Yes, the comparison implies that the 1Tcf deficit in storage, compared to one yr ago, is irrelevant to the price of NG. Now, perhaps producers can indeed step up and drive production up (substantially) over the next 30 weeks). That would be one rationalization for the flat yr-o-yr NG futures price. Of course, producers would need to inject an additional 33 bcf per week, over 30 weeks, to return to full storage. That is onto of the normal weekly injection rate of about 60 bcf….implying that producers must come up with a 50% increase in injection.
The market is saying "NO SWEAT"
Ill propose "NO WAY"
and have put a stake on that.
I could be wrong, and perhaps achieving the 3.9 Tcf storage by October 2014 isn't critical…i.e., maybe the market is OK with a 3.4 Tcf storage at the beginning of the drawdown season.
Of course, this all assumes a unimpeded summer injection season. And, it assume the following winter will be much warmer than normal. After all, in 2013-14 winter, the total net extraction is going to be about 3.1 Tcf. Image if another cold winter occurred…..can you say tail risk?!
The deficit in storage yr-o-yr is now near 900 mcc, and could very well exceed 1Tcf by 1 April.
yet, there is no price differential in the spring 2014 NG contract prices now compared to this time last year.
perhaps drillers can deliver the additional 1Tcf, and be happy to do so at $4.40 mmbtu.
I would bet against that, and suggest that NG prices will need to rise to the $5-$5.50 on the futures board before a significant drilling effort takes hold.
Oh, and after this winter, I doubt there is much of a stomach to enter the next drawdown season (only 7 months away) with an undersupplied market.
There is virtually no difference in forward NG contract prices out to October 2014.
The rollover issue of UNG/UGAZ/DGAZ is not much of an issue compared to the previous few months when the backwardation was over $1 mmbtu on current versus next contract month.
NADL is focused where competition is less, existing fleets are aged, new high quality equipment for HE work is essential, new reserves await production, and NADL is the only pure play having the needed attributes. I like them among all drillers, closely followed by ORIG who also have HE presence...
There has been a surge in product tanker listings, with Diamond S coming up, Ardmore, Scorpio, and Frontline 2012 looking to list.
Diamond S will have some disadvantages near term compared to there listed competitors including NNA whose fleet consists of a significant number of Eco-vessels.
WL Ross and his deep pockets could quickly expand his fleet. I worry about the vessel supply glut.....
While there is always some entrainment value in MF pieces, they have keep close tabs on the business of LINE. Here is their bottom line comment based on their read of today's earnings release:
"Overall, LINN Energy delivered a solid quarter. Production was solid and cash flow was good, leaving LINN Energy's distribution and LinnCo's dividend both looking rock solid."
The sharp swing down move today really smells of the actions by the same folks that drove these shares down in 2013, concerning accounting allegations (false), issues with completing BRY merger (now done), and the value of BRY (not evidently accretive, though more time is needed to sort how accretive…)
This from MF today makes some good points, and especially clarifies why the Q4 cash flow exceeded so appreciably the distribution, and why that excellence mostly vanishes in 2014…
Investors mostly invest in an MLP for its distribution, so when quarterly numbers come out, it is important to consider how well the company covered its payout. In the quarter, the distribution totaled roughly $170.5 million (an annual payout pace of $2.90). Linn generated cash in excess of the distribution of $31.5 million. In other words, Linn paid out $31.5 million less than it could have. This typically is a great sign as it implies Linn could raise its distribution in the near future, though Linn has held the monthly payout constant so far in 2014.
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Now as I said earlier, this quarter was complicated by the Berry deal. Essentially, Linn got the cash Berry generated during the quarter but did not have to make distributions to former Berry holders. Thanks to the Berry deal, the unit count has increased by about 94 million units. These units did not get distributions during the fourth quarter, but are now receiving distributions. These units get about $68 million per quarter at the current distribution pace, which doubles the excess cash reported in the fourth quarter. At the current pace of operations, Linn would actually have a cash shortfall of $36.5 million every quarter, which would endanger the distribution.
Now, Linn is forecasting increased production in 2014 of 1070-1140 MMCFE/d, which suggest 34% growth above 2013 production. Thanks mainly to the Berry acquisition, the unit count in 2013 increased by 40%. In other words, production per unit will likely decline in 2014, which will make it more difficult to raise the distribution in the near future. Moreover because Linn hedges out price risk, it is unlikely to garner much benefit this year from the recent spike in natural gas prices.
Linn Energy also touted a 34% increase in proved reserves to 6.4 Tcfe thanks to the Berry deal, though again that increase is less than the increase in the unit count. Reserves/unit is also lower year over year. This means Linn will have a tougher time increasing cash flow per unit over the longer term unless its unproved reserves eventually become very productive, which is uncertain.
Interestingly, Linn is budgeting cap-ex of $1.6 billion in 2014, which is lower than last year's $1.8 billion. I am pleased to see this sequential decline in cap-ex as it shows some discipline from management. Some analysts like Hedgeye's Kevin Kaiser have questioned the efficacy of this budget, and Linn is focusing more on predictable projects. I hope Linn maintains this level of capital discipline going forward as it works through its new Berry assets.
Overall, this quarter was unspectacular with organic production mildly disappointing. Further if you factor in newly issued units to Berry holders, there would be no excess cash in the quarter. In 2014, production/unit and reserves/unit will be lower than 2013 levels, which will put further pressure on the distribution. Linn has to do serious work to make its Berry acquisition an accretive one, and it may put a near term drag on per unit results. To sustainably increase the distribution, Linn will need to exceed the top end of its 2014 production guidance. With little distribution growth in the near future, I would not be a buyer of LINE until it trades back below $30 or LNCO falls below $28.50.
Despite their downgrade (still Outperform, $36 target), the tone is very positive:
"Lots of moving parts, but the quarter did not meet our expectations. The Company has hired advisors to explore strategic options for [Linn Energy's] 55,000 net acres in the Midland Basin, and we continue to think this deal could be great for [Linn Energy] unitholders. However, the recent quarter and outlook have our estimates of coverage moving down, although a Permian deal (or series of deals) could improve coverage very quickly. As a result, we are lowering our rating to Sector Outperform from Focus Stock, while maintaining our $36 price target. We continue to think [Linn Energy's] Permian acreage is very valuable and should have high demand from potential buyers, and a deal where [Linn Energy] receives cash flow in return for the non-producing horizontal potential could lead to immediately higher coverage and a higher distribution."
They intend to do an IPO in late 2014…
"Frontline 2012 targets a New York listing of its Cape size business within the second or third quarter of 2014 and has started this process. The strategy is to launch a "cape-yield" company, with relatively low leverage.
The recent increase in crude tanker rates, which began in the second half of last year, is a sign of an improved balance in the crude tanker market and the Company expects that the supply/demand balance will improve further. This creates opportunities in the crude segment also. However this is a fine balance which can easily be changed by increased fleet supply caused by increased ballast speed, decrease in vessel scrapping and aggressive newbuilding ordering."
I suspect the share hit is because their was no indication from CEO that distributions would increase in the foreseeable future.
Also, their projected excess cash flow in 2014 is quite small, much less than the excess reported in Q4 2013 alone…
LINN Energy expects to produce $12 million in cash flow in excess of its distribution in 2014, 1/3 of the Q4 excess.
With so many investors holding LINE/LNCO for growth in dividends going forward,, today's report is distinctly negative….and they are selling.
The flood of newbuilds, none with charters, begins shortly. Will those find charterers? This question seems to have not been given serious discussion, certainly not by CEO, and not particularly by covering analysts either.
Perhaps the fact that US shale boom, and resulting surging product export from the US Gulf Coast makes such a concern moot.
Nonetheless, it is unlike that the sudden introduction of all these vessels wouldn't lead to inefficiencies in employment.
the primary fear that I believe has forced share price lower is that their dividend is not secure, and might be cut.
That fear was laid to rest, and it is the reason for the share price rise, I believe.
The 2014 operating cash flow is more than adequate to cover the dividend (~70% of OCF), and the cash flow is expected to grow 20% next year.
Also, they now indicate that the increased div, while unlikely to be boasted in 2014, will be secure for several yrs. But, as what must be seen as a further positive, they now indicate that special dividends will be likely, modest in 2014, but growing in 2015, as they drop down assets to SDLP.
I am unaware of any equity in the market today offering a secure 11.5% dividend, with prospects for special dividends on top of that.
Once Sature and Neptune secure contracts in the next few months, I expect shares to be near $40, still yielding a generous and secure 10%.
In their cc, SDRL gave a bullish view for the following reasons, as summarized this morning by Credit Suisse:
■ Management Remains Bullish Longer Term. In addition to a pick-up in inquiries on 2015 rig availability, SDRL expects that increasing depletion rates for oil companies will necessitate increased CAPEX longer term to maintain production. With high dividend payouts and growing development costs, oil company capital is limited which is driving the cutback in spending. SDRL expects that the limited near term investment could lead to especially tight oil supplies potentially pushing prices higher and fueling production increases. Management went further defending the market and its position highlighting six key points at the end of the call.
o 1. Believe this is a pause not a cycle roll over (oil prices are high)
o 2. Backlog never bigger (however, we expect this to unwind – term
contracts are getting shorter and dayrates lower)
o 3. Current dividend $0.98/Q (10-11% yield) is a minimum dividend (floor) o 4. Special Fund – should provide $0.16 in 2014 for dividends/buybacks
o 5. Can order rigs cheaper than stock buyback (probably not a good thing)
o 6. Expects 20% EBITDA growth annually over next two years.
from their morning update:
Shift In the Dividend Policy. Management noted it sees limited value in increasing the dividend in the current market. Under this backdrop we are cutting our target price to $40 (from $48). Our $40 target price equates to a ~10% yield on the current dividend of $0.98/Quarter. Our 2014 dividend estimate of $3.92 equates to a OCF payout of 72% in 2014 and 63% in 2015.
Lowering Estimates. We are lowering our 2014/2015 EPS estimates to $3.17/3.47 (from $3.66/3.90) to account JUs mobilizing to Mexico and the SeaMex transaction. Our 2014/15 estimates are 10%/15% below consensus.
■ Waiting for UDW Contracts. SDRL has 3 UDW floaters in need of contracts this year (two newbuilds believed to be headed to WAFA) and the Tellus (already in WAFA) expected to go on short term work. While channel checks indicate all three rigs are in advanced contract negotiations, inked contracts would remove some 2014/15 earnings risk.
■ A Lot of CAPEX Growth, But A Lot Of Options. While SeaMex (Mexico JV) and SDLP's new financing frees up ~$1B in cash for SDRL (current cash $0.7B), SDRL has ~$7.3B in newbuild CAPEX along with $5.8B in dividends through 2016. We expect SDRL to generate ~$9.4B in cash flow over this period leaving a funding gap of ~$2.5B (need cash on the balance sheet). We believe SDRL is in a solid position to execute its growth strategy via SDLP equity (mgmt. thinking $1B/year) and debt (dropdowns include debt).
■ Special Dividend Fund? SDRL has decided to set aside 20% of net proceeds from MLP dropdowns for dividends/buybacks at a later date. The cash will accumulate only from dropdowns – SDRL pointed to $0.16 in 2014.
STNG and NNA comparison makes for good discussion. The improving market forces that make NNA attractive also make DTNG attractive. On a price to book comparison, STNG shares are somewhat more expensive. STNG will likely increase its pay out of cash flow much more substantially over the next 6-18 months,compared to NNA. On an income basis, it is likely than STNG will double their payout. NNA is clearly more adept in value creation via secondary market purchases, and has done a great job of positioning itself in the VLCC segment, DTNG paid top dollar for VLCC fleet, not due for delivery till late 2015. Yet, their motive may be more about riding the appreciation in that VLCC investment, and then spinning it off….much as it did with the VLGC investment. Different approach to NNA, but turning a profit also.