I just picked up a large amount of LNCO (due to the curious discount).
The market has once again mispriced the Linn entities. The sell off from the 4th Q announcement shows just how little the market understands Linn post Berry.
Yes, Linn is projecting a slightly higher than 1.0x annual coverage ratio with Berry, but many people forget Linn was struggling to achieve 1.0x before Berry (NGL pricing, midstream bottlenecks in Permian and of course the debacle known as the Hogshooter). This foolishness I have seen people spewing about Berry not being accretive is laughable.
All of those issues are either resolved or are no longer driving factors. Plus the 1.0x coverage is a base case, not counting any pending divestiture of Wolfcamp acreage/production.
The scale back on capital spending will have the net benefit of reducing overall company decline rate, which if anyone had noticed, was becoming difficult to manage (not untenable, but difficult for an E&P MLP). The inclusion of Berry allows Linn to be more capital efficient (simply put, Berry's PUD inventory has much higher IRRs due to being more oily) and that allows Linn to achieve comparable returns while spending less money. Also note that it appears the Hogshooter (that funny word again) thankfully isn't a material part of the companies drilling budget anymore. So, no more betting the company on an unproven play.
Instead, they will be milking California's ultra low decline, high margin steam flood oil properties as well as the Permian legacy production.
The pending/possible divestiture of Wolfcamp acreage and production should reduce Linn's decline rate by removing high decline production and by replacing it with very low (read mature) decline production, which is a double win.
What appears to be lost of a lot of investors is that Berry had very little impact on the 4Q. They will begin to see the impact in the 1st Q, and likely more so in the 2nd Q as things get digested.
Well, with the limited data provided, it certainly looks like the kind of deal that most of us expected/hoped they would be making. Looks to be priced competitively, overlaps with an existing area of operations (think synergy) and isn't terribly large (lower risk, easier to integrate).
Accretion is probably minor but hey, every bit helps.
I suspect that unless things get very bad, EPB will maintain the flat $2.60 distribution for the next 3 years. I also expect KMI to complete the drop down of assets into EPB, which will likely help EPB achieve and maintain a 1.0x or close to 1.0x coverage ratio. I don't think the drop downs will result in distribution growth, but rather working to shore up the shortfalls. This should help EPB stabilize.
A cut in the distribution hits KMI especially hard, as KMI owns such a significant portion of the LP units of EPB, plus they are well into the 50/50 splits, so they get a double whammy. I'd expect KMI to make reasonable efforts to help EPB "survive" until '17, when some of the bigger expansions (Elba LNG) start kicking in and growth is projected to return. So, I think at some point EPB bottoms and the market builds in a discount that reflects 3 years of stagnant distribution growth. At $30, you are getting a 8.7% yield. Is that enough discount? Compare to buying something like SXL where you have 3.5% yield that is growing at 20% a year. On one end of the spectrum you have high growth (and little room for error = high expectations), on the other end, you have no growth and what some might consider deep value. I think $30 is close to the bottom. It might dip down to $28ish. At 9% yield, for an MLP with growth on the horizon (2017), I think that the value investors probably step in and collect 9% for 3 years and then try to capture a yield compression back to say 7.5% yield...
The fact remains that EVEP's Utica potential is largely intact. Yes, they have done a miserable job of unlocking the value but it remains a very valuable asset within their portfolio.
Regency is finally shaping up.
Penn Virginia, Hoover, Eagle Rock...
Distribution increase of 6-8% in 2014. May finally climb back towards $27 (a 7% yield)
It's taken Energy Transfer a few years to turn this around, but looks like it is finally shaping up.
I picked some up in mid $26 range. May pick up some more upon upcoming wave of distributions/dividends in a few weeks.
I cannot explain the drop, but I firmly believe LGCY is the best oil focused E&P MLP. 70%-75% of reserves and production are in the Permian, with most of them being long lived (i.e. mature, low decline). They are heavily PDP and the balance sheet has under 3.0x leverage.
I don't really understand the quick plunge, but at these prices, I think it is a good buy and I'll likely continue to add if it stays down.
What is interesting is that given their large position/foot print in the Permian, they have a lot of opprotunities to participate in drilling in some of the hot plays. Provided the IRRs are high, this gives Legacy a sort of growth component. So long as they don't lean into drilling to heavily, they can manage the decline rates while also building reserves and getting some attractive returns.
The company has sold off its crown jewels. Now they must learn to execute on the E&P side. These guys really don't have a tremendous suite of high grade assets. This one is a value under $5.00 but not an orphans and widows stock.
Relatively good value at these prices. It looks like it will take some time for this to consolidate. A lot of deals in a short time period. I'd expect modest distribution increases. Not a home run, but at these prices, it looks like an investor can obtain a nice yield and likely $2.5-3/unit in capital gains over the next year.
I have to agree. Legacy's management is among the best in the E&P MLP sector. They are not aggressive and they are not afraid of sticking to their original plan, which is to provide steady distributions and maintain a strong balance sheet and capital structure. Growth of production, reserves and of course, cash flow and distributions comes second. They are patient and seem to be willing to wait for well priced deals. As one cane see, they closed a little over $100 million in deals in '13, but the average size was around $6 million. These are essentially "off the radar" deals that others are not interested in pursuing as it is not worth their time (Linn for example). Legacy can do 10-15 of these $6-$7 million dollar deals every year and add meaningful reserves and production without taking on much risk as these are true bolt-on acquisitions.
I expect Legacy will continue to under-promise and over-deliver, as usual. Distribution growth will likely continue to be marginal, but one must remember, they only swing for the fences when a deal comes along that is fantastic (like the Rockies Concho deal).
Otherwise, I'd expect for them to continue to grow distributions at 3% annually, continue to add moderately to their reserves and production and keep patiently waiting for the next big deal.
I still contend that LGCY is one of the better managed E&P MLPs. Though the price has slipped a bit, the distribution continues to steadily increase at a modest clip.
They still have a fairly strong balance sheet and excellent prospects within the Permian basin.
A nice boring income producer!
I view SBR as one of the steadiest royalties, along with Dorchester Minerals (DMLP). Both of these firms hold enormous amounts of true "top line" royalties (as opposed to working interests and net profit interests). SBR and DMLP have volatile payments but overall, these 2 are great to buy and hold and simply collect the income stream.
Well, EROC didn't drop below $5.00
Yield of 11% at present. Not enough premium when you can buy much better run E&P MLPs for 9%-10%.
EROC needs to convert to a monthly payer and then they need to focus on high grading their portfolio.
At the risk of being repetitive: Joe Mills sucks. Big time. Always has. Always will. He simply put cannot manage a business. He drove Eagle Rock into the ground, twice. He sold off the best assets years ago, the mineral royalties. Then he sold off the midstream business. Now he is proving he cannot manage the upstream business.
It sounds like the BoD needs to issue him a ton of units as his focus is clearly lacking. Perhaps a bonus too.
Compare these EROC clowns to the guys at Legacy Reserves. LGCY is one of the more conservative, well managed E&P MLPs you will find. They do proper due diligence, they under promise and over deliver. They buy with an eye on the long term, not making the quarter. Mills would do well to follow the lead of LGCY instead of trying to pretend like he knows what is going on.
Will be interesting to see if this drops back to the low $5's. I like how they reassure the investors that the coverage ratio will do better due to organic drilling and future acquisitions. First, they haven't proven they can successfully manage the decline rates associated with aggressive drilling, two, they have successfully proven that they are inept at making acquisitions.
It's a good buy at $4.80-$5.00. At these prices, you'd be better off investing in something like MEMP and then maybe buying into EROC when they cut the distribution again in a few years.
I would say the chance of a distribution cut at EPB is remote. Kinder Morgan Inc has already earmarked multiple drop downs of assets to EPB that are intended to essentially replace a lot of the lost cash flow. Also keep in mind that KMI collects a very healthy IDR stream from EPB, and being in the 50/50 splits means KMI takes a good hit directly plus via exposure to the EPB units that it owns.
Now, none of that says that it won't happen, but EPB and BWP are drastically different cases, even if their cash flow shortfalls are similar. BWP's GP (Loews's) does not receive nearly as much IDR from BWP, plus they have numerous other investments and they have very little in the way of drop down dowry for BWP. KMI does have assets to be dropped down, unfortunately, the accretive cash from those drop downs will be plugging holes due to EPB's current short fall.
I think KMI will make reasonable (but not unreasonable) attempts to maintain EPB's distribution to the extent that it is in KMI's best long term interests. It would not surprise me to see EPB pick up some projects that may have originally been earmarked for KMP, if only to help EPB get back stabilized, but that is purely speculation on my part. Keep in mind that KMI runs with a very tight "coverage ratio" as well, so any shortfall at EPB means a reduction in the growth of the KMI dividend and under severe circumstances could mean no growth or perhaps a cut (highly unlikely). KMP may be the most favored child, but EPB still contributes a signficant amount of cash to KMI and keeping it at least steady is likely there game plan. Growth is scheduled to resume in '17.
Seems like a perfect fit for Kinder Morgan, especially now with BOSCO operational and also given KM's '14 growth concerns.
Hard to predict the future, but clearly TLP owners have the potential to do well with this sale if the new GP is intent on growing the distribution and boosting the IDRs. Morgan Stanley has done a poor job these past few years since taking TMG (the GP) into the fold.
With a small market cap, a relatively good balance sheet and a strong promotion from an interested GP might make for favorable circumstances over the next couple of years. A $500 million dolalr acquisition, done at a reasonable multiple could drive decent growth to the bottom line.
I own some TLP and have for years. I'm happy collecting the distribution, but will be pleased with any growth that materializes.
Indeed. Not bad for a well run GP of two midstream MLPs, a 5% yield and 5% annual dividend growth.
KMP is so large, that the days of huge growth are behind it, but KMI should still achieve moderate growth even with paltry distribution growth at KMP.
Once the drop downs are complete (KMI to EPB), KMI will be back to being a "pure play" GP. Not sure the market will assign a yield any lower than 4.5%, but at this point, it should be viewed as a decent income play with growth potential.
BTW Liza, if you need an assistant basher, my services can be purchased for $50K/month (yes, half the going market rate of a top notch basher)!!!