My last post on the presentation. I have to correct a mistake I made in the numbers. I should just delete my original post and start over.
NRP received 80 solicitations, consented to 62 of them, and non-consented to 18. I had the numbers reversed, based on what I thought the questioner said. But Mr Hogan was clear in his answer - 18 non-consents. So things aren't as bad/confusing as I thought.
I really apologize for getting that wrong.
I wish I could have heard the actual question, but the questioner didn't have the microphone. All I heard was the answer, with Mr Hogan giving a summary of the question. And since I don't know much about the mechanics and terminology of oil wells, I probably made a bad assumption.
I assumed that what they were talking about was whether NRP would participate in new wells, and that the decision was being made before any work was being done on the well. So my assumption was that the only downside to this nwas that NRP wouldn't be involved in the new well at all, so what you said puzzled me.
I just did some reading and I see what you're saying. Essentially, what I read says that if the owners as a group decide to complete the well, and some owners choose not to consent (fund), and if the well is successful, the non-consenting owners don't get any of the income from the well until the owners that did the funding get anywhere between 200% and 400% of their costs returned to them. So the downside is that the non-consenting owner paid in for his share of the upfront costs, expecting that the income from the well would offset those costs and more. But as non-consenting owners, they have to wait a good while to get their share of the income from the well.
NRP's non-consents were over the last 12 months, so they couldn't have all been caused by low oil prices, which only happened recently. They could have been caused by a belief that the well wouldn't be productive enough to justify the investment; that would make sense. But NRP non-consented to 80% of the wells, so that would concern me as to the value of the properties. Mr Hogan did add that we could expect to see more non-consents in the older oil& gas deal, to free up money to invest in the more profitable Sanish field wells. So that would be a good reason, but only for the last few weeks.
I don't see how any of this ties into his statement that at $ 60 oil, the IRR would still be above 20%.
I went back and listened to that part of the call again. The question is inaudible, but Mr Hogan summarized it as follows: how do the large number of non-consents affect the expected return on the oil & gas investments? He used the term "AFE" as solicitations to invest in new wells, which NRP can either consent to (make its pro-rata share of investment in the well) or non-consent to (pass on the well). Over the past 12 months, NRP received 80 AFE's and non-consented to 62 of them. So the question (I guess) was that NRP was passing on most of the new wells, so maybe that meant the investment wasn't working out as well as expected.
The answer was (1) all of the non-consents related to last year's oil investment; none of them related to the recent buy in the Sanish field. Based on lower oil prices, some of the new wells don't meet NRP's hurdle rate for investment. But he then said that NRP's share in some of the new wells was really small, so that NRP was being asked to invest $ 60,000 (his example) for a really small piece of a new well, and he said that wasn't worth the administrative costs of tracking the wells. The way he answered, he stressed the admin cost issue more than the lower oil price issue (I think he had to do that, otherwise he would be throwing cold water on the new oil investment as well). He also added that we should expect NRP to non-consent to more of the wells in last year's acquisition because NRP wants to preserve capital that will be needed for new wells in this year's Sanish field investment.
I’ve tried to post several times over the past few days, but nothing seems to get through. I’m trying from a different computer; maybe this will work.
NRP did a presentation last week at a Wells Fargo conference. I haven’t seen anyone post anything about that presentation, so I wanted to post some interesting things.
First, I have listened to maybe a half dozen of NRP’s presentations, and this one had more Q&A than any other one I’ve heard. They answered each question fully, and I need to give them credit for that, even if I don’t quite fully believe the answers. And they continue to put dumb spins on things.
First, the most important part – They mentioned several times that their goal is to increase the distribution, but that they would be cautious about the distribution. The presenter (Mr. Hogan?) said they felt “really good” about where they are, so that’s certainly good.
Next as to the new oil & gas properties – they said they were completely unhedged for oil prices with respect to the new oil & gas working interest purchase. When they made the purchase, they estimated that oil & gas would account for 25% of the company’s 2015 EBITDA. The presenter said this was based on oil prices in the $ 70s range. At current prices, they “could be slightly lower than 25%”. At $ 75 oil, they would consider entering into hedges. In response to another question, they said that at $ 80 oil, the IRR for the Sanish field wells (that’s the new purchase) is 50%. With oil at $ 60, the IRR drops to 20%, which is still above their investment hurdle rate.
The funny/dumb spin part of these answers is that they pointed out that because they are unhedged on oil prices, NRP will benefit from any rebound in oil prices. They didn’t mention the damage that has already occurred from the lack of hedges. Maybe because everyone already knows that? Also, I think a 20% or so drop in the expected IRR on a $ 340 MM acquisition has to have a significant impact on 2015 DCF. But they said they were still working on the 2015 budget.
They specifically said they had “no covenant issues at all”. I’m going on the assumption that oil prices will recover at least to the $ 75 - $ 80 range by late 2015, but if they don’t, I think the covenants associated with the recent oil & gas purchase will be a concern by late 2015..
The people that asked the questions seemed to know their stuff. One questioner apparently said that a big part of VantaCore’s Laurel operation was supplying aggregates to build drilling pads for the oil & gas industry in the Marcellus, and asked whether they were seeing any downturn due to lower prices. NRP said they hadn’t seen any downturn yet, but that it was a risk.
Another questioner pointed out that NRP has been declining offers to participate in a lot of new wells (this was part of the 2013 oil & gas purchase, not the recent Sanish filed properties). NRP said part of this was due to low expected IRRs on the new wells, but most was simply due to the fact that NRP’s interests in the new wells was really small, and the administrative costs of keeping track of the new wells wasn’t worth the dollars involved.
They also mentioned that ANR recently let some WARN notices expire with respect to its CAPP mines, some of which are on NRP’s properties. They said that NRP’s properties are some of ANR’s most profitable mines and they don’t expect ANR to close them.
And finally, they were more optimistic (or less pessimistic) about met coal recovering quicker than thermal coal.
Have you been watching MLPs in general recently? That's one reason.
The price of natural gas has been dropping a lot recently. That's another reason.
2015 is getting closer, with all the EPA-mandated coal-fired power plant closings getting closer. Every time there's a new article about this (yesterday on WSJ, I think), coal stocks take a hit. So there's another reason.
Lots of new Illinois Basin production coming on line this between this year and 2016 without guaranteed contracts; ARLP and FELP have both talked about the possible need to cut back on production. So there's another reason.
But the biggest reason, I think, is the MLP market. Even the MLPs that have absolutely nothing to do with energy in any form have been weak. ARLP hasn't tanked the way the oil-related MLPs have (in fact, lower oil prices help to reduce ARLP's costs), but it's just a question of how weak each type of MLP has been.
Hope this helps.
It looks like a real purchase, and at a much better price than Mr Robertson got in the secondary. She also purchased 5,000 units in October, at 1 dollar higher.
If it means anything, and it shouldn't (I have a gift for impeccably wrong timing), I would buy NRP at this price, but the MLP rout has me spooked still. NRP looks so far oversold, it's ridiculous. But I can say the same about quite a few of my MLPs, and I can't buy them all.
I wish that were true, but unfortunately it's not. YMLP owned 176,846 units of ARLP on May 31. ARLP split 2-for-1 on June 17, so that YMLP owned 353,692. So now that they are up to 311,686 units, it means they bought another 57,994 units.
If you look at the values instead of the units, it's easier to see. YMLP had $ 16,084,000 invested in ARLP at May 31. On December 5, this had increased to $ 18,267,000.
It's nice to see them buy any units, but it wasn't 245,000.
First, TNH's partnership agreement gives TNH or CF the right to buy the remaining24.7% for a price equal to the last 20 days closing prices, which is a lot less than $ 150. Per the 10-K:
When not more than 25% of the issued and outstanding units are held by non-affiliates of the General Partner, we, at the General Partner's sole discretion, may call, or assign to the General Partner or its affiliates, our right to acquire all such outstanding units held by non-affiliated persons. The purchase price per unit will be the greater of (i) the average of the previous 20 trading days' closing prices as of the date five days before the purchase is announced and (ii) the highest price paid by the General Partner or any of its affiliates for any unit within the 90 days preceding the date the purchase time or price and may not receive any return on your investment. You may also incur a tax liability upon a sale of your common units.is announced. As a result of this right, you may be required to sell your common units at an undesirable time or price and may not receive any return on your investment. You may also incur a tax liability upon a sale of your common units.
So forget the $ 150; they could force you to sell at $ 125, depending on today’s close.
But they won’t, because it makes no sense for CF to buy you out. Because of the IDRs, CF gets about 87% of TNH’s total distributions while it only owns 75% of the common units. So if they buy the remaining 25%, they will only pick up about 13% more of the distributions. So it makes no sense, unless the price drops really low and they want to get rid of the public unitholders.
Don't know what the company has said but Credit Suisse shows 2015 EPS (not DCF) to be $ 4.03; they say consensus is $ 4.20. CS has the quarterly distribution rising from 62.5 cents to 80 cents in 12 months. Somehow, CS says that's a 20% increase. They also have an EBITDA projection but I didn't see any DCF estimate. The CS estimates were published on Nov 10, but I don't have access to anything more current.
20% - 22% of EBITDA, not earnings. The new oil & gas buy wasn't expected to add a lot to earnings, because interest expense and depletion will offset most of the cash flow.
And natural gas isn't going to be enough of the production to worry about.
Are you aware that Whiting operates all the wells that NRP just bought a piece of, and Whiting is also the majority owner of those wells? It isn't hard to "guess" that whatever production Whiting gets from its wells, NRP will get about the same ratio.
Plus, NRP’s current share of production is 3,100 bpoe per day, and the company projected EBITDA of $ 60 MM in 2015 from the buy. You can’t get anywhere near that cash flow from that amount of natural gas.
The only thing that makes this approximate is that Whiting operates throughout the Bakken, while NRP's wells are only in one part of the Bakken.
I'm really getting old. Back in October, GLP agreed to acquire Warren Equities, which wholesales and retails fuel, for $ 383 million. GLP said at the time that they expected to fund the purchase price 60% with debt and 40% with equity. 40% would be about $ 150 million. The deal is expected to close the first week of January. This past week's secondary raised $ 138 million, net to the company. Plus, the underwriters have an over-allotment option which could raise another $ 20 million. So, other my senior moment, I should have understood the imminent secondary.
I don't understand your question. NRP has said that it expects oil & gas to contribute 25% of 2015 EBITDA, if that's what you mean. NRP has not said how much is oil versus gas versus NGLs, but Whiting Petroleum (the operator of the wells) shows about 85% oil from the Bakken. So probably oil makes up about 20% - 22% of NRP's EBITDA projection for 2015. If that helps.
To finish - the 10-K will have to contain specific information about pricing and hedges, costs and expected production. I think that's the day of truth.
Anyway, where am I wrong?
These days, I hate these buying opportunities, but I guess I'm getting another one tomorrow with GLP's secondary. You would think lower energy prices would help GLP's traditional wholesale fuel business and gas station business, plus volatility in oil prices has generally been something that GLP can take advantage of, but I could do without another price drop among any of my MLPs.
Because of the IDRs and its 75% ownership, CF would get about $68 million of the $ 78 million distributed. You would get about $ 2 per unit. Would that make you feel any better?
Yahoo won't let me reply to your post for some reason. Today's sale was probably not done by any of the insiders that you mentioned. Back in October, NRP issued about 2.4 million unregistered units to the group that sold NRP the VantaCore aggregates business, at about $ 15. My guess is that some of those units were sold today.
These were unregistered units, so there's no public sale involved. Presumably Citi found a buyer (institutional, whatever) and the parties agreed to the $ 11 price. I would guess the sale has already closed and you won't see the sale included in the daily volume. But that assumes the story is correct, which is always a question.
Coal is down, E&P oil drillers are getting killed, and an insider is selling. What more do you want?
Other than the brief news item, I haven't seen anything about the sale. But the news item said it was a sale of unregistered units, so that means it has to be an insider selling. But someone else is buying those unregistered units, so that person must see some upside.
What can anyone say - market volatility is increasing, oil & gas price volatility is off the charts, tax loss selling, things are crazy. And while I've stayed away from NRP since the distribution cut, just about every other MLP I own has been hammered to some extent. So don't look to me for answers.