When you put together all of the parts, such as ngas under $3 and oil at perhaps $60 along with hedges falling off in 2016, even a good $500 million acquisition might generate $60 million of dcf in 2016. Therefore, I think they may reduce distribution to 12 cents a month by mid 2016. They will likely be under a 1 times disty coverage this year even though they projected 1.15 recently.
Yes, even with this price and reinvested, with the hedges reducing in
2016, they may reduce the distribution to approximately $1.4
and I would want to own it at $10. Hedges drop off after 2016 and they
may have to further reduce distribution to $1 if NG prices are under $3 for the
intermediate term which is projected. These projections include an approx 500 million
dollar reinvestment of proceeds later this year.
The company is smaller now with the sale of midstream.
They have low leverage and they should be able to high grade
and streamline. They need to make good acquisition to lower decline
rate and increase cash flow to keep distribution stable. They should make
an acquisition in the $200 million range.
If commodity prices drop again, EVEP could settle at $12 which
would be an amazing bargain, even if they need to reduce distribution
one final time to about $1.50 in 2016. I expect a sale of midstream at around 12X - forward cash flow or approximately $600 million.