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Inergy, L.P. Message Board

rrb1981 117 posts  |  Last Activity: Mar 3, 2015 9:26 PM Member since: Apr 18, 2001
  • Reply to

    Interesting idea for ARP

    by jbcguy Dec 11, 2014 5:36 PM
    rrb1981 rrb1981 Dec 12, 2014 6:16 PM Flag

    $40 oil will result in 300-400 rigs being idled, perhaps more. The best cure for low oil is low oil.

    It might not go back to $100, but I expect $70 within 12-18 months.

  • Reply to

    Fellow Longs,

    by bigbear.2010 Dec 12, 2014 2:27 PM
    rrb1981 rrb1981 Dec 12, 2014 5:15 PM Flag

    Also worth noting that EVEP trades now at the lowest yield in the sector!

    While many things have gone wrong for EVEP, primarily the divestiture of the Utica acreage, they have positioned the company well enough it appears to survive this malaise, perhaps without having to cut the distribution.

    It might work out quite well for EVEP to monetize their midstream assets and deploy those proceeds into oily assets while oil is out of favor.

    While I am not optimistic on crude oil recovering to $100, I believe strongly that within a year that pricing will be back near $70-$75.

  • Reply to

    Baker Hughes Rig Count

    by rrb1981 Dec 12, 2014 9:22 AM
    rrb1981 rrb1981 Dec 12, 2014 3:21 PM Flag

    I didn't look at Canada or International.

    My whole point is that it appears producers may be responding to lower prices. Of course, many are contracted, so they must wait till those contracts it will be quite an interesting item to watch over the coming months. I think we will see material reductions, perhaps 300+ over the next 3 or 4 months. If crude oil continues to drop, it might drop to 1,000 or lower.

    A very interesting point that Legacy Reserves made during the Wells Fargo conference call was that 30% of the Permian production is something like 3 yrs old or less. The point being that the new production has high decline rates as it has not had a chance to move down the decline curve. And with that, a reduction in rigs likely means a reduction in the growth trajectory.

  • Reply to

    Baker Hughes Rig Count

    by rrb1981 Dec 12, 2014 9:22 AM
    rrb1981 rrb1981 Dec 12, 2014 2:22 PM Flag


    You're wrong. Baker updates at 12:00 on Friday. I was looking as 12/12/14 data, which clearly shows oil rig count down 29, gas rig count up by 2 for a net reduction.

    They also break it down by onshore, offshore, miscellaneous etc.

    Oil rig count is down to 1546, gas up to 346, miscellaneous at 1 for a total of 1893, which is...drum roll...27 below the 1920 you posted.

    Use up to date data.

  • Looks like oil directed rig count dropped by 29 rigs since last week (after a rise of 3 rigs last week). I'd expect to see meaningful decreases over the coming months.

  • Reply to

    Baker Hughes Rig Count

    by rrb1981 Dec 12, 2014 9:22 AM
    rrb1981 rrb1981 Dec 12, 2014 1:40 PM Flag

    Baker Hughes rig count shows oil rig count for the week down by 29, gas was up by 2. This compares with an increase in rig counts of 3 last week.

    It will be interesting to see if the decline continues over the coming weeks and months. It seems likely that marginal production will decline and rig count utilization will respond in a similar manner was seen when gas pricing dropped. I believe '15 production is still projected to climb, a function of the momentum of high rig count and wells waiting on completion, but no doubt, a drop, albeit modest, is a sign that producers are responding.

  • Reply to

    For all those that bought in the $16s

    by shorting_amazon Dec 10, 2014 2:56 PM
    rrb1981 rrb1981 Dec 12, 2014 1:07 PM Flag

    Not as thrilled with HGT. They still have some lingering litigation issues.

    I like SBR, especially at current prices, as they have top line royalties rather than bottom-line.

    Also like DMLP. Of course, all of these are down with crude oil dropping. What is nice is that none of these royalty trusts (nor DMLP, which is an MLP) have any debt.

    They are really nice long term plays, especially if you can buy them cheaply.

  • Reply to

    For all those that bought in the $16s

    by shorting_amazon Dec 10, 2014 2:56 PM
    rrb1981 rrb1981 Dec 12, 2014 11:40 AM Flag

    SJT isn't immune from panic selling. With the bulk of their production being natural gas, in the San Juan basin, they are mostly insulated from the drop in oil prices.

    As has been mentioned before, as long as COP ("Burlington Northern") does not ramp up drilling in the Mancos.....SJT should continue to pay out distributions of $.08/month. A decent yield of 6%, no debt on the balance sheet and long lived production make it a nice play, especially if we see a $.40-$.50 pop in gas.

  • Reply to

    Interesting idea for ARP

    by jbcguy Dec 11, 2014 5:36 PM
    rrb1981 rrb1981 Dec 12, 2014 11:09 AM Flag

    I think it is highly unlikely that ARP can achieve a 1.0x coverage. So, a distribution cut seems like the sensible thing to do. The gas side of the business still has a lot of value. The oily assets will be the primary source of pain.

  • Numbers typically released around mid-day on Friday. Will be interesting to see if oil rig count drops, and if so, by how much.

    Last week it rose by 3. Unfortunately, due to commitments, it is not easy for producers to simply release the rigs, but no doubt, I expect the coming months will show a steady downward trend in rig utilization ad E&P's throttle back and drill only in the highest returning basins or to lock up acreage. I also expect many to drill within cash flow. This oversupply will take time to work off, but no doubt the Saudi's are committed to slowing growth and it appears that will happen given time.

    That being said, US oil production is expected to climb in'15 in large part due to the high number of rigs and yet to be completed wells in the US. This is essentially a repeat of the US gas business, that went thru a correction after supply rose (and brought down high prices).

    I don't think midstream players are immune from the sell-off, but I think the US energy sector will stabilize in time and I don't believe oil and gas production will cease in the US!! So, the question becomes, where does oil stabilize?

  • Reply to

    The Way Out

    by bosox_pats Dec 6, 2014 9:20 AM
    rrb1981 rrb1981 Dec 9, 2014 7:57 PM Flag


    While I agree 100% on your assessment that Cohen "thinks" he is smarter than everyone else. But I think you are being unfair in saying they have had (3) strategies.

    Atlas made (2) very nice natural gas purchases at the bottom in Carrizo and Titan. The DTE Marble Falls deal also looks good. The Equal Mississippi Lime deals may or may not be good. It doesn't look like it has really materialized. While I thought they probably overpaid for the EP Energy coal bed methane, you have to admit that it came without the risk of NGL exposure and with a low decline. The Rangely deal was nothing more than Cohen frantically trying to get ARP oily because he "thought" that it would get them back in vogue (i.e. get the price up and yield down, so he could chase another deal). Ditto on the Eagleford. He really screwed up on those deals. Failing to hedge less than 90% of current year production was indeed a colossal mistake, but I attribute it to him "hoping" that commodity prices will rise after he buys and improving the economics which of course is entirely wrong for an MLP.

    However, in all fairness, look at Legacy (LGCY), Vanguard (VNR), EV Energy (EVEP), Linn (LINE), Memorial Partners (MEMP). How can we say ARP is much worse than say Legacy or Linn. Aside from say MCEP, what other MLP has a specialty regarding commodities?

    I think the real issue with Atlas has been that they totally mismanage the private drilling partnership cash flow. Rather than using that volatile cash flow stream as growth equity capital, they depend on it to shore up DCF. It's no different than Cohen saying they are going to run with a strong coverage ratio and then barely managing to make 1.0x Q after Q. He simply isn't an operations guy and never will be. He's an eternal optimist. I do agree that they need to grab Dubay, give Matt Jones the boot and restore some sanity to day to day operations. Perhaps even let Schumacher have a greater say.

  • Reply to

    3 months

    by hiker200055 Dec 1, 2014 2:51 PM
    rrb1981 rrb1981 Dec 9, 2014 7:25 AM Flag

    SE is primarily a natural gas pipeline company. They really don't have a tremendous exposure to crude oil logistics. I think much of this is panic but some of it is clearly astute investors selling EP's knowing that the reserves simply are not worth as much (at least right now) and cash flows will wane.
    Spectra ought to be ok..the fear of wells being shut in, while a possibility, is quite remote unless high line pressures force out production. The reality is that producers will operate most wells as long as they net back more than operating costs (think lease operating expenses, ad valorm taxes, transportation and field SG&A). It provides cash flow at a time when cash is king.

    SE isn't immune from the downturn, but they are far more insulated than say a small cap E&P crude oil producer.

  • Reply to

    SJT is 100% natural Gas

    by phil_6126 Nov 4, 2014 2:33 PM
    rrb1981 rrb1981 Dec 7, 2014 7:35 PM Flag

    While certainly not immune to the panic in the oil markets, SJT is a royalty trust and is essentially 99% natural gas. As COP has elected to be quite passive in development, most of the proceeds are falling to the bottom line.

    This probably should trade higher, but with the panic in the markets..who knows. In the interim, it pays monthly distributions that pay you to sit and be patient.

  • Reply to


    by motownjoe2 Dec 2, 2014 5:39 PM
    rrb1981 rrb1981 Dec 7, 2014 12:53 PM Flag

    They pull out ad valorem taxes in December. Distributions will probably return to something more along the lines of $.28-$.30 but will no doubt be lower than earlier months when crude was higher.

  • Reply to

    No debt and good mix of oil and gas

    by eusdond Dec 1, 2014 3:16 PM
    rrb1981 rrb1981 Dec 7, 2014 12:51 PM Flag

    Yes, they have mineral rights in a broad range of basins including the Hugton, Bakken, Fayetteville and Permian.

    Distributions will drop in line with commodity prices and no doubt, drilling on their holdings may taper..I view this as a long term holding. In time, the value in their holdings will eventually be monetized.

  • Reply to

    Failed Loan?

    by davidbdc2001 Dec 7, 2014 2:50 AM
    rrb1981 rrb1981 Dec 7, 2014 10:52 AM Flag


    Agreed, they have the revolver and the 7.75% ($375 million) and 9.25% ($324 million) notes.

    As for the cause for decline, I rather suspect that ARP is trading with the whole pack. Even the best hedged MLP (MEMP) has been hammered. The whole lot, VNR, LINE, MEMP, MCEP, NSLP, BBEP, LGCY etc are all falling with crude.
    No doubt that the circus of APL/TRGP/NGLS/ATLS is weighing on ARP.

    It is also clear that ARP needs to stop focusing on growth and start focusing on operations. I agree with DavidBDC, that they need a strong operations guy (like Dubay) to run day to day operations at ARP instead of finance guys.

    Perhaps as David alludes, Cohen will step away from ARP and focus on Atlas Growth and leave ARP to operations guys that can run the collection of assets efficiently.

  • Interesting that none of the E&P MLP's/LLC's have considered the floating ("variable") distribution model that has been favored by some of the fringe players (think oddballs like UAN, OCIP etc).

    While it is true that variable payers typically command a lower multiple, it does help relieve the business of having to micro-manage the ups and downs of the business.

    The next few months are going to be quite interesting for the whole E&P sector, not just the E&P MLP subsector. Of course, we saw the first iteration of E&P MLPs collapse in the 80's before hedging became prevalent. It looks like, yet again, the sector let growth overtake stability. No company epitomizes this more than Linn, which tried to convert itself into a hybrid growth MLP. The analysts salivated each Q, Linn was paying out the bulk of its cash flow and still showing growth more typical of a c-corp. Then of course, it all came crashing down. It seems not all Hogshooter wells were "gushers" like many of the first ones were. Decline rates for the whole company approached 35% and management was on a treadmill of "drill baby drill" just to keep up. As returns slipped (as our resident board clown likes to call it, ex ante returns to try to deflect responsibility off of management), coverage ratio dropped. Add in the curious decision to abandon the tried and true practice of hedging for 5-6 years into the future and the stunning collapse in crude prices and you have a perfect storm for the smooth talking Mark Ellis, a career c-corp E&P executive.

    While maintaining the distribution looks like a herculean task at present, something the street has apparently decided is likely to be cut, the more pressing need is for Linn management to get their bulging leverage under control. Highest in sector leverage leaves little room for management to work with. Of course, the company is now paying the price for that futile effort to be a hybrid company.

    Linn might be better served adopting a variable payer format....

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