I didn't quite get $ 9, but I bought back in at $ 9.03 almost at the close today.
As I said previously, my last buy was in my IRA and I didn't want to get any income allocated to me on the K-1 (UBTI concerns) so I sold the NRP in my IRA yesterday. For a while yesterday it looked like I wouldn't be able to buy back in cheaper, but today I got the opportunity and took it.
I'm not sure why, really. ARLP reported good results and with 1 risk that bothers me, 2015 should be a decent year also. They have pre-sold about 95% of 2015 production, with an ability to sell a few more tons if things pick up at all. And ARLP never moved up today and closed down. Ugly market.
And on ARLP's call, they indicated just how bad things are. They weren't as pessimistic as BTU was yesterday, but things are really tough. They think half of eastern coal is cash flow negative at the mine (category # 1 from my post yesterday). CAPP is simply dead and isn't coming back in 2015. The strong dollar is killing coal exports (met coal) so that looks dead for 2015. I thought that lower diesel costs would be a benefit for coal miners, but ARLP says that mostly helps surface mines (out west, not underground eastern coal mines). Even in the Illinois Basin, FELP relies too much on the spot market and exports. That will hurt NRP.
NRP will get its minimum royalty, unless the miners file for bankruptcy. OCI Wyoming and aggregates (assuming aggregates are doing well) can't hold up the fort. And I still haven't heard much good from Whiting Petroleum and the Bakken.
But I held my nose and bought. For how long, I can't say. I'm inclined not to own NRP on the day they announce Q4 results and the 2015 outlook.
But for those with a strong stomach, $ 9 might be a great place to buy. But I would save some money to double down when it drops again.
Sorry, I forgot an important point. The drop in oil prices helps reduce mining costs, but not as much as we hoped. ARLP said it's a bigger benefit for surface mines, not for underground mines like the ones ARLP has. They said they were modeling $ 65 oil in their 2015 projections, and if oil stayed where it is now ($ 45 or so), it might cut costs by $ 5 million. So $ 20 oil price change means $ 5 MM in profits. Better than a poke in the eye with a sharp stick, but not really meaningful. It also makes me wonder about some of the savings shown on teh Seeking Alpha article.
There were a lot of moving parts in the 2015 projection. You're right - 2015 capital expenditures are expected to be similar to 2014, but there's huge decrease in the investments at White Oak - just a shade under $ 100 MM in 2014 down to less than $ 10 MM in 2015. Even adding in $ 15 MM for the new oil & gas investments nets a to a huge reduction in cash outlays. They also said that they pushed about $ 30 MM of 2014 cap ex back into 2015, and it's possible that they will push a similar amount out of 2015 into 2016, so there's more cash flow.
They expect the inventory build to reverse in 2015, which should add maybe $ 40 MM or a bit more to cash flow. The said they've already seen an improvement in railroad deliveries in December and January.
And they expect a $ 30 MM swing in EBITDA from White Oak in 2015, going from a $ 3 MM deficit in 2014 to $ 30 MM positive in 2015.
But there are offsets. Because they don't expect to produce coal at full capacity in 2015, they will have to charge their mining and overhead costs over a smaller level of production, increasing the cost per ton. They are expecting 2% - 3% lower pricing in 2015. Then there's the lawsuit about the customer breach of contract.
And the comment about accelerating depletion for the Hopkins mine puzzles me. In ARLP's last 10-K, they said that Hopkins had 35 MM tons of reserves, 1/3 owned and the rest leased. They mined 3 MM tons of coal at the mine in 2013 and I'm not sure how much in 2014. But the mine is apparently depleting its reserves in 2015. I'm sure there's more to the explanation and we'll see it in the 10-K.
Anyway, sometimes I think I'd be better off if I just bought stock in a company and ignored all the news. Since almost all coal-related news is bad (for the miners and investors), I keep finding reasons not to stay with ARLP. So far, I've ignored those reasons, and counted the days until the next presidential election.
You may have listened to the call. If you did, ignore my answer.
The customer breach is prospective; it hasn't happened yet but it will in April.
ARLP has a contract to sell between 700,000 and 800,000 tons of coal per year to autility, from now through 2020. The utility has told ARLP that they will not honor the contract because of the MATS (mercury) rules going into effect in April. ARLP has sued; on the call they said that they don't think any of their customers can break a contract because of the MATS rule. They also pointed out that the Supreme Court is considering the MATS rule in the current term. They did not say if they agree that the coal in question actually exceeds whatever limits the MATS rule imposes. they just said that they don't think the customer can break the contract for that reason.
A follow on question was asked if other customers might try to not take deliveries for the same reason. The answer again was that ARLP doesn't think its current contracts give any customer the right to break the contract for this reason.
They did not say that the fact that the contract price was above-market caused the customer breach. They just said that the contract prices were above market.
ARLP said they continue to sell coal to the same customer, some under contract and some on the spot market, so it's just the 1 contract that's a problem, I guess.
I have to listen to these calls several times to get everything straight; hopefully Seeking Alpha will make my life easier with a transcript, so take the following with a grain of salt - maybe I heard wrong. The 2nd question asked on the call was about guidance for 2015 and that's when they talked about the contract breach. I don't know if the disputed contract is still in their guidance for 2015/2016 or not.
FWIW. Maybe it's a big deal, maybe not.
Don't put too much faith in the EPS number. ARLP is one of the very few MLPs that doesn't distribute all of its income, much less its cash flow. There are 2 ways that GAAP allows the undistributed earnings to be allocated - ARLP allocates them all to the LP units, even though AHGP will get half of those earnings when they are eventually distributed. Other MLPs, like HCLP, divide the undistributed earnings between the LPs and the IDRs. Both methods are GAAP and I'm not criticizing either company's reporting. I'm just pointing out that ARLP's method has the effect of increasing ARLP's reported EPS and reducing AHGP's reported EPS. Take the EPS number with a grain of salt.
Sorry, I have problems reading on screen. I missed and still can't find the reference to the customer breach. Could you point me to the place in the release where it is mentioned?
As to your estimates being off, I wasn't taking any shots at you. Your estimates have been far better than mine for the last 2 quarters, which is why I didn't post my guess this time.
Another excellent Q for 1 of the last 2 profitable coal miners. Forget the results; you can read them if you care. But they announced the acquisitions of 450 million tons of coal reserves, all of which look like IB coal. 100 million of these tons are being purchased from Patriot Coal, along with some contracts to deliver coal and some equipment, all for $ 40 million - $ 50 million. Now, Patriot is a motivated seller so maybe the price doesn't mean much. (the rest of the acquired reserves might include leases, so you can't see how much is being paid for them.) But it sure indicates that NRP's reserves couldn't bring much in a sale.
And ARLP is following NRP into oil & gas investments. Really small - $ 10 million spent, $ 50 million commitment, and they say they did it in late 2014. We will find out later this morning if their timing was better than NRP's.
The Q was pretty much as expected. ARLP had already contracted most of the coal sales by last Q, so there was a small range of results that could be expected. It wasn't quite as good as trader_george hoped for, but he was certainly in the ballpark.
The coal reserve buy/lease was the headline. There has to be a lot of leases in there because the price to be paid was pretty low for IB coal. But the deal with Patriot - 100 MM tons of reserves, contracts for around 5 MM tons of deliveries over the next 3 years plus some equipment, all for no more than $ 50 million, is pretty incredible. Maybe on the call they will talk about the likelihood of approvals.
They also started buying into the oil & gas business. A small step ($ 11 million to start, up to a $ 50 million commitment) and they said "in late 2014". Before or after the Thanksgiving massacre of oil prices? We'll have to wait a few hours.
They added a nice amount of committed and priced coal sales, although I don't know if this includes the still-to-be-approved Patriot Coal deal. 2015 committed and priced coal increased 6 million tons; 2016 increased 2 million tons; and now they are disclosing 2017 and 2018 (22 million tons total). So nice move, with or without PCX, in an ugly market. They didn't mention pricing, just that the tons were priced.
Anyway, another great Q in a tough environment. I still have to understand the status of WOR better. But the call will be interesting. Interesting in a good way, which is better than BTU or the others can say.
2 points: one is that NSC, which ships a lot of met coal, saw a Q4 drop of 32% in met coal shipments to Lambert's Point, That is the shipping place for a big part of NSC's met coal shipments that are bound for export. Not news, really, just confirmation of what everyone has seen this past year.
The other point is probably bigger - the strength in the US dollar (or you could say, the weakness in the Australian dollar) has provided a further cost advantage to Australian met coal in the global market. So not much light at the end of the current tunnel for met coal, which is still a big part of NRP's business.
Slightly OT, but maybe will affect ARLP.
Norfolk Southern reported Q4 results. A lot of ARLP's coal is carried on NSC, although most of the charge goes to the customer-utilities, not to ARLP. NSC has cut its 2015 projections for several reasons. One reason is that its fuel surcharge revenues will end. The trigger point for the surcharges was $ 64 WTI, which obviously isn't happening just now. This shouldn't affect ARLP's expenses directly, but it should reduce the overall cost of coal to ARLP's customers. Maybe this will offset the low price of natural gas, but nat gas is so cheap right now, it's hard to think this will make a big difference.
Yes, I read it differently. It may sound like I'm splitting hairs, but I don't see it that way. I see it like this: there are at least 4 ways to consider a mining company's profits:
Cash profit at the mine - the selling price of the coal less the cash costs to mine it.
All-in profit at the mine - the selling price of the coal less the cash and noncash costs to mine it. This would include noncash charges for depreciation and depletion.
The company's overall profitability before extraordinary items - Take the overall profit at the mine and subtract headquarter expenses for selling, general and admin costs, and also subtract interest expense.
And finally, GAAP profit for the company - Take the company's overall profit after all "normal" expenses like SG&A and interest, and then subtract extraordinary items like mine write-offs.
Based on what BTU has said, it is still profitable (for 2014 and I assume 2015) under category 1 and 3. The losses are being driven by depreciation charges, interest expense and write-offs. But they have to continue mining because they need the mining cash flow to reduce the other expenses.
Don’t get me wrong – BTU’s business stinks right now (how’s that for a dazzling bit of insight?), and prices are too low to support the business. In that regard, I understand your comment that they are booking business for 2015 at a loss. But from my perspective, they are booking 2015 sales at prices that are greater than the cost to mine the coal (in the US only), so they will continue to do so.
And since this isn’t the BTU board, I will simply point out that BTU incurred most of its debt to buy the Australian mines that are strangling the company right now.
It doesn't mean much because it's based on pre-Thanksgiving oil prices. But if you insert today's oil prices into the 2014 results, it means that the new acquisition would have basically broken even after interest expense. And after paying distributions on the new 8.5 MM units, the new deal would have produced negative cash flow for the unit holders of about $ 10 MM (for 9 months). So the question is: how long will today's oil prices last - do we get a V-shaped rebound in oil prices or do they just bump along at these levels for a while?
It gives some historical information about the financial results from the Sanish field interests that NRP bought late last year. Considering what's happened to oil prices since the purchase, the information isn't terribly useful. In the first 9 months of 2014, the interests would have generated $ 39 MM of operating cash flow. Subtract $ 11 MM for the proforma interest expense on the debt incurred to make the purchase, and cash flow would have been $ 28 MM. Considering that NRP issued 8.5 MM units to finance the deal, those units would have cost $ 9.6 MM in distributions. So the acquisition would have been accretive to some form of cash flow by about $ 18 MM for the 9 months.
NRP doesn't like to count cap ex in its calculation of DCF, but if that's important to you, cap ex would have been $ 16.5 MM. I don't know how much of that would be factored into DCF.
And finally and most importantly, this is all irrelevant, considering what happened to oil prices after September 30.
I'm answering just to see how quickly I can respond. You posted 38 seconds ago, so yes, we'll survive. But after Sandy, I worry about power.
Thanks for asking. I'm a bit too old for sledding, though.
The following numbers are from the EIA website and the crack spread is for the Gulf Coast region. So the numbers are not directly relevant to NTI, but they show a positive trend.
In December, the national price of gasoline dropped a little more than the price of WTI crude, so the crack spread dropped (means the refineries made less gross profit). The percentage difference wasn't great (WTI dropped 18.9%, gasoline dropped $ 19.4%), but since the refineries operating expenses and SG&A pretty much stay stable, the combination of lower prices, lower gross margin percentage and fixed operating expenses were probably a killer in December.
So far in January, things have changed. Gasoline is still dropping but WTI is dropping a lot more. So the crack spread is widening - the EIA reported Friday's crack spread #$%$ 11.21 versus $ 2.89 at the end of December. Good news for refiners.
NTI has all sorts of differences - access to cheaper Bakken/WCS oil feedstock (good), lots of asphalt production (generally bad because asphalt generally sells for a lot less than gasoline, but I don't know current pricing), and probably gasoline pricing differential in the upper midwest (again, no idea if this is good or bad). Also, around December/January the crack spread jumps all over the place for lots of seasonal reasons.
But it's a good sign that the refiners are keeping a little more of the cost savings from lower oil prices. At least it's a good sign until I have to fill up my gas tank.
I think it's about time to buy some (more) NTI.
Just a guess on the $ 100 MM securitization of receivables - ARLP has $ 205 MM of long-term debt (the Series A debt) maturing on June 26, 2015. It also has $ 25 MM of its term loan coming due in 2015 - $ 6.25 MM per Q). The Series A debt costs 6.25% and was originally a 7-year loan. In 2014, ARLP only had $ 36 MM of debt maturities come due, so 2015's $ 230 MM maturities are a big deal.
I don't know what interest rate ARLP will have to pay to re-finance the Series A debt. So maybe the securitization, which is pretty cheap debt, is there as flexibility for repaying the Series A debt. Or maybe the securitization is just cheaper than the revolver, but I don't think so.