The departure of Ed Cohen from day-to-day affairs is a blessing. Putting a seasoned guy like Schumacher in charge of day-to-day operations is important, and frankly, about 2 years too late! Losing Matt Jones is, well, addition by subtraction! He was nothing more than a sycophant collecting a paycheck and telling Cohen what he wanted hear.
Cohen is, put simply, a blind optimist. He also has the uncanny ability of disappearing as soon as he screws something up, which he is quite good at. Perhaps now that he has his new shiny play-toy
Is it marklibera that once said, Cohen has the ability to take something good and turn it into something not quite as good? I think it was. A golden quote.
Now, I will say that ARP has some attractive properties. The Barnett acreage is actually quite good. The CBM production, which they overpaid for, is essentially immune to NGL exposure (for obvious reasons) and provides a "ballast" of low-decline properties to help dampen their overly active drilling program.
If, and it is a big if, ARP can get back to a 10% yield, and if they can manage to make quality acquisitions (stick with natural gas while it is low and out of favor) they can survive and perhaps even grow again.
Hopefully they will learn to hedge rather than try to "time" the market, as Ed did with Rangely. He really needs to retire completely, but then I guess he wouldn't be able to find jobs for his progeny...
You can find the distribution history a number of places, including on Yahoo under the historical prices section as well as Buckeye's website.
During the last conference call, it was intimated that due to the latest acquisition (Trafigura) that the rate of distribution increases may accelerate once the capital expenditures are complete. That would mean a quarterly increase above the $.0125/Q ($.05/annualized) that they have stuck with for some time. Whether or not that increase in the rate of increase materializes remains to be seen.
Overall, management felt like the drop in crude was probably a net zero to slightly positive event. I'd say it is slightly negative, even if BPL's cash flow is not necessarily hurt, many of their counterparties are probably seeing reduced margins and cash flow. BPL is however seeing a strong demand for storage due to the market being in contango.
Personally, I am fine with BPL raising at the rate they have been at, even if distribution growth slows down to $.01/Q or less, management has done a great job of integrating the Hess acquisition and helping turn the company around from several years ago when they were lacking on coverage and the balance sheet was overextended (lingering from the absorption of BGH and elimination of the IDRs). I think the long term benefits of BORCO are now finally being seen, after a number of years of expansions and volume ramping up.
I look for BPL to continue running with 1.0x-1.05x coverage and continuing with modest distribution growth.
You mention the debt, now tell us about the value of the assets and the cash flow they generate.
Very few "energy" companies are immune from all commodity price drops, but Buckeye is fairly well situated to hold its own during this volatile period. Of particular interest will be the utilization of BPL's many storage terminals, both crude oil and refined products. With the glut, crude is filling up many terminals, and high refinery runs due to lucrative crack spreads will mean plenty of refined product production, perhaps above current demand, meaning refined product storage will also be in strong demand.
As for the low cash position, I think you will find that nearly all MLPs run with minimal cash on hand. Cash coming in pays down the revolver and at distribution time, it is drawn back down again.
Couldn't help but laugh a bit today when I saw the distribution announcement.
Degenerate sandforbrains unblemished record of being wrong on the $3.08/unit distribution remains intact! Going on well over a year and the distribution actually moved backwards! The poor dolt never could get anything right.
It has been mentioned on their conference calls. You can consult investor relations for information as well, which will probably not be divulged...but it doesn't hurt to ask.
Copied and pasted from a Reuters article, for the boards viewing pleasure.
Jan 16 (Reuters) - Enterprise Products Partners said on Friday its Seaway Twin pipeline may not run at full capacity for the time being on low oil prices.
It is running at 200,000-250,000 barrels per day (bpd) now, versus capacity of 450,000 bpd, Enterprise COO Jim Teague said.
The line connects to Enbridge's Illinois-to-Oklahoma Flanagan South and is part of a network that is ramping up and carrying crude from Canada to U.S. Gulf Coast refiners
Silliness as always. We all know fully well that Enterprises Seaway is running, it was never a question of it running, but you knew that, it was a question of running at full capacity. Once Cushing is full, the WTI/Brent spread (which I alluded to in my note) should widen and force Brent imports out. Hence, my comments about capitalizing on midcontinent refiners.
Once again your utter contempt and hate have gotten the best of you. You sir need to turn your life over to Christ. You can be redeemed.
It is difficult to say, but clearly contracting risk is high on the list of risks for their various gas storage hubs.
They have 2-3 years contracted so the risk is around 2017 timeframe.
Once Cushing is full, EPD's Seaway will likely ramp up to full capacity (on the expansion loop which has been running well under capacity) as crude flows to the gulf coast refining hub since it has no where else to go.
Time to capitalize by buying MLPs like BKEP, NGL and others that have sizeable storage in Cushing. Midcontinent refiners such as HFC,WNR will likely also prosper as differentials to Brent should widen. HFC has a very nice share buyback in the works.
As for rig count and supply, I'd expect rig count to continue to drop, and to hit at least 800 and if things get really ugly, it may go even lower but we all know that rig count is a leading indicator and the fall in supply will take time, perhaps even into early '16. American exceptionalism is driving efficiency gains.
I am not sure where you got your information, but I hate to tell you that it is completely erroneous. Storage will not be full within a couple of days. Cushing will likely take 6-7 weeks and even that is subject to change based on a number of factors, including Brent pricing. Plus, much of the refined product storage has yet to fill up, especially along Plantation and Colonial meaning refiners can ramp up refinery runs and simply fill refined product storage (until it too reaches capacity).
Now, I do agree that things could get very interesting when storage reaches full working capacity. Of course, rig counts continue to fall which is important to correcting the issue in the later part of the year.
It could get ugly, but this would more or less coincide with OPEC's scheduled meeting and who knows what will happen then. OPEC is already showing signs of disintegrating. The Saudi's are fine. They have ample foreign reserves they can draw down. Some of the "step-child" countries do not. Venezuela, Nigeria, Libya are suffering. and a huge glut of US crude pushing WTI down relative to Brent won't help them.
Even if the step-children countries demand a cut, I just don't see the Saudi's giving in. If anything, I could see them, the U.A.E., Kuwait, etc ramping up production. After all, do you expect Venezuela, Nigeria and Libya to cut production? No, of course not. They want momma S.A. to take the cuts and S.A. has signaled that those days are over.
All that being said, S.A. is sowing the seeds of OPEC's destruction. This collapse is forcing US producers to get lean and tough times in the oil patch will mean more improvements in completion techniques, after all, necessity is the mother of invention. And with completion improvements, we will see higher IRR's at lower prices.
The US is going to keep growing production over the next few years, even if '15-'16 see drops. The Saudi's won't have much leverage at that point other than they are the low cost produce
The Cardinal/Redbird acquisition of remaining interest is one of those love/hate transactions.
It is clear, that based on what they invested originally, coupled with what they paid to acquire the remaining, including the assumed debt, that Martin is getting a very low return. In fact, they would have probably been better off not purchasing the remaining and simply letting the cash flow delever. However, now they can take disributions, but the deal was only marginally accretive. I think it added stress and risk to the balance sheet, but if they can turn it around it might work out ok.
The WTPL acquisition was pricey, but looks like a long term money maker. It is actually funny to see how this ownership stake has changed hands over the years from Buckeye I believe to Atlas and then from Atlas to Martin. Oneok bought the portion that Chevron has held for years.
I think the only real reason to hold MMLP is on the chance that Alinda finally decides to drop the Houston Fuel Oil Terminal down to MMLP. That would be a game changer and significantly change MMLP. It will be hard for that to happen with 10% equity capital. No doubt storage is in high demand, so Alinda may strike while the value is high. Alinda owns 50% of the IDRs, so clearly helping MMLP grow while also monetizing an asset is a win-win.
Really, MMLP just needs to get folded into someone like a Kinder Morgan or Enterprise Products.The partnership has done a decent job of growing the business, but if Cardinal/Redbird flops, it is going to severely cripple the company. They sunk way too much capital in gas storage, and while they are premium facilities that are well located the returns are terrible.
I'd expect it to be much better than .60x, they did guide to 1.0x 4Q coverage previously, however, the drop in NGL pricing is likely going to delay them achieving 1.0x.
I think 2015 is going to be a year of building volumes and trying to get to 1.0x by year end.
And for a little fact checking, since November 21 (the week before the Saudi's decided not to cut production and the awakening for the market that supply/demand equillibrium would not be "managed" by OPEC) the Baker Hughes rig count report (released on Fridays at 12:00 CST) showed 1372 Horizontal rigs in service and 352 vertical rigs in service. As of last Friday, horizontal rig count stood at 1052 (a drop of 320) and vertical rig count stood at 210 (a drop of 142).
It simply amazes me how lazy journalists have become, especially with data that is readily accessible.
Now, it is certainly true, and numerous producers have commented on it during earnings season, that we will see more of the following: high grading of drilling locations (producers simply choosing to drill their core acreage and delay field delineation, more pad drilling meaning fewer rigs, longer laterals, more focus on completion improvements and of course, squeezing service companies for pricin concessions. All of this will serve to help counter the sheer drop in rigs but there is absolutely a correlation between rig count and production. It may not be linear and it must be adjusted for completion lag, but a view of US production over the past 5 years against rig count reveals clear correlation.
I suspect we continue to see meaningful decreases in the rig count and would not be surprised to see us go to 800 oil directed rigs (a full 50% decline from peak) and perhaps even lower. To say that all of those are not efficient rigs is preposterous. Ask HP if they consider their state of the art FlexRigs inefficient old and unproductive!
Your data is incorrect. You can pull the Baker Hughes rig count data directly from their website.
As to unproductive areas..the fact that US production has been booming, makes me believe that producers are not working unproductive areas.
It is true however that SCR rigs are being jettisoned for AC drive.
Rig count is a leading indicator, it will require patience, however production will wane as rig count continues to fall week after week, it simply takes time, perhaps as much as a year (after all, it took nearly 4 years of breakneck drilling to get us into the glut).
I agree with your analysis. Cushing will fill up in less than 2 months if the build continues (even if the weekly build numbers are waning).
That inventory will need to be worked off. I still believe that recovery will take into 2016. We may see $60-$65 oil at year end but it remains to be seen how supply/demand will equalize.
Hmmm....so you want oil to go to $10-$20 bucks for 2-3 years. It seems highly unlikely that it will go that low and if it did it would only set the industry up for a super spike well over $100 and then the cycle will repeat.
No, ultimately, Americans should want oil to settle at the cost of production of the incremental marginal barrel of oil. I expect that to be around $75/bbl, but recognize it could be lower.
As for cleaning out the banks, that is highly unlikely. It Is the high yield market that will take it on the chin and really for the overleveraged small cap E&P's, the debt holders will simply assume ownership in bankruptcy and the equity holders will be wiped out.
Well, Libya is producing only 200-350,000 bpd at present, a far cry from the 1.6 million they produced before the civil war began in 2011.
This will likely give the market a shot in the arm, or, the Saudi's, in keeping with their stated intentions of maintaining OPEC market share, may simply increase production, and it is well recognized that SA has at least 2 million in production that is currently offline.
As a long term investor, these geopolitical issues only muddy the waters. It is highly possible that within a few years, Libya will be back producing pre-Civil War volumes.
However, producers can consider this a gift and take it while it lasts.
Or as Warren Buffett likes to comment...it is only after the tide goes out that you find out who has been skinny dipping.
And the collapse of Linn showed us that Rockov was playing with margin. It appears he did not better of a job with his personal finances as he did with Linn's.
I think the conference call will be quite revealing to say the least. He'll certainly be the laughing stock of the analysts if nothing else.
Which is why it may take until 2016. Most c-corps are drilling within cash flow and we still have a huge tailwind in terms of wells waiting to be completed. It simply takes time.
I have no doubts whatsoever that the market will be very efficient in removing excess capacity.
What we aren't seeing are the countless private companies that are reducing cap ex. Plus, with flat production in 2015 and lower prices, they will see lower cash flow in 2015.