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Inergy, L.P. Message Board

rrb1981 149 posts  |  Last Activity: 1 hour 39 minutes ago Member since: Apr 18, 2001
  • rrb1981 by rrb1981 Jun 27, 2014 3:34 PM Flag

    At the risk of being "early"..I think CEP is really a strong buy at these points. Clearly buying lower would have been better, but CEP has now accomplished (4) major issues:

    1) They settled the PostRock litigation which was hindering them from doing anything more than paying down debt and modestly reinvesting back into the business
    2) They settled the Excelon/Constellation fiasco, freeing them up to seek out Sanchez as a true sponsor (if not GP).
    3) They have developed a relationship with Sanchez that allows them to reduce costs and potentially secure a steady stream of drop down assets
    4) They have divested the Black Warrior Basin assets, allowing them to clean up the balance sheet, they have shifted focus to oil drilling and high IRR recompletions and reworks on their legacy coal bed methane production.

    All of this lines CEP up to return to a distribution paying entity. I am not overly optimistic that the distribution will be meaningful at first, but it is critical to the market and to the equity valuation to begin paying something, even if it is as little #$%$04/yr ($.01/Q) and then to slowly increase it, perhaps by $.01/Q meaning that over the next 2 years they would increase to an annualized rate of around $.32/unit. Getting there would likely require more acquisitions between now and then, that is a spend rate of around $10 million annually, and clearly CEP's "free cash flow" cannot support that while also maintaining production flat, but I firmly believe CEP can support a $3-$4 million presently, especially if they can manage another $15-$20 million acquisition made at typical 6x-7x cf multiple with moderate decline rates and if they can make it with equity it would raise their borrowing base (as Abella commented on during the cc).

    All of the pieces are now in place for them to return to a cash paying entity and with a typical 10% yield (typical for E&P MLP).

    The small size makes growth trajectory/potential very promising.

  • Reply to

    were almost ready to SQUEEZE to 33 FAST!

    by tonyiv1 Jun 13, 2014 3:23 PM
    rrb1981 rrb1981 Jun 16, 2014 8:51 AM Flag

    I keep wondering if the rather large short count is actually perhaps some arbitrage with people shorting Linn and going long LNCO and locking in the miniscule spread.

  • rrb1981 rrb1981 Jun 16, 2014 8:46 AM Flag

    The sensitivity tables you are referencing are often released by Gas Processors especially if they are using proxy hedges for NGLs.

    Suffice it to say the term "losing money" isn't the correct way of thinking about it, you are simply forgoing upside and minimizing downside. As long as they manage their SG&A and LOE appropriately, they are locking in a margin.

  • Reply to

    were almost ready to SQUEEZE to 33 FAST!

    by tonyiv1 Jun 13, 2014 3:23 PM
    rrb1981 rrb1981 Jun 15, 2014 8:58 PM Flag

    I agree bbandassoc, I see very little reason in shorting LINE or LNCO at these prices. It made a lot more sense at $40.

    The market evaporated most of the LLC premium. Linn is now trading at a more rational valuation based on NAV.

  • rrb1981 rrb1981 Jun 15, 2014 8:56 PM Flag

    Remember, most of the "gains" and "losses" are simply on paper. The primary purpose of the hedges is to lock in margins and cash flow.

    It is a GAAP nightmare...and people get confused over the large losses and gains due to hedges.

  • rrb1981 rrb1981 Jun 15, 2014 6:34 PM Flag

    One must remember however that there is a very real possibility of Linn divesting much of the 15,000 boe of production in the Wolfcamp (largely oil). When one takes this into account, the drop in cash flow from the falling oil hedges is not as serious. Even if they do not divest the 15,000 boe/d of Wolfcamp production, '15 isn't terrible, in fact, '15 oil swaps are actually higher than '14 (price, but not volume), puts are slightly lower by $1/bbl.

    The real hit begins in '16 which is lower than '15 in both prices and volumes....and '17 is lower yet. It's not insurmountable, but it certainly means that much of the accretive cash from future acquisitions will once again be going to plugging holes in DCF...a similar theme as we've seen play out over the past few years as the '08 hedges entered into 6 years ago slowly rolled off the books.

    The gas hedges, as Norris points out, are indeed also lower starting in '16 and '17. This too presents an obstacle. Of course, again, the drops are drastic, but Linn is operating with a 1.0x coverage ratio, so this will once again hamper distribution growth. All the more reason why Linn should focus on running with a 1.10x coverage ratio or higher, diverting surplus cash flow to growing production to offset the falling hedges.

    What is somewhat troubling about all of this, aside from the slowly dropping hedge prices is the fact that Linn has quietly abandoned their practice of being fully hedged for 5 years out. That used to be a hallmark of their investment strategy.

    Despite all of these negative, I'm quite pleased with the progress the company is making (XOM swap) and with the market gains of my recently acquired LNCO (and KMI). I don't expect anything more than pedestrian distribution growth over the next few years (if any growth at all, remember 330+ million units to feed!). The Kaiser attack allowed me to buy some LNCO and KMI and very attractive prices.

  • Reply to

    Conference Call/Earnings thoughts

    by playhardgamecock May 20, 2014 1:24 PM
    rrb1981 rrb1981 Jun 15, 2014 9:10 AM Flag

    Same sentiments here. They have put the PostRock mess behind them.

    They are looking to bulk up in size without adding much SG&A which should help them on a per unit of production basis and ultimately result in better margins and DCF.

    They need to make a few more deals that are accretive to reserves as Abella suggested in order to help lift their reserve based borrowing base. They need to get themselves into the sweet spot where they can make an acquisition without jeopardizing the distribution. So, perhaps they start off very slow, say $..04/unit annualized (yes, a penny per quarter) and then they look to grow that over the next couple of years by $.01/unit/quarter. I think Sanchez sees CEP as a drop down vehicle for mature production.

    I'd be very happy seeing CEP slowly ease the distribution up over the next 2 years while they also work to make additional acquisitions diversifying their holdings geographical. Also, perhaps not meaningful anymore, but CEP needs to drill or recomplete around 130 wells in the Osage concession over the next 2.5 years to maintain their concession. That works out to around 50 wells per year.

    It'd been a long tough turn around for CEP but it appears they are now on the cusp of finally being able to restore distributions, which should once again make them attractive to investors seeking income.

  • Reply to

    NAPTP MLP conference

    by bosox_pats May 21, 2014 6:32 PM
    rrb1981 rrb1981 May 31, 2014 10:53 AM Flag


    Agree. Coverage has been low, the acquisitions do not appear to be nearly as accretive as originally promised. ARP needs to grow larger to handle the excessive SG&A.

    The private drilling program hasn't been a shining star lately either..rather hanging on by a thread.

    Cohen has never learned to stop over-promising and under-delivering..and he is too old and senile to begin learning.

    The guys working for him and sycophants.

    That being said, they have a nice portfolio of gas assets that offer investors a nice play on any resurgence in gas.

    The Marble Falls is a perfect example of a great asset that they are not managing appropriately. Same thing with the Mississippi Lime.

    The yield is nice, but is a direct reflection of the management team.

  • Reply to

    LINE Price

    by bobcam_11040 May 30, 2014 7:33 PM
    rrb1981 rrb1981 May 31, 2014 10:36 AM Flag

    Anyone see (or smell) sandforbrains lately? If so, let him know Linn just announced the distribution and forgot to raise it. Now 5 months post Berry closing and still no increase. I guess sandforbrains was confused when he cackled on and on ad nauseum about a distribution increase arising from the Berry deal in the quarter immediately following consummation of the merger...

    I guess he runs off like a little kid and hides, unwilling to face his mistakes like a man.

    What a weak, egotistical pompous twit he was...the board smells so much better with him gone.

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