will listen to this morning's call tonight and maybe find out if something great was said.
Mergers of partnerships are tax-deferred. Depending on how they handle the cash, even that part could be tax-deferred. But I would have thought that for most PVR holders, the tax deferral isn't that meaningful. I guess if you've held long enough, your basis could be pretty low and your ordinary income potential could be high. But for people that bought in the last year or 2, I wouldn't think the tax issue would be that meaningful.