JR, one more thing. Just looked up SDR and SDT to see how they are doing. Yahee says they are yielding in the high 50% range, so that gives you an idea where CHKR is heading if you are trying to apply a yield to their future distributions. Also, you should familiarize yourself with the taxation. I seem to recall that part of the distribution is treated as interest because of how the wells are structured.
The bad thing about being a trust is that they can't add any hedges when the price of oil or gas rose. They are basically stuck with the hedges that were assigned to them when the original properties were contributed. They also can't buy any properties. Then there are the fees and the fact that CHK operates the wells and basically can purchase the wells back from the trust.
Jr, funny to find you here. I haven't posted here in a long time, but see my old friends grgsvll and rogere are still here.
Here's the scoop on CHKR. Their hedges come off in mid September. Their distribution has been going down, but because CHK has not finished drilling all of the wells that they promised, the subordinated units stay subordinated and don't receive a distribution. Once CHK finishes drilling, then the subs convert to common and the dividend per share will go lower. I can't remember but CHKR is mostly gas so it's funny why it runs up when oil runs up. But they sell their gas for much below the NYMEX price.
Best advice is to find Dan Moore's analysis.
I started out as a long CHKR holder but then luckily got out with a profit when the similar-themed Sandridge trusts started to tank. Even made some good money on puts when the stock would go into a dive after the ex-date. One could try to trade it, but best to avoid. I think the puts became harder to trade with wider spreads and not as much price decline after the ex-dates.
You mean like Apple. No, leaks about performance only happen to stocks that need to be pumped up. That would never happen to any company whose growth is never in doubt. No company as reputable as Apple would have its CEO send an email to a shill like Cramer to stem a fallout in the stock price. Maybe some pennystock or an energy company. But not Apple.
Why don't you take out a second or third mortgage (just like ARP has done), bet it all and not sell until the stock gets back to the level where it came public.
What nice gain? I want them to support the stock price, and paying out your cash does not seem to be working. The market is not paying up for a 25% distribution because it knows it is unsustainable. They are in essence eating principal. They aren't covering the distribution now, so what happens when the hedges roll off? Unless commodity prices spike, hedging will be at lower levels than they currently have. Meanwhile they aren't going to be able to do any asset sales at these commodity price levels and they can't buy any assets yet because the prices aren't bargain basement yet. So they are in no man's land and the stock will drift lower. No one knows when there will be a sustained rebound in oil and gas (unless the Saudis announce they are curbing production).
First, the analysts are usually conflicted because of their investment banking relationships. Which analysts called the downside in any of these stocks? They get their info from management, plug it into their spreadsheet and spit out a target. Then whey management misses their projections, they adjust their targets down.
Second, Wells has been saying that ARP and several others have high risk of distribution cuts because of their debt covenants.
Third, book values mean nothing (just like bank book values meant nothing during the financial crisis). Impairments can and do occur regularly. Remember those Arkoma assets that ATLS bought and then dropped down to ARP at roughly 60% what they paid for them.
Can the stock bounce? Absolutely. But further increases are going to be tied to the price of nat gas and there's seems to be just too much of it. Meanwhile ARP has a debt issue. How did they deal with the last time they had a debt covenant issue in March 2015? They cut the distribution 50%.
Before one places too much confidence in the effect of hedge books, one should look at MEMP. Before the collapse in MLP share prices, almost everyone was boasting how great a hedge book that MEMP had. They had something like near 100% of their production hedged into 2017. At that time, MEMP was trading in the mid-teens. It is now $6. The point is that hedges are only part of the story and another part is the debt levels and covenants.
Finally, soon we will be into tax-loss selling season, and many of these MLPs are going to get sold to take losses.
You guys need to do some math. They are paying out a distribution yield of 25%. There are no acquisitions that yield as much unless the price comes down to 4 times EBITDA (i.e. the inverse of 4 is 1/4 which is 25% and that doesn't account for maintenance, the gp share etc.). I think LGCY paid over 6 times. The best thing they could do now is to use the 60mm (which BTW was $75mm when they announced the sale -- what happened to the $15mm?) to buy back stock. In fact, they should draw the entire $500mm on the credit line and buy back stock. The entire market cap is $400mm and they have $560mm in cash and credit.
But you heard it on the conference call. Walker needs the distribution because he owns a ton of stock that he bought at $22. They can't find acquisitions that are accretive to DCF. They can't even do a jv for their Utica assets after having spent 3 years telling us they were worth $1 billion (or $40 per share). They are a deer in the headlights.
It's so funny that people attack anyone who has a bearish view. Let's look at the facts. This stock came public in the mid $20's and is now $3. Back before they cut the distribution, did they warn about the approaching debt covenants? No. It took some digging into their SEC filings to see that they were approaching their limits. As a result, the distribution was cut by almost 50% in March. Over at ATLS, at the time of the TRGP deal announcement, they said ATLS would pay $1.35 in annual distribution. Then they cut it to $1.10. Then they did a reverse split. Then they suspended the distribution until Q2, then when Q2 came around they suspended it until 2016. This is called a record.
If you are "dependent" on the distribution, then ask yourself how much sense it makes to be paying out 40% when your debt is nearly 5 times EBITDA. How many companies outside of the e&p MLP universe pay 40% yields with these debt levels?
And it's not just ARP. Many of the e&p MLPs find themselves in the same situation. Weren't these MLPs supposed to hedge their cashflows so that a decline in commodities were not supposed to affect their cashflow? The truth is many of them were using the easy access to high yield debt to splurge on expensive acquisitions to create the appearance that they were growing to maintain their high distributions. Let's see what happens next year when their debt covenants revert back to the 4.25 times level. Then we will see how safe your 40% distribution was.
Its amazing what this thing called the internet has:
The NYMEX Strip, or “12-month strip” is the average of the daily settlement prices of the next 12 months’ futures contracts, and is a good indicator of where natural gas prices are for the next year.
Gambler, I am avoiding WMC after having sold it after the dividend payment. I think they are going to reduce their dividend again down to 50-54 cents. While that is still a great yield, the market reaction could be bad. Also, while I don't expect the Fed to raise rates in Sept, if they should, I think Bob could be right that all mREITs could be sold. I might consider WMC if it dropped to $10-11, but with the possibility of that divy decrease, I would rather have that pass before I invest. good luck
I am playing SFL for a bounce. I got some shares before they reported. The past pattern of the market is to see some good sized bounces, especially after the recent declines, but one has to be careful and not get complacent into thinking everything is ok. Even if the market were to make a nominal new high, I think we may have reached an inflection point.
stagg, the accounting on BDCs is difficult to understand. One way to tell if the market likes the report is to see how the stock reacts AFTER the initial bounce from the release of the report. If the stock can hold its gains and build on them, then maybe it has found its bottom. There is a lot of resistance on the way back up on many of these stocks that have had huge declines and people will use any bounce to exit. In my view PSEC would have to recover its 200 dma before it would be investable again.
Stagg, it may be premature to think it's safe to go back into either of SDRL or NADL. NADL looks like it still have a high debt to EBITDA ratio of at least 6 times and they warned that they will likely be at or below cash flow break even. They probably will also have to do a reverse split to get them in compliance with NYSE listing standards, and anytime a company does a reverse split, it tends to attract short sellers. The stocks may have bottomed temporarily and may be due for a bounce, but the sector is going to remain under pressure.
Sarge, I have often debated with you on Apple. It is often difficult to come up with an analogy to Apple, but I think at one time Microsoft owned the pc space and it had virtually no competitors for office software. Back in the 60's, IBM had no competitors for mainframes. I am sure the big behmoths -- Standard Oil, US Steel and the big giants of the industrial revolution also had stocks with no competitors. I don't know how cheap on a p/e basis these stocks ever ever got, but the fact is that here were several companies with virtual monopolies and yet at some point, their stocks stopped going up. Eventually their markets did change and they started to diversify to try to maintain their growth .Apple may not be there yet in terms of their position with phones. But the point is that no stock grows forever because of the law of large numbers. Apple is about the iphone and the other products don't matter as much and don't have enough to pick up any slack in iphone sales. Yes, the market can punish it unfairly, but that is what happens when almost every mutual fund, ETF and hedge fund owns the stock. There is no one else to buy the stock at a greater price.
I think Apple can be a great buy because they do have the cash to support the stock, but if the entire market does melt down, that doesn't mean that all the ETFs and levered funds won't take it down to some absurdly lower price. There is no inherent right for a stock to trade at a premium p/e just because it has had an incredible performance.
I have often debated with DH about his view that people don't have any alternatives to stocks, but history shows that that is not the case. A stock market boosted by debt and the Fed printing money is not built on a solid foundation, and when most of the market is based on leverage, when there's a hiccup in that, we are bound to get a downdraft.
I don't remember the specifics on i-Star, but I doubt that foreclosures could occur that quickly. One of the major obstacles for REITs was that previously they had to pay their dividends in cash. That rule was changed in the middle of the 2008 meltdown, allowing them to pay it with stock. But several REITS still went broke. It all depended on how much debt they had and the quality of their assets. I suspect the same will happen with energy MLPs. Those that suspend their distributions and stop sending this cash out the door may live to see another day. Those like ARP that keep paying it out so that their GP can attempt to stay alive, probably do not.
Nice pick if you got it. Looks like one of their buyback programs finally kicked in. But the next trip down might not be good. Everything is a short term rental from here out.