Management should be fired if they do not significantly cut their drilling cap ex and redirect it to buying notes.
Linn's chances of survival are not great, in fact, they are slim but investors must remember that while the "lower for longer" theme seems likely, it is far from certain. Crude collapsed in a little over 1 year, they have over 3 years until the 2019's are due, and a lot can happen in 3+ years.
Retiring debt at 25 cents on the dollar gives them the absolute best risk adjusted returns including drilling anything within their portfolio.
You hit the nail on the head. The only chance ARP has to survive is to stop the distribution immediately, but that would crush ATLS.
I still think ole Eddie will try to merge ARP and ATLS in order to save his investment. He's a value destroyer and has been for years.
He's on his last rodeo. This one is going to end badly. No doubt the asset mix is excellent but the balance sheet is a complete disaster. I look for asset divestitures soon.
The only real concern is whether or not the lease is at "above market rates". Otherwise, EXXI, or the creditors should EXXI file for bankruptcy, are essentially captive to the system.
I have no real opinion on EXXI, however, given their break-even cost is $52/bbl, and $17 of that is interest expense and preferred dividends, a bankruptcy would leave them with a break-even cost of $35/bbl, assuming all debt was converted to equity (and of course, many other assumptions).
I think the risk and concern is real, but I think the market is probably a little spooked and has overreacted amidst the panic sell-off.
CORR would be wise to clarify whether they believe the rates to be at market rate.
The Jonah/Pinedale field does not overly concern me, UPL should be ok, the transaction they did with Shell a few years ago did lever up the balance sheet, but gave them a lot of scale and got them largely out of the Marcellus. I think prudent balance sheet management by UPL results in a zombie company, not strong enough to really grow, not weak enough to slip into oblivion.
That is wishful thinkng on your part.
ARP's hedge profile is declining both in quantity and price.
This is a slow motion train wreck, but fear not, ole Eddie will have his rose colored glasses on, promising something...just around the bend, coming soon...only it never happens!
You are absolutely right. Eddie is simply milking ARP to help delever ATLS.
Cohen really isn't a numbers guy, he's a promoter. That has been the problem, that and he surrounds himself with young, inexperienced yes men rather than strong, experienced managers that will disagree with him.
I wonder if he'll speak Latin when they file bankruptcy?
Yes, however what is important is whether or not EXLP is still performing well and what the outlook is. If they are doing well, the price may recover somewhat as the market realizes that rental compression is fairly stable and that cash flows are not meaningfully reduced.
I think MMLP will surprise the market this coming Q. For as long as I have followed them, they have always been viewed as a low quality, low growth MLP, and perhaps that is correct, but the assets they have are fairly good.
If they can maintain a 1.0x coverage ratio I would expect to see some yield compression.
The current management team is inept, however, they have already informed the market of their intentions to buy back bonds and I would not look for them to go out of their way to broadcast it to market any further. They can apprise the market during the conference call if they make any such purchases.
Indeed robbywanholland, the bonds trading in the 20's is indicative of what the market thinks of the financial situation of the company.
It does however give Linn a very interesting opportunity to retire debt at a huge discount. As has been discussed here at length, it is highly unlikely that Linn has any drilling prospects that provide the kind of risk adjusted returns that buying debt at $.34 cents on the dollar can provide.
It is why I have stated numerous times that Linn might be better off aggressively reducing their drilling budget, which has thus far produced growth of 1-4% y-o-y and instead redirecting that cash towards purchasing notes either in the open market or thru negotiated transactions.
It is also why I believe Linn, post redetermination, will likely elect to pull down what remaining liquidity they have and deploy it into debt repurchases. The kicker will be how much liquidity there is on the open market to buy literally hundreds of millions of dollars worth of notes (up to 2+ billion in par value).
Otherwise, Linn must "hope" for a recovery in commodity prices. The plan to prove up the Ruston and STACK plays are great, but will not be enough to move the dial meaningfully.
I also expect to see minor divestitures of "non-core" assets where Linn does not have scale.
Now now, deluded norrishappy (aka dadnorris1) - Don't let your personal feelings get in the way of being objective.
Your years of defense of Linn must be so frustrating.
You've been mad at me for years for being critical of Linn's capital structure, their falling hedges and DCF and their need to make numerous acquisitions to shore up DCF.
But don't despair, Linn might yet avoid bankruptcy with a little luck and solid cash and balance sheet management.
Cohen has always worn rose colored glasses.
"We are overleveraged, but not by much"
I also might add that during the Targa deal, I posted that Atlas would be better off combining the GP into ARP. Instead, old Eddie was salivating all over his chin, thinking about all of those fabulous IDRs, Lightfoot and Arc Logistics cash flow streams that he would collect.
Instead, now he is going to have to scheme up a reason why ARP should take on all of ATLS's debt load in order to merge the 2 entities together.
The pity is that they actually have some good assets.
Linn's bond prices continue to drift lower, with some now in the high 20's and others in the low 30's.
Linn may not survive this malaise, in part due to poor decision making by management and of course, complete disregard for the balance sheet and abandoning the practice of rolling hedges forward as they expire. Removing Rockov was a huge step forward but Ellis also needs to be removed. It is clear that a "war time" CEO is needed and Ellis has proven he could not manage the firm during the good times, let alone during the bad.
However, the silver lining in all of this is Linn actually has a fairly decent amount of borrowing capacity available on their reserve based borrowing base, and, may still have a decent amount post redetermination.
Linn's future survival hinges on essentially on 2 things: the recovery of commodity prices (outside of their control), and their management of cash (and liquidity) including reduction of debt.
Given the relatively low cost of borrowings on the borrowing base, Linn might do exceedingly well to pull down all of their liquidity and pour it into purchasing notes. Linn gets a double whammy, the benefit of the arbitrage of buying notes that are yielding 23-25% while also getting the back end benefit of essentially retiring debt and effectively deleveraging. The biggest limit it appears is simply their ability to acquire enough notes on the open market.
Predicting oil prices is, well, about as hard as predicting whether the Fed will raise interest rates.
All kidding aside, it appears that the market may finally be sensing that the worm is turning. US monthly production peaked in April or May. It's been falling 100K bpd/month since then. Not fast enough for impatient Wall Street, but for those that understand the world could easily be undersupplied in 2 years due to lack of investment, the pace is just right. The excess will get worked off very slowly and the price will rise very slowly over the next 12-18 months.
I believe that the shale revolution is a paradigm shift and that the sutainable price to keep the world supplied is now around $60-$70/bbl. Remember, even though shale producers can make good money at these prices, credit will no longer be available as easily and producers drilling within cash flow will have a natural limit at least for another 3 or 4 years until bankers forget and relax lending standards again!
World demand grows at 1+ million bpd, year over year. Long term, the US shale fields will be important but for the next year or so, they will decline.
I expect BPL will muddle through this, perhaps suffering some on their Eagle Ford assets, but I think longer term, the Eagle Ford is the #2 US basin behind the Permian. The Bakken being #3 perhaps once the pipelines are built and netbacks increase.
I saw a quote on this board that perfectly summarized Eddie's skills, perhaps it was from you mark, but it said, Ed has the ability to take something that is good and turn it into something that is not as good.
WMB management and the BoD really needs to resolve this soon.
They turned down an offer and then offered the shareholders/unitholders essentially no reasoning on how or why their strategy is superior to being part of what would be a leviathan in terms of midstream presence in the US.
It appears that management may be simply looking to save their jobs. If that is the case, simply dangle an attractive incentive to Armstrong to leave and do the deal. A 2:1 exchange would keep shareholders largely intact on income (until the recent bump, which was likely meant to serve as a negotiating tactic to up the ante), give them upside and leaves WPZ free to continue to grow without causing a taxable event.
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.