I know little of bonds, but why pick bond funds at this time? Aren't you concerned about rising interest rates? Are you going on the belief that they may perform when the stock market pulls back? Do you have thoughts on the big banks? They will be raising dividends in March or thereabouts. That plus an eventual rate increase should be good for them, as far as I know. I just advised my daughter on her 401K selections and kept her away from bonds, except for one balanced fund. Maybe that's a mistake? Anyone have thoughts on the matter?
oil production from the Bakken has been going hogwild and cannot continue to grow like it has, IMO. Theoretically, 2 million brl/day is certainly possible but there are obstacles of price, margin, transportation, environmental, and more. Look for the recent article in the NY Times about how out of control it actually is in NoDak. As a Minnesotan, I have never had NoDak in high regard but as things are now they are ruining that state for future generations... unless you are getting oil money, in which case you can move to Fargo or Minnesota for the summer and spend your winters in McAllen or Harlingen.
I can't do the math but my guess is the cash that would have been spent on the dividend would be enough to get SDRL through the coming round of new UDW rigs to be delivered and eventually chartered (note, the West Tellus is now under contract) and another UDW rig was just acquired by SDLP . However, NADL is a dark cloud on the SDRL horizon and will have to be resolved soon (I hope). I see NADL being up Sheet Creek and currently searching for the paddle. JF will come up with something... witness his execution (so to speak) of the SFL unwinding of the FRO charters and keeping FRO on life support until the long awaited turnaround in crude tankers. VLCCs, which make up most of the FRO fleet, are still waiting for real rate improvement, but it's here for those with the smaller crude tankers. Bottom line, I think JF does well in survival mode (he clearly was not in expansion mode). He will come up with something (we hope). NADL... I predict will go lower but eventually there will be some kind of news and the stock will come back... only to fall lower later. You'll need your Jim Beam to pull you through.
Hope your corn is out of the fields, dried out and in the bin or sold or whatever else it is you do with it. Take it easy and get that back healed.
My hunch on oil is that it will not go much lower. I think the overriding factor is the economic war against Vlad the Invader but to let the price go any lower would tend to reduce domestic production more than the brains would like. Winter is already setting in early in the Bakken and production will again drop substantially if this winter is anything like the last one. Gobally, the oil war with Russia could be a long and drawn out affair and the USA and Saudi Arabia will decide the price of oil for the foreseeable future. Vlad has chosen a tough course for his country as they will become more and more isolated as time goes on.
You stated the case to hold SDRL. That's what I am doing, for good or ill. The dividend cut will free up a ton of cash to help finance the newbuilds, and all that other stuff, including propping up NADL as needed. This may not be the SDRL low, but it could be based on a future balance sheet which should noticeably improve quarter to quarter. NADL is a different story. It will be on life support with SDRL as its lifeline. JF could pull the plug at any time. As far as John Fredriksen, I prefer to blame Tor Olav, who is now the vice chair at Golar where I tend to think he is not in a position to tell Sir Frank how to run a company. Anyhow, that's the story I prefer. Otherwise I would be wrong and we can't have that.
Agree with your comment on holding a lot of stocks. I have had lot worse days than this. What SDRL I did sell went into SDLP and I am optimistic on that one because dividend growth looks good, though obviously not risk free. Giving any thoughts to selling some or all of your SDRL?
I see things differently for the midstream MLPs and even the upstream MLPs. Midstream growth will continue driven by production and to catch up to current production. SDLP on sale today. Bounce back on Monday. Upstreamers like MEMP, ARP and LNCO have yields so high that distribution cuts are already priced in. KMI and KMR I am sticking with but the lower DCF ratio is somewhat concerning. Banking on King Richard taking care of us small fries.. KNOP I do not own but plan to. Please let me know when you see a buying opportunity.
The SDLP selling today is stupid, IMO. Collateral damage from the SDRL/NADL debacle. A good time to be adding. Visible revenue, DCF and distribution growth (yield is over 12% at today's price). Distributions taxed like dividends... reported on a 1099. Mgnt expects a Q4 distribution increase of at least 6.3% with an increasing DCF (currently 1.03 with September equity sale factored in. A new acquisition this month for an ultradeepwater rig in the Gulf with Chevron(?) or somebody like that. Contract good for six years. That is revenue visibility. More deals like that as SDRL has to continue dropping down the high quality, contracted rigs to monetize the newbuilding rigs and maintain cash flow. That equals future, perhaps quarterly, distribution increases at SDLP for the rest of 2015. Wells rated the SDLP distribution as "secure" in their October MLP report...highest is "solid." TGP is in that small group,
GMLP also had a favorable report today. Yield not as high but the Q3 DCF was 1.47 and a new floating storage/regasification unit (Golar Eskimo) will be delivered and acquired from Golar LNG, the parent, in Q1 2015. Mgnt says no new equity sale will be needed to pay the final installment. I had been expecting a secondary offering this fall to pay for the Eskimo and was planning to add at that time. Price could also be reacting positively to that news.
Sorry, I don't recall seeing you post about SDRL options. Perhaps it was on another board, or maybe I just wasn't paying attention. I do remember such things appearing on SA and the like but that was not of much interest to me since I have been warning about SDRL and NADL on this board several times over the past year. BTW, I define a jerk as anyone who dares title a post as "I told you so." And you can forget the "I hate to say" part because it doesn't seem believable.
On NADL, this is from their report:
"We have entered into a construction contract for one sixth generation harsh environment semi-submersible, the West Rigel, with corresponding contractual commitments, including project management, operation preparations, and variation orders, totaling $720 million of which we have paid $150 million as of December 31, 2013. The West Rigel is scheduled to be delivered to us in the second quarter of 2015. We will need to secure additional financing for the remaining yard installment, which will be due upon delivery of the rig."
So, they have managed to delay the final installment on this rig for six months, but then the way I read it they will have to make a final payment of $570 million, not $454 million. I think any deals with the Russkies are DOA, so the way I think this could happen is one of the oil majors comes to rescue with a contract. After all, what good would it do Statoil, Exxon, Conoco, etc. to have SDRL become insolvent and jeopardize current drilling activities? That would allow SDRL/SDLP/SFL/NADL to go to the lenders for financing. For new, the can is kicked down the road and NADL stays in the Biz Bag for who knows how long.
All of this will be good for SDLP and SFL, I rank both as buys. The way I read it, JF absolutely needs both of them to meet future financing requirements so he has to keep both healthy and that means profitability that translates into dividends/distributions. SDRL has new rigs under good contract in other places than the North Sea so the only question is, how many rigs with contracts will SDLP and SFL be in a position to acquire? They will get the cream of the asset crop so they can impress the lenders enough to do financing. SDLP will get most of the action since SFL is already heavily reliant on revenue from offshore drilling and has been diversifying into liners, and elsewhere.
For NADL, the shoe has yet to drop. They have to explain what's going to happen with the West Rigel soon to be delivered. If they announce a deal with a good party even at a lower rate, the lemon could become lemonade, especially if it is taken as a sign of what can be expected as the charters on several other NADL will expire in 2015 and the Russkies are no longer in the picture. And, if anyone thinks the sanctions are going away in the foreseeable future, consider that France is now withholding, at considerable economic risk, a warship that was about to be delivered to the Russkies. The sanctions are toughening, not weakening, and given the fragile state of SDRL, JF will have to think real hard about how to stay in compliance, not finding the workarounds.
I wonder what Big John has in store for SFL as a source of future financing. His options are now more limited but perhaps it is better to have fewer balls (companies) in the air. You could also note that none of SFL's assets are tied to deals with the Russkies.
To answer your question, to me it depends on if you are willing to buy and hold, indefinitely. I am underwater on TGP having bought three times over the past couple of months, each at a lower price. I now consider that position filled as a long-term hold for income. I think it may get back to the low 40s next year and I generally start selling when I hit a 10% gain. I don't see it going much lower than it is today because the outlook for LNG vessel demand is favorable. If they do a share offering I don't imagine it would be anywhere close to today's price.
If I recall correctly, NAT has done maybe secondary offerings in the last 5 years. They have continued to grow their fleet, which as you may know, is 100% suezmax. A couple of days ago I read that rates for suexmax and aframax crude carriers are higher than they are for the VLCCs, plus the suezmax fleet globally is not growing much. Looks to me like people are not order new crude carriers as much because I suppose the banks are tougher on their lending.
I'd like to think the conservative management style of NAT will carry over to NAO which should mean, if nothing else, they will be careful not to get overextended.
TGP taking a dip after an average report today. Could be a slight dip in DCP. Should be temporary since it was caused by lost income from the sale of three older crude carriers. New vessels arriving and in the future indicate visible revenue increases. Seems logical to put some NAT proceeds into adding TGP shares. Higher, solid distribution for TGP with modest increases in the future. I like the growth in LPG carriers. That is a growth area... the peoples of developing countries improve their standard of living by shifting away from wood-based fuel for cooking and heating to propane, plus the growing demand for propane in the modern world is strong. I am overlooking the uncertainty related to building LNG carriers for Russkie natural gas. Even if those project do not come on line there will be a demand for the LNG carriers.
As always, what I lack in facts I make up for with opinions.
That down 2% was a golden opportunity. Wish I had been on-line at the time. Would have put my NAT proceeds to work immediately. Three more VLCCs jettisoned? Good news. They are at the bottom in terms of the rates the different sized crude carriers are currently getting. Something is working for a JF company.
Interesting contrast..... Nordic American favoring share sales over debt to finance measured growth while Seadrill obviously just the opposite. One can see the advantage of Nordic's low-debt approach seeing as SDRL has the newbuilds a'coming and must finance them during a downturn in the sector, not to mention the Russkie sanction issues.
Glad you pointed out the history of equity sales. I can't understand how I overlooked that during my exhaustive due diligence research phase prior to my purchase of NAT and NAO shares. The point is indeed worth noting; however, I will accept on faith that the approach of Nordic Am management to equity sales vs. debt has a logical basis that favors pay-as-you-go for growth instead of borrowing. That said, I was prompted to take my 10% profit on NAT selling at the open at $9.20. I put that order in last night after your message, so thanks.
I will hold my NAO shares because of the yield at cost basis and the niche they occupy. I will also buy back NAT if it dips 10% because their fleet seems to be in a good place market-wise and the pay-as-you-go method appeals to me. Do you know if Nordic Am mgmt. has ever addressed the question why they favor dilutive share offerings over debt?