Yes, Friday's reaction to $20 oil seemed a bit panicky. Oil was at $38 and now at $44....
By virtually all accounts, the bottoming of oil is beginning. US rig count continues to fall, investment worldwide is declining, demand is increasing marginally and signs of distress within OPEC are evident.
Goldman's call was just an analyst trying to make a name for himself. All of that said, BPL should muddle through the next 12 months with close to a 1.0x coverage. I expect they will not increase the rate of increase in the distribution, but I do expect additional increases.
What they are referring to is the lease operating expenses. Once a well is drilled, the cost to operate and produce the oil averages $10-$20 per barrel. Sometimes you will hear this called LOE, lease operating expense, which is different than SG&A.
So yes, a well that is already drilled can provide positive cash flow at prices perhaps as low as $20/barrel, however, this does not take into account SG&A, interest expense, ad valorem taxes etc.
Make no mistake about it, the world is only oversupplied by 2 million bpd, $20 oil will take more than 2 million bpd off the market, which is why it is somewhat absurd for Goldman Sachs to make a call like that.
Supply and demand equilibrium is not too far out of whack and given another 12 months, I think it will be back to balanced. US producers are reducing investment and world demand continues to modestly increase. There is no magic bullet to make the oversupply go away in a day, it will take time.
I think the uncertainty on the participation in the WMB auction process indeed has weighed on the equity price, however, yesterday was a response to the Goldman $20 "call". The sector is weak and looking for signs of stability. To be fair, the $20 call was not his "base case" but really a blow-out scenario. It doesn't matter in a news byte market. This is analogous to the now silly "$200 bbl" call made when crude was approaching $140. Extrapolating can be dagerous
The resolution of the weakness at DCP Midstream LLC is huge and now exiting the bid for WMB is also probably a positive as investors now know that SE is focused on SE and SEP and not on financing for a major deal
SE has a very strong balance sheet and with coverage at both SE and SEP projected to be above 1.0x, they should be able to muddle through the downturn better than most.
The bump in the dividend is nice but may indicate that the merger with ETE is dead and that Willams is going to go ahead with the merger.
At the end of the day, a merger with WPZ is not an unattractive option. I think the excitement of being part of ETE and the premium associated with that was very attractive.
As a WMB holder, I'll be happy with WMB/WPZ converting to a rolled up c-corp like KMI, and likewise if for some reason the ETE deal happens, I'll be pleased to be a part owner in a sprawling empire.
I can assure you that Cohen has no clue what he is doing.
Cohen is simply milking ARP to save ATLS. His hope is that he can get the debt at ATLS low enough that if ARP goes under, ATLS can still survive from its investments in Lightfoot, Arc Logistics, Atlas Growth etc. Anything to keep the fat salaries rolling in for him and his progeny.
This is Buckeye Partners, not BP.
However, I believe XOM will likely be interested in large to mid cap E&P companies.
Walker does know the business, but he has been a disappointment in the past few years. I don't blame him for the plunge in commodity prices. He has however, failed to deliver on the Utica deal, which was always right around the corner and always going to be a game changer. Instead, it has been a series of small, less than amazing deals. Yes, Cardinal and UEO were great deals that have been monetized and the proceeds redeployed into quality assets at prices that were inflated.
Yes, I realize it is hard to buy assets at the bottom of the cycle at a 6x multiple, however, I believe there will be many more assets on the open market soon. There are numerous distressed players. Many are zombies, with debt not being due for several years but hopelessly overleveraged and in a death spiral.
SandRidge, Halcon, Magnum Hunter, Penn Virginia, Goodrich Petroleum, Energy XXI, Exco and many others are all hurting and struggling to stay above $1/share. Prime candidates for divestitures.
I think the Clinton is fine, but lets not get carried away with game changer status.
And I contend that Walker at present, likely has far more to gain by keeping the institutional investors happy, the ones that brought him $3+ billion in capital in the latest fund.
His 4 million units are valuable, but again, the ongoing fees that come from managing billions of other peoples money is quite impressive.
I think he does what is necessary for EVEP to survive, but it's #2 on his priorities after EnerVest.
I have to say that I liked the idea of buying gas assets in mature basins like the San Juan and Antrim which will indeed prosper if gas prices rise. However, I do not like the multiple on the interparty transaction.
Walker knows the business, but he has far more allegiance to EnerVest than he does to EV Energy Partners. EVEP is secondary to taking care of his institutional investors that can bring him lots of capital and recurring fee income.
This deal at 10x multiple (albeit at what appears to be close to the bottom) is simply not that great. They get "upside" but if prices stay low, they are treading water at a 10x multiple.
When the analyst asked why the funds were selling, John "ummed" his way through the answer. What a disappointment.
I think EVEP will have to cut the distribution again and the current yield says that market thinks so as well.
I do agree though that the assets they are acquiring are likely very low risk and that they won't have any surprises. I actually think the San Juan basin is very attractive for mature PDP.
I think a distribution cut to something more sustainable would actually help the equity price.
This E&P MLP concept is proving to be like the wave in the 80's. A great idea on paper...but difficult to implement even with hedging. Too much emphasis on growth and not on balance sheet quality and stability. Now would be a good time to float a new E&P MLP and pick up properties from distressed sellers. Operate with low leverage, hedge 5 years out (regardless of where the strip is), pay a variable distribution, operate with a minimum of 1.2x coverage ratio.
Unfortunately, the deal between MWE and MPLX is quite bad for MWE holders. I sold my MWE at almost $70 and now feel lucky having no idea it would drop this low.
If it continues to drop, I may consider purchasing MPLX or MPC.
Yes, I am familiar going back to the Dorchester Hugoton days (DHULZ).
When gas and oil climb, DMLP will as well. This isn't at risk of going under. They have no debt. They have modest operating costs. The pay a variable distribution, so coverage isn't an issue.
I like DMLP, SBR and to a lesser extent, SJT as nice recovery plays.
DMLP has excellent management in Casey McManemin.
It is much cheaper and easier to simply buy reserves and production directly from distressed sellers than to go thru the mess of buying the distressed companies.
Besides, the majors don't want mature PDP, they want lots of untapped prospective acreage. Chevron sold Rangely to Atlas, companies like ExxonMobil and Chevron don't want to go back and acquire that stuff again.
The market is simply trying to determine whether crude and gas prices will recover enough to allow these overleveraged firms to survive.
ARP is simply living on borrowed time. Cohen is milking it to help ATLS survive.
Yes, Finra does show a number of their issues in the 35-37 cents on the dollar range.
I expect Linn to do 2 things; first, to let their cap ex budget fall to a point where they go into modest decline rather than trying to produce modest 1-4% growth. Two, post their redetermination, I expect them to pull down $700-$800 million and deploy those proceeds into buying notes at current prices. You are talking about over $100 million in potential interest expense savings. While things look bad, remember Linn has 3+ years until the 2019's are due. We are less than 1 year from the Saudi Thanksgiving decision. A lot can change in 3 years. Clearly Linn is toast as a pass thru entity, but I am not yet convinced of the bankruptcy that so many believe is inevitable.
Linn can continue to harvest undrilled acreage that is not generating cash flow and monetize it applying proceeds to debt reduction. They are in walking dead zombie mode...
Anyone hear what Rockov is doing these days?
We have demand growth to account for as well. It is possible this debacle rolls into 2017, but the point is that the hundreds of billions in cap ex cuts over the next 2-3 years will eventually result in a balance.
Exactly. The Saudi's are defending market share and the weak members in OPEC are in no position to cut, but I would not be surprised to see SA tell them they can cut if they wish to cut.
Private equity is not interested in buying out Linn. Have you see the leverage? Rockov left the place in an absolute mess and with hedges for gas dropping 10% next year and oil hedges also rolling off next year..PE funds will probably instead focus on acquiring sr secure notes in hopes of coming out in control in a potential bankruptcy, which, I might add, isn't a foregone conclusion at this point.
They may however be interested in buying select assets directly from Linn.
In the meantime, LINE has become a leveraged proxy for crude oil price movements.