MMLP management admitted that the contracts at Cardinal that are rolling off are being renewed at lower rates. The B of A analyst you mention also showed 2017 ebitda lower than 2016.
Where is MMLP growing? What plan do they have to appreciably grow ebitda and lower leverage?
My thoughts are that Howard is a home run for Alinda, it is growing and has some projects to export into Mexico (Enlink has some projects with them). RIGS is a disaster due to falling volumes from the Haynesville, this is based on the fact that Regency (now part of ETP) owned the other half and as I recall, only the MVC (minimum volume commitments) were saving them. With the emerging deeper plays, it might recover. Note that the Haynesville still has a decent number of rigs, only exceeded by Marcellus/Utica as I recall. I do not know about Nortex, but HFOTCo has an excellent ship channel location, almost as good Bostco. I think Alinda had designs of using MMLP as a drop-down vehicle, but perhaps changed their minds. When the transaction happened, it seemed like MMLP was partnering up with a strong supporter, but ultimately nothing has really transpired.
I addressed the natural gas storage issues at SeekingAlpha. Some of the other posters seemed to insinuate that storage wasn't a concern and upon me mentioning Buckeye's Lodi facility, Niska and Crestwoods Tres Palacios facility, I was greeted with rebuttals of LNG and Mexico exports and rising power generation demand. The prolific nature of the shale plays has shifted the supply basins and also brought the overall value of natural gas down as well as the seasonal (summer to winter) spread. Storage contracts from times when gas was $4.50/mcf make little sense when gas is $1.80 Henry Hub and lean E&P companies LOE and SG&A costs are $1.20/mcf. Margins are getting squeezed. The oversupply we have means less storage is needed because it is being exported to Mexico or via LNG and not stored for domestic winter heating use. This is one of the after effects of the paradigm shift of shale gas. An industry has been turned on its head, just like LNG import facilities are being converted to liquefaction facilities, it was not foreseen 5-10 years ago. MMLP has a few years as the contracts are staggered at Monroe, Cardinal etc, but DCF is declining and will likely continue to decline in the gas storage busienss and leverage is increasing and MRMC is NOT a strong GP. If they were strong, they would not have divested 50% of the IDRs (the golden goose) to Alinda.
As for overpaying, yes, but also, as I mentioned on SA, they overpaid to gain control of the cash flow. When they had the Redbird JV, they had project level debt that prohibited cash distributions. Once they rolled it into the fold and moved the debt up to the parent, they could start taking meaningful distributions.
I think in 2016 we see fairly significant disposals of marine assets and would not be surprised to see WLPG divested.
It is time for management to stop jeopardizing the long term viability of the company for short term gains.
"I think some are putting a bit too much emphasis on MMLP debt ratio."
In good times, no one cares about debt. When capital markets lock up, when commodity prices fall and the "easy" money starts going away, the market becomes far more discerning of balance sheet strength, counterparty exposure, stability of cash flows, commodity price exposure.
The market looks at MMLP and MRMC and sees, high leverage at both entities, falling DCF at the MLP, unknown cash flow stability at MRMC, a relationship in which MRMC needs the cash from MMLP to build assets, yet MMLP doesn't have the cash to purchase the assets from MRMC. It's really an ugly situation that management continues to ignore.
Alinda has a very large Fuel Oil Terminal in Houston. The asphalt project that Martin is pursuing is an organic growth project, but as has been previously mentioned, it is likely to be financed at the MRMC level (again, $20-$30 million range).
I do however expect MMLP to be active in divesting assets, especially their idle and low performing offshore marine assets.
For reference, the Houston Fuel Oil Terminal Company assets are likely worth $500-$750 million, or about the current market cap of MMLP. Alinda passed on their opportunity to drop it down into MMLP a couple of years ago, when MMLP was sailing high and the cost of equity capital was realistic.
Now, MMLP must pull themselves up by their own bootstraps. It won't be easy. DCF is headed down in 2016 and leverage is headed up (absent divestitures). Some management teams never learn. On the other hand, look at Magellan. They have no need to issue equity, have strong coverage and low leverage. They have one of the lowest costs of equity capital in the business. It's a classic case of the rich get richer. They are funding growth with surplus DCF and modest borrowings.
Running with barely 1.0x coverage year to year and kicking the can down the road will eventually catch up with MMLP. Their leverage must eventually be addressed and suspect that when they have to roll over their notes in a few years, that they will see the light.
Yes, NuStar purchased (2) asphalt refineries from Citgo. It turned out to be a very costly mistake, one of the few that Greehey made. The intent was to run the asphalt plants with high coverage to ride thru seasonal and commodity price swings, but it didn't work out too well. NuStar finally jettisoned Curt Anastasio and elevated Brad Barron, whom has done a great job of turning things around after they divested the plants.
MMLP on the other hand is simply looking to construct an asphalt terminal, which is much lower risk. The issue is that MRMC will have to fund the project, which I suspect will be in the $20-$30 million range.
If you are interested in asphalt exposure, look at BlueKnight (BKEP) which has 20+ asphalt terminals all over the country as well as I think 4.4 million barrels of crude storage at Cushing. Coverage at BKEP on a TTM basis is around 1.20x and leverage is just under 4.0x. Former Enterprise Products exec Mark Hurley runs BKEP and has done a good job of building them slowly, keeping an eye on the balance sheet, counterparty exposure and coverage.
The recent presentation from the MMLP Analysts day was rather disappointing. Ebitda down, leverage creeping up.
I said it months ago, MMLP needs to cut the distribution but this will severely hamper MRMC, which needs every dollar they can get. Instead, they continue the incestuous money exchange from MRMC to MMLP and back. A cut of $1.00/unit would give MMLP meaningful growth (equity) capital to fund their own projects rather than rely on MRMC which I think is struggling. It was very telling that they made a point to divulge senior debt to ebitda, but not total debt to ebitda.
I think it is inevitable that APLP cuts the distribution, perhaps similar to CCLP.
Leverage is out of hand. They need to prevent going above 5.0x.
I would not be surprised to see a merger of AROC and APLP and then followed by a distribution cut.
APLP can be a powerhouse company, but the balance sheet is severely strained and getting worse. They need to address it now so that they can prosper when natural gas pricing recovers.
The market hates uncertainty. NGL management has thus far, done a very poor job of communicating with investors. The decision to not have a Q&A session on the last conference call speaks volumes about just how inept and childish they are. Willing to pat themselves on the back when things go well, but not man enough to face investors when they don't perform.
Would not be surprised at all to see this trade sub $6.00.
Management must address the out of control leverage. The TransMontaigne deal was good, but it isn't enough. A large cut would give them ample cash to deleverage.
There is a reason that other MLPs are rallying but NGL and CEQP continue falling. It is the management, which thus far appears to be afraid to make difficult decisions.
The BofA/ML analyst raised some very good questions around the counterparty risks. Coverage is minimal, perhaps 1.0x. Leverage is projected to rise in 2016. Natural gas storage margins are likely to compress (look at Niska, look at Tres Palacios, look at Lodi).
The entire industry is getting a very nice uplift from rising crude prices. MMLP is letting leverage trend towards 5.0x.
It isn't a royalty trust. They do hold royalties, but they are free to reinvest in new mineral rights, offsetting the depletion. Similar to DMLP.
I agree, I think it is priced aggressively, perhaps some of this is the massive short covering in the energy industry. Low oil/gas prices are going to hurt their ability to grow and even maintain the payout without, as you mentioned, cutting the subordinate payout.
Sorry but you don't crack natural gas. You feed ethane (and propane) into a cracker and get ethylene (and some propylene).
I'd argue that it makes little difference what Saudi Arabia's lifting cost is. SA produces a little over 10 million bpd, OPEC produces around 33 million bpd (from memory). The world uses around 95 million bpd. Dnebury may not be the lowest cost producer around, but they rank ahead of oil sands and many shale plays, deep water offshore etc. The assets are viable.
The market does not care about growth at this time. I understand some management teams are focused and do not care what the "street" wants, but this applies to a limited number of midstreamers like Magellan and Enterprise, which are well capitalized and can do as they wish.
As for NGL, it would make far more sense for them to cut the distribution, use that cash to finance growth projects or better yet, clean up the balance sheet. This does not need to be a permanent cut, but a year or two, let the market see that they are focused on balance sheet strength and retrenching.
They have assembled a nice set of assets, but they have little synergy and some of them are under stress.
It was very poor to not have a Q&A. In other words, management is more than happy to accept credit when times are good, but are too thin skinned when times are bad. No real plan to address leverage, which is out of hand. Wake up people, there is a reason these guys are trading under $8 and yielding ~30%.
There are many high quality MLPs that will be around for a long time. The E&P MLP model has been broken by a variety of factors, including the desire to grow aggressively.
Look at midstreamer like Buckeye (BPL), Magellan (MMP), Enterprise (EPD), Spectra (SEP). No one questions whether they will survive or even if they will cut the distribution.
ARP's demise is multifaceted. Extremely poor management with weak operational experience, the desire to have IDRs and of course, overpaying for assets, chasing liquids and lack of scale (too far flung, no cost synergies).
Cohen is a shill and cannot face reality. He did the same thing in '08/'09 when he nose dived APL. He sheepishly handed control over to Eugene Dubay and disappeared, after botching the hedges.
It is finally becoming clear to investors that ATLS and ARP have major conflicts of interest. Cohen is a shill and will milk ARP for ATLS's gain as long as the banks will allow it, then he will likely try to merge the 2 entities, to save ATLS.
The real issue is that if Cohen had not been so greedy and wanted to hold onto the IDRs, he could have merged ATLS with ARP at the time of the Targa transaction. This would have allowed them to cease distributions much earlier and buy back debt at a discount and possibly survive, but that would have meant giving up his precious IDRs, and that wasn't going to happen.