I think analysts are predicting $30 billion out of around $160 billion in energy high yield bonds to default. There will of course be at least partial recovery in many, perhaps most of those. This will not be a Lehman contagion, not evenly remotely close, sorry to disappoint you.
The loan you are referring to was for the spinco, to term out the revolver. post spin (read the sec documents).
I did some digging after you made the comments. It was indeed Atlas, but it was not ARP.
Agree, they should have hedged the Eagle Ford deal much better. A classic screw up on Cohen's part, probably "hoping" prices would rise and he would look "smart". We know how that always turns out.
One thing is certain, if ARP cuts, it significantly hurts the new spinco (GP).
Yes, also agree they will not raise $275 million in '15. I bet it is closer to $150 million.
I understand what you are saying pooch. I would say that a divestiture of any production or acreage at current prices would indeed be viewed as distressed, however a divestiture of UEO would not be viewed as distressed. UEO, and to a lesser extent Cardinal, are probably the best decisions management has made in quite some time. I also think the Barnett deals, which were perhaps a bit pricey, also significantly helped the company in shifting them towards more gas than oil. Yes, we know they botched the Utica divestiture. We get it. They tried to play the game that Aubrey McClendon was so good at, which was to hype a play, then sell-off a huge portion of that play via a JV or a carried interest, usually recouping their entire investment. EVEP failed miserably in that department.
My personal belief is that they should monetize UEO. If they don't, it won't be the end of the world and no doubt cash flow will continue to increase over time. If they do monetize it, they can deploy those proceeds in the market, being buyers rather than sellers.
I'm not saying a distribution cut won't happen, I'm just saying that those that look at the situation, should realize that Linn and BreitBurn were heavily exposed to oil production and did not hedge effectively.
Don't kid yourself, UEO will be in high demand if EVEP elects to divest their respective interest.
The E&P sector is hurting but the midstream sector is not nearly as beat up. I would not be surprised to see MWE, SXL (or ETP, RGP) or EPD move on UEO.
If EVEP elects to keep it, it will steadily increase cash flow through 2015 and 2016. It really is a crown jewel type asset.
I think your call for a 50% cut is silly. Linn and Breitburn cut that drastically because of their high crude oil exposure. Compare their oil and NGL exposure compared to EVEP. Just silly to call for a 50% cut, simply silly.
I think as long as EVEP is continuing to approach 1.0x coverage, most would prefer to have the .001/unit increases and not take a cut.
I doubt Walker cuts the distribution.
Perhaps the decline rate is 15% rather than 10% due to their not selling the remaining Permian Wolfcamp production, which we know is high decline due to being relatively new wells.
I agree. Linn is still heavily leveraged. It was heavily leveraged at $90/bbl.
Linn looks like it will survive, they will likely continue making acquisitions, however, they will need to make the bulk of those transactions with equity. It will take time, but they can deleverage themselves by making 100% equity financed deals, even if they are only modestly accretive.
I see little reason for EVEP to cut the distribution if they are approaching a 1.0x coverage. Monetization of UEO should push them over a 1.0x coverage ratio. The proceeds of UEO can be redeployed into producing properties.
I think a cut of that size is probably too pessimistic. ARP's oil exposure is less than LINE or BBEP.
Also, I suspect a cut will come after the ATLS/APL/TRGP/NGLS deal is completed. That way they can come back and "revise" their projections.
I would like to see a farm-out type arrangement similar to Linn's with Blackstone. When ARP came public, I was under the mistaken belief that they would treat the cash flow that was received from managing the private drilling partnerships as "growth capital" rather than as part of the base distributable cash flow. It appears that they have relied on that capital to pay distributions. While it would seem that cash is fungible, my belief is that DCF ought to come from production and that all maintenance capital ought to come from that production. Any cash received from the private drilling programs should be classified as growth capital.
A reduction in private drilling program capital raises therefore would have little impact on baseline distributions, but would clearly impact growth.
The Cohens may not like that their new "GP" will be hobbled. The IDR stream will be severely hindered if ARP has to cut...but it may be the prudent thing to do..
The Blackstone deal isn't significant. In essence, it is $15 million a year in drilling capital to Linn, which is nice, but really isn't material relative to say the 2014 budget of $1.5 billion (1%). The deal is $500 million over 5 years so one must adjust for time value as well.By the time GSO's 85% Working Interest reduces to 5%, the wells will have declined heavily.
However, it will allow Linn to generate a lot of PUD reserves that otherwise would not have been developed as surrounding acreage will get proven up. That in theory can help with their reserve based credit facility.
The cut had long been predicted by the street, sorry Ellis, your efforts to deny it were ineffective. Now, Linn must go out and execute, something they have, shall we say, struggled with over the last 24 months.
"sell the hedges".. That is essentially what Continental Resources did late last year, and, well, it didn't turn out well. Poor Harold Hamm, things haven't gone too well for him the last 12 months between what amounts to one of the most expensive divorces in US history, the falling price in CLR's share price, which nearly halved his fortune and then totally botching the cash out of their crude hedges. I doubt anyone will shed any tears for him as he is worth billions.
Of course, on the other hand, Linn would be monetizing their hedges at a much better position (i.e. nearer the bottom than CLR did) with crude near $53, thereby negating much of the risk. It seems likely that crude will drop into the $40's but seems very unlikely that it will drop into the $30's. Linn could very well monetize their crude hedges and hope that 2015 brings higher prices but then again, that would be a huge deviation from Linn's modus operandi, which is to mitigate risk and produce stable, steady cash flow. The last time Linn strayed off the beaten course, they got shellacked by the Hogshooter and Granite Wash fiascos. If crude drops into the $40's it might however present an opportunity to monetize the '15 crude hedges at what is likely the nadir. I would not be happy seeing monetization of hedges beyond '15 or gas hedges.
The Blackstone carry is interesting, giving Linn a nice 15% working interest. It remains to be seen how much will actually be invested and what returns they will achieve, with the caveat being that Blackstone must achieve 15% IRR before the bulk of their working interest reverts back to Linn.
The step-up to 95% on the back-end is not going to do anything for them in the near term, but will give Linn a nice shot in the arm when it does happen. Remember, by the time Blackstone's working interest reverts back to Linn, the wells will be well into the flat part of the decline curve. Nevertheless, it opens the door for future farm-outs which, barring a meaningful uptick in crude pricing, will allow Linn to grow in a capital efficient manner.
What you say is true regarding the Utica acreage, however, the divestiture of UEO will likely present no difficulty and should allow them to redeploy those proceeds at a lower multiple of cash flow into PDP properties.
I hold little hope in them monetizing more Utica or Eagle Ford other than perhaps small chunks, but would be delightfully pleased if they do.
No doubt EVEP management has not delivered on the much anticipated Utica divestiture. The irony is that when EVEP was trading as high as it did, they had a very low yield and could have simply issued units to purchase existing production.
I would add that, while they have failed to produce any earth shattering transactions, they find themselves in fairly good shape, with cash to deploy in a market that might produce some nice PDP assets if prices stay low. I have no doubts that Enervest is eyeing KWK's Barnett operations when KWK finally goes under.
I would expect EVEP to purchase gas assets at current prices as most producers are not likely interested in selling crude production at current prices.
Well, EVEP has fared much better than most of the other E&P MLPs. The monetization of CGS and the potential monetization of UEO in '15 should allow them to purchase assets, potentially at low commodity prices which may provide some upside in the future. The buying by Walker seems like he supports EVEP long-term. I doubt he throws that kind of money into EVEP if he felt like it was overvalued or was going to "crash and burn".
They have very low exposure to oil relative to many of the other E&P MLPs. Of course, now natural gas is crashing, but EVEP has decent natural gas hedges.
I think EVEP has a very good chance of weathering the storm without having to cut the distribution. That being said, I wouldn't look for anything more than the nominal quarterly increase. At current prices, it's a nice 15% yield.
Yes, but it is good news that producers are responding so prudently and soquickly. The quicker that rigs are dropped, the quicker that natural decline can start taking over and supply/demand can be restored. It will take 12-18 months.
Last weeks decline in oil rigs was quite frankly, much lower than I had expected. This weeks was larger. I'd look for, on average, 15 to 20 rigs to be dropped every week over the next 3 or 4 months.
The distribution will decline somewhat. SJT typically gets some premium if I remember correctly, but clearly the direction is downward.
The Saudi's are most likely going to stick by their plan. They will let the rest of the world cut supply and then pricing will creep back up, perhaps to $70 by year end. I think they have realized that the rest of OPEC has used them for years, with SA almost always being the country that makes the big cuts.
They want to maintain market share, punish Iran and Russia and reduce growth of shale oil. Their current plan does all (3).
ARP is going to suffer, like most E&P's. The few bright spots are that their natural gas hedges, while declining in terms of percentage of production hedged, actually are rising in terms of hedge price over the next few years. This should give them at least a little stability on the gas side. The oil/liquids side isn't pretty, but with nearly 70% hedged, they should manage, at least in '15.
Distributions are "projected" to be flat in '15. I suspect that it is highly dependent on commodity prices and partnership funds raised. Clearly if oil goes back to $70 and gas to $3.50, things don't look terrible, we can forget growth and perhaps eek through intact. The downward pressure on crude is severe but one must remember that these downturns will result in significant reductions in capital budgets by most producers. In time, the market will stabilize, and also, Wall Street is likely to be so willing to fund high yield debt, which fueled a lot of the growth. I think however, the recent shake-out shows that the E&P MLP sector is not nearly as stable as the midstream sector.
Yes, the 2020 8.625% notes are interesting. I checked and they appear to be trading around $.90 on the dollar right now. As you mentioned, yield to maturity of pushing 12%
You are correct that it is a joke that management has done virtually nothing. Look at Vanguard, Memorial, Atlas that have either reiterated their hedges, given a sensitivity table, invoked a unit buy-back etc.
But remember, Mark Ellis and Kolja Rockov are very arrogant. The fall from grace has been quite humbling to say the least. I suspect they cringe when someone says "Hogshooter"....
Yes, that seems appropriate. There are a little over 1500 oil rigs running as of last week. It seems likely that we will see about 1/3 of those idled at some point during 2015.