Agreed on being followers. I can't see ARP going in and doing any major development type drilling until the play is proven up and someone else has cracked the code so to speak. ATN (the original E&P MLP) drilled some vertical wells in the NAS when gas prices were much higher. As I recall, it was primarily to lock up acreage.
Looks like the NAS is getting some attention again. As I recall, the New Albany is a biogenic shale play, very similiar to the Antrim.
I think Atlas still holds a fairly significant acreage hold in the NAS (close to 100,000 acres) though much of this may have expired.
My suspicion is that the NAS will turn out like the Collingwood Shale...get a lot of hype and then quickly fade away, but if someone figures out a way to crack the code and get economic wells, we might find ourselves sitting on another nice play.
But as I said before, this probably won't materialize, just like Miller Energy hyped the Tennessee Mississippi Lime and that hasn't taken off (we have a good chunk of acreage in that area as well from the old Knox and Ft. Lime and Monteagle plays).
I'm hoping to pick up HGT at $7.00 or lower. That is just a 10% drop from here, and the arbitration news might be the impetus.
I think one could argue that trusts such as PBT, SJT, CRT offer a decent play on natural gas. Most of them are plays on conventional production, not shale plays. I won't say they are cheap. I don't think much of the prospects of the Hugoton basin unless gas prices rise. It looks like a long slow death, but I am interested in the prospects of HGT, especially if it gets beat down to below $7.
My primary attraction to ARP is that the private investment partnership business appears to be lost in the mix. Something throwing off $40+ million a year in fee based income should be valued differently than $40 million in commodity cash flow, even if the fee based cash is ultimately commodity driven.
I think it will simply take time, and of course, a resolution to the Linn fiasco. Until then, the market appears unwilling to drive up price and multiples regardless of hedges, prospects and even drilling results and partnership raises.
Agree. Higher coverage ratios are needed as the overall company decline rates increase. I too am fine with tapering on increases in order to build coverage.
Marble Falls drilling should give IRRs well above 50% with oil now over $100/bbl. Despite high decline rates, this is one of the most prospective and economical basins in the country. Payouts in 12-18 month time period allow them to keep rigs running non-stop. Declines may be very high, but the cumulative returns stack up after 2-3 years.
No, volumes were low and it spiked $1.50 on Friday at the close and dropped $1.60 on Monday. It was an options related blip.
We are stuck in "show me" land. When ARP bumps the distribution to $2.60-$2.72, we will likely move towards $23-$25 range, maybe higher.
Until then, we are likely range bound.
BBEP's history is well known. Management has conflicts of interest (ROYT) and they nose dived the MLP during the last crisis and cut the distribution. They have seemingly done a very good job this time around at growing the distribution.
I think a lot of people, myself included, dislike seeing oily acquisitions made at $150,000+ per flowing barrel. These deals are accretive but only so long as oil stays around $100 and BBEP sufficiently hedges out to protect the margins.
My personal preference would be to see the E&P industry retrench for a few Q's and not focus so much on distribution growth but rather on coverage. With the sector being small, one bad apple can spoil the bunch. In other words, everyone is paying the price for Linn's aggressive distribution growth while not properly hedging their NGL exposure.
The other thing that is worrisome is I have seen some deals (LRE did one of them), that were related party drop-downs that were clearly not beneficial to the MLP. Low R/P primarily more than price per flowing mcfe. These E&P MLPs need long reserve lives. I'd prefer to see 15-17. Legacy does come in on the low side, but they also are underlevered and presumably could grow reserves through heavier drilling.
No doubt, the Linn issue is hurting the whole sector. Linn really deserves to be punished. They got overly aggressive.
Linn is really a victim of their own success. The law of large numbers is catching up with them. When you are not only the largest E&P MLP, but also one of the largest E&P companies in the US (top 20) it forces you to find growth prospects. It also forces them to find an enormous number of prospects simply for maintenance drilling.
Atlas on the other hand has many years of growth ahead of it before it becomes a giant lumbering MLP with marginal growth.
Looks like EVEP and Legacy (LGCY) are setting the bottom for E&P MLP yields at between 8-9%.
Your assessment appears to be spot on.
Legacy doesn't get a lot of attention, but they are excellent operators.
Their core is the Permian, which unfortunately is really hot right now, which means it makes deals harder to complete. That being said, they are indeed more interested in making small deals that they can analyze and look for opportunities to do low cost recompletions and other improvements rather than make a $1 billion dollar deal.
They make good acquisitions and then they extract as much value out of them as they can. They also like to comment about how many of their great prospects are on properties acquired years ago before those prospective plays even existed. They simply buy right and then look for hidden value.
Yes, I have been adding to ARP at these advantageous prices.
It simply shocks me how poorly covered ARP has been. Even Merrill Lynch's E&P MLP analyst essentially glossed over ARP's huge growth.
I'm wondering if a monthly distribution might be beneficial?
Oh well, I'm pretty sure I'm a broken record and really more than anything am hoping to here am hoping to here someone make a solid case why this isn't worth $25. Of course, I say that with the caveat being that we should know a lot more regarding the Marcellus, Utica, Miss. Lime and Marble Falls next Q.
It has indeed been flat for some time. If it remains flat after the distribution goes to $2.60/unit, then I think you calling it a pig would be accurate. The Linn issue is indeed a real burden, but so too are some of the poorly run E&P MLPs like EROC and LRE, where coverage has been spotty.
We will simply have to keep trudging forward and collect our distributions every 90 days. I do think though that we will make an upward move towards $25ish based on projected $2.72/unit 4Q distribution.
In the interim, I think we are stuck bouncing between $20 and $21!
Might be nice if the company released an interim drilling report updating status of Marcellus, Mississippi Lime, Utica and Marble Falls.
Might also be good for them to show projections in the presentations. Even if they low ball, it would be nice. I continue to believe ARP does a poor job of adequately spreading the message about their hedges and gas assets. ARP has locked in some very nice margins, margins that look likely to expand in lock step with our rising hedge book.
I think the comments re: Kinder Morgan are correct. I own KMI and KMP in various accounts.
The CO2 (tertiary recovery) business makes a lot of cash for them. They have SACROC, Yates and Katz and now another field. They own the CO2 supply as well as the pipelines to deliver it. It's a great business and does indeed give them commodity exposure and also depletion risk. Every midstream project they do helps reduce the CO2 business impact, but indeed, the returns are far higher, especially with $100+ oil.
Will it come back to haunt KMI some day? Perhaps. The great thing is that these fields should exhibit slow declines.
Agreed. The sector will likely see very few new entrants. Linn's disaster has left a bad taste in a lot of investors mouths.
ARP is somewhat different because of the private investment partnership business which generates nice fees, which can be used to grow production without needing to raise equity or debt.
Yes, it likely is options related. It does beg the question though that does the market not care at all about the fact that management has more or less told the street that the distribution is going to $2.60 next Q and likely to $2.72 in Q4?
Even though ARP is heavily gas weighted, they bought most of their gas assets at the bottom and are now making nice money on them. In addition, they are slowly increasing their oil production via the drill bit. Marble Falls, Utica, Mississippi Lime are all adding nicely. I expect a slow and steady upward march on the liquids side.
A strong increase in private drilling fund raise will push them to a new level.
Fast forward a year or more and we could reasonably be pushing $3.00/unit in distributions.
ARP should be trading in the $25+ range.
The whole deal stinks. The underpayment will need to be recovered. At current rate, it is essentially 12 months of distributions. The real issue is that the legal expenses are adding up. Approximately 1 penny per share this month and 1 penny for the subsequent 3 months and who knows how much more. We'd be at nearly 7.5 cents rather than 6.5 cents.
This could go either way. If the arbitration requires for repayment, then HGT's distribution goes to essentially zero for 10-12 months. After that, we would be back in the clear with the exception of the Kansas side, which is going to take forever to recoup.
It likely won't crash too low if they have to repay it all as 12 months from now, you are looking at a nice income stream.
I am patiently watching and waiting. Any negative ruling and a subsequent plunge in price to say $7.00 or lower will be met with massive buying. You can buy a $1.00/yr income stream for $7.00..
Yes, depletion is real and the Hugoton basin is mostly dead but you can milk this for years and any uptick in gas and NGLs will help keep distributions flat even if volumes continue to decline.
It is interesting to say the least. I suspect we will give up most if not all of the gains on Monday.
ARP has been dead money for some time. The pending distribution boost (presumably to $2.60) ought to start helping lift the floor especially if we have a lot of other positives like good Marcellus results for 30 and 90 days, good Utica and Mississippi Lime results and finally last, but certainly not least, good Marble Falls results.
ARP is slowly lifting its oil production each Q and locking in very nice margins with oil well over $100/bbl. I am very much in favor of growing oil production via the drill but than via acquisition, where market values are pushing $150K per flowing bbl.
Oh, and I should have mentioned, a partnership raise of $200 million (or anything about $125 million) would be fantastic. As long as ARP can keep bringing in ~$150 million a year, that should at least allow them to maintain the distribution if not modestly grow it.
Yes, disregard clowns that don't understand MLPs.
Regency has been a long term turn around play. Energy Transfer has slowly been turning things around.
Distribution growth is slow, but they have been building out the Eagle Ford system, which once complete, should add materially to DCF.
We have been range bound for some time. Looks like we are building a base.
It looks like a 12.3% yield based on the pending $2.60 distribution.
A lot of positives that likely support that $2.60, solid hedges at $4/mcf level, company wide decline rate of 11% which is manageable.
Still think Marble Falls will be the growth driver here. Wells paying out in 12-18 months, 30-40% of production stream is oil, which can be hedged out 4 or 5 years at very nice prices $100/bbl.
If gas languishes, ARP can likely maintain DCF by simply pouring more money into the MF. I think they have about 700 potential drilling locations, assume maybe half of them are really prospective.
ARP drilled 50 this year, so you are talking about 5 years of inventory.