The writing was on the wall a long time ago when they brought White Deer into the fold. White Deer made a major blunder when they bought into PostRock, presumably thinking they were going to participate in a natural gas recovery. Instead, they sunk a lot of money into a zombie company.
Now, White Deer is trying to save their investment by converting the preferred into common, which will give them an overwhelming ownership stake. The company will free up a meaningful amount of cash flow, which can then be used to develop some of their more prospective oily PUDs. I think White Deer will do whatever it takes to "preserve" their investment. A reverse split seems likely to happen and perhaps they will convert the remaining tranche of their preferred stock into common giving them a greater than 75% holding.
It does depend on oil prices, on the development cost of the PUDs, the field LOE, hedges etc. Far too many moving pieces to accurately know for certain. In a macro sense, buying oil before it "collapsed" was not good. They would have been better off either not buying anything, or likely buying more mature natural gas production, where they can lock in $4/mcf going out quite a number of years securing a decent margin.
The Rangely deal wasn't terrible, it has 3% annual decline rate, which helps them tremendously. The Eagleford deal does not look very good at this time.
I think ARP will end up acquiring more of Rangely in the future. Chevron has little desire to hold a "flat" to slightly declining field long term.
It is difficult to assess these deals when you have to piece together information.
I think however ARP needs to cease making acquisitions for some time. Focus instead on operations. They need to show the market that they can produce a 1.0x coverage ratio Q after Q without the benefit of acquisitions.
Sitting on the cusp of the 50/50 split anything more than pedestrian growth of 3% a year will be difficult. That's really not a problem. Just keep maintenance capital realistic and continue to try to grow the private drilling partnership business.
You are spot on. Cohen is a complete bonehead. He destroyed APL with the panic hedges they layered on during the '08 collapse..and had the worst possible timing EVER. Of course, in typical Cohen fashion, he simply walked away and let Dubay run the show.
That is why the street often doesn't even cover the the Atlas entities. Cohen has proven over and over he has no ability to manage any business long term without trying to "outsmart" the others and as time has proven, time and time again, it is typically Cohen that is the patsy.
His latest bonehead move? Buying Eagleford shale oily production and acreage. Sticking with natural gas would have been far more intelligent, but he wanted splash and he mistakenly "thought" the street would be pleased with more oil exposure. Talk about poor timing!
That being said, ARP actually has some nice gas assets, the Barnett, Marble Falls and the coal bed methane assets are nice, mature and solid. If he focuses on ATLS, ARP might actually recover a bit. Really, they ought to focus on operations and reducing LOE and SG&A. They just need to generate an above 1.0x coverage ratio without any gimmicks. If they can execute on the operations side, ARP can climb back to $20ish.
Management outlined their plan and thus far they have executed it quite well. Two excellent direct swaps and another 3rd party 1031 exchange. Now they must simply work to find a buyer for the remaining Wolfcamp properties and production. It seems likely that the divestiture of those properties will end up lowering their oil exposure by a decent amount (assuming it is swapped for gas assets) as well as capital intensity (largely PUD) and overall portfolio decline rate. More execution of the plan to return to the original formula and to abandon the hybrid model, which proved to be unsuccessful.
What remains to be seen is how many other non-producing assets remain tucked within their vast holdings (Collingwood Shale and Michigan Utica) that could potentially be monetized and converted into producing properties. While the market panics, those with a long term viewpoint like myself are slowly accumulating (in my case LNCO due to the discount).
This isn't a homerun stock, but now having been pounded, actually offers the potential for decent capital appreciation to go along with an attractive yield.
Actually, in hindsight, management did an excellent job in terms of the timing of divesting most of their oil and liquids production before the "panic" sell-off. Not that it should really matter much to companies like Devon, ExxonMobil etc, but it probably would have given them more negotiating leverage. Also worth noting, while Linn's oil hedges in '15 are of a lower quantity that in '14, I am not sure investors are taking into consideration that Linn still plans to divest the remaining 8,000 boe/d of Wolfcamp production. That will lower Linn's overall liquid production and increase the percentage that is covered by hedges. Just food for thought.
Given the current circumstances, I expect Linn to simply focus on operations in 2015. I think the remaining Permian production and acreage will still be divested within a few months and Linn will find another mature property to acquire in a 1031 exchange. I'd expect a strong focus on high returning small projects (that kind that get overlooked when commodity prices are strong and large projects are the focus). Coverage should be well over 1.0x and it might do the investors good to see a year of steady distributions and solid coverage.
Already a host of midstream MLP announcements regarding distributions. EPD, PAA and GEL increased, TLP static. As I recall, 10/24 will be a day with a number of announcements.
Agree. This is just panic. The whole energy sector is being liquidated. Leveraged funds will have forced selling as was seen in '08.
It probably is wishful thinking, but it makes a lot of sense for them to simply drop all of the miscellaneous holdings into ARP for ARP units, then simply distribute the ARP units to ATLS holders. That would eliminate the IDRs, thereby giving a lower cost of capital and allowing for more growth long term.
The Lighftfoot holdings aren't really strategic but do contribute some income. Other than that, they have the Arkoma production and the soon to be Eagleford holdings which are meant to be the basis of Atlas Growth Partners.
Just roll it all into ARP and hunker down for the next year while the market sorts itself out.
Right now, fundamentals don't matter much. It is just panic and fear that control the street. At some point it will subside. Leveraged players will get shaken out soon enough if they aren't already out.
Leveraged funds getting hit hard as well. At some point the selling will subside. Agree that it does not appear to be ETE specific. The whole sector is in a sell-off and everyone wants out now. It does look like 2008 panic but in this case, ETE is actually stronger as are many of the other MLPs. Simply not enough buyers.
Mr Market is behaving irrational, as is prone to happen from time to time. Agree fully that levered funds are probably being forced to liquidate some holdings in lock-step with the declines, which can become a slipperly slope and self-fulfilling cycle.
Clearly much of this malaise is not related at all to Linn (virtually every MLP, midstream, E&P c-corps and MLPs, shipping, drillers, REITs etc) are getting hammered. It has a very 2008 feel to it to see quality names dropping by 5-8% day after day. At some point the panic will subside. Some of the weaker companies may actually cut distributions but the likely outcome is that most of them that have sustainable business models will trudge through the panic, paying distributions (some will even continue to increase the distributions as EPD, PAA and GEL have shown). Consolidation of the MLP sector is beginning (Kinder, now Atlas/Targa, EPD and Oiltanking and many more to come).
The panic over Saudi oil pricing is overdone. They cannot effectively kill off US shale oil. They can hurt it, they can cause a reduction in capital spending and growth capital, but existing wells will continue to produce and high margin, low cost operators will continue to invest cash flow into their best prospects. Volumes in the US may indeed decline but the death of the US shale industry is exaggerated. US producers can continue to let technical innovation drive production (lower producing costs means they can achieve decent margins even with lower prices), On the other hand, the Saudi's are milking a dying cow. Saudi will produce oil for centuries, but growth of that production will be very difficult. Let oil hit $70 and see if the Saudi's change their minds on cuts. Also, little is mentioned on natural gas. The Saudi's can't effectively control gas prices. LNG exports will allow the US to control that market soon enough.
ARP should continue without significant impact from the ATLS/APL/TRGP/NGLS transaction.
It does remain to be seen if all of the non-midstream assets will be dropped into another "ATLS" spin-co or if they will work to drop them into ARP and produce an E&P MLP without IDRs (note the hint of investigating other structures to facilitate distribution growth at ARP). Also note they say, that "if" they were distributed into one entity, it would produce ~$1.25/unit in annual distributions. Just trying to read between the lines.
ARP looks to be well hedged on natural gas, actually has some rising hedges going out several years. Even though the volumes are not 100% in outlying years, a quick look at the curent futures market shows ~$4.00/mcf for a number of years. When averaged with the existing hedges, it appears that they should be able to hold the distribution flat.
The oil is another issue, however, I believe some of their existing oil hedges are already in the mid $80's, so it is somewhat reflective of current pricing.
I don't look for ARP to exhibit much distribution growth unless they eliminate the IDRs by merging into ARP, but I also don't look for a distribution cut as some of the other E&P MLPs may face in outlying years.
In essence, it becomes a high yield equity that will plod along and perhaps the private drilling program will produce enough cash to give them a modest amount of growth each year, enough to perhaps grow the distribution by 1-3%.
Predicting the unit price...that is difficult..especially with an irrational Mr. Market.
Predicting what will happen to PAA is simple. They will be transporting more oil next year than this year..and chances are excellent that they will be transporting even more in 2016 than in 2015. An oil glut is quite lucrative for Plains All-American, which makes money transporting and storing crude oil and refined products.
It should also produce some excellent arbitrage opportunities for their marketing group.
Of course, a lower unit price will somewhat inhibit their ability to finance new projects, however, I expect the base business to continue to produce strong profits.
I believe Seeking Alpha posted a comment by RBC stating which E&P MLPs were more prone to long term oil weakness. EVEP and ARP were actually listed as being the least prone due to heavy natural gas concentration. Not that the market differentiates, but ARP actually looks like a decent buy at these prices for those that are patient.
ARP is hedged several years out on gas at moderately rising prices. The recent Rangely and Eagleford deals do shift the production mix a bit more towards oil, but the gas side of the business should do ok for several years.
Of course, APR has always been one of the more poorly managed MLPs, but the quality of the Barnett acreage has been nice as have the private drilling partnerships.
DMLP is actually a very well managed company. The distribution will be impacted by commodity prices, but overall, I view this as a very nice holding in a well balanced portfolio.
First, wow, just wow! Two days of sheer panic in the energy sector. For those that are wondering, I see nothing Linn specific (just look at the whole sector!).
For those with cash and the fortitude to buy when is blood in the streets, today looks like a good day to purchase beaten down high quality energy names, especially those with nice dividends.
This sell-off, which some might say was needed does however appear to be a bit overdone. While many crude producers are being punished due to oil price dropping and economic slow-down fears, the gas producers are suffering as well, which makes little sense, especially for those that are well hedged, have strong balance sheets and are drilling within cash flow...
Of course, the market doesn't need to make sense...
White Deer just increased the common float by converting 1/3rd of their preferred units into what amounts to a 50% stake in the company. If they convert the other 2/3rds, common holders will be holding a very small piece of the pie.