I hate to burst your bubble, but ATLS won't be re-instating their distribution. With the cut at ARP, ATLS will struggle to stay solvent. They were/are highly dependent on cash from ARP.
Expect Cohen to try to merge ARP and ATLS, so that ARP can pay off ATLS debt. That, or expect him to try to get his hands on ARP cash by "investing" in Atlas Growth Partners.
I know this, Cohen will protect ATLS at the expense of ARP.
Just look how all of the long time shills are bailing out. Matt Jones , gone. Sean McGrath, gone. Brian Begley, gone. They all see the writing on the wall.
Bring in a bunch of wet behind the ears yes men with no experience and that are simply thrilled to e "executives" and he can continue his chicanery.
Also worth noting, we are not producing at full cycle costs. It is fine to claim an XX% return on a well, but producers are often not factoring in the acreage cost, the exploration costs of delineating plays etc.
It is also worth noting that US production is down 450K bpd from the peak. That includes a 20k bpd uptick in the Gulf of Mexico. Decline is real and happening. Pundits can cite improved efficiencies all they want, but what they really mean to say is this: with producers having access to the absolute best drilling rigs, the most experienced drilling and completion crews, with the use of pad drilling to cut costs, with the absolute best ("core") acreage being drilled, the industry has experienced 6% decline from the peak. This is likely to continue. Oh, did I mention that hedges continue to run off and that "easy" capital is no longer available and producers are now mostly drilling within cash flow.
A correction is coming, likely in late 2016 or early 2017.
Don't forget about MLV!!!
As for selling more preferred units, yikes, these guys are really desperate to get their hands on cash to sell units at 20% yield. That eats up the bulk of the supposed return they are getting by drilling Eagle Ford properties.
Oh, that's right, they are going to deploy that cash to gobble up all kinds of great assets at pennies on the dollar from poor unfortunate companies that didn't get their financial house in order. Good thing Atlas took care of business and is poised to pounce on these generational opportunities.
How long until ATLS either forces a merger with ARP or finds some others means of bilking ARP of its cash flow?
The reduced ARP distribution is going to make the banks squirm as the bulk of the cash flow is now depleted.
It is clear you have not run the numbers.
"Firstly, they are focusing on cutting cost. You may not be aware of it but cutting cost it oil's current price is twice as effective to the bottom line as is increasing production."
Oh really, do tell. Show us an example where you have crunched the numbers. Or is this just "wishful" thinking.
"Why not acquire a property that is producing at a 30% ROI year after year even at today's oil prices and a 100% or more when oil prices increase, rather than save 40% on a one time purchase now by buying back debt."
Oh, so these properties they are going to buy at a 30% ROI have no depletion, will produce at the same rate for infinity? Nonsense.
"Sure, go ahead and buy back debt that you are paying 7% on and then when you need cash sell new bonds paying 15+%."
When you buy back a 9% coupon bond at 40 cents on the dollar, you are not only getting a return that rivals the returns of the Eagle Ford, you are also getting the huge uplift of retiring 60% of the debt for "free". Oh, and buying back notes comes with no geologic or execution risk, nor does it come with depletion.
Believe me, those that have run the numbers are baffled at Cohens "decision" making process. He's delusional. Stop using an emotional appeal and let the numbers speak results. ARP is trading under $1.50 for a reason, and it isn't because they are poised to go on a shopping spree of distressed assets that will bring the unit holders to their feet in joy. Merrill Lynch says this thing has negative equity of $300 million at $3 Henry Hub and $70 WTI. Yikes.
"ARP has done an excellent job in setting themselves up to acquire immediately accretive properties at bargain basement prices"
If you call nose diving the company, taking on second lien debt, cutting the distribution, being forced to walk away from development on most of their projects and generally disenfranchising both the debt and equity investors as an excellent job, then yes.
As for the cash they are building, I would expect they will be more interested in debt reduction that acquiring properties. Cohen has a tendency to be the one divesting at the bottom, as he did at APL years ago when he was forced to sell Velma several of the crown jewel assets.
The real problem is that they can't easily divest some of their assets because many of them are partially owned by the private drilling partnerships. It's a real mess. The San Juan cbm assets could be divested, but those are probably some of the best assets they have. To bad.
Yes, this is why the Saudi's have mentioned the fear of a supply shortage. This is not just them talking their book. I think the Saudi's are indeed shocked that oil went this low. I think they were hoping to push it down into the $60's, shake out 1 million bpd of shale oil and then let pricing climb back up. Instead, we are in the $40's, US production is down 500k bpd, (note, a 200k bpd increase from the GoM and a 700K bpd shale and conventional decline inland) and pricing has been flat.
The Saudi's can keep this up for 1 more year, but most of the other OPEC countries cannot. Something has to give. I think the drop in supply will start to show up sooner or later. Of course, everyone is banking on 1.2 million bpd of growth in demand. If that does not materialize, the Saudi's will likely be forced to make some cuts because this could drag out another 12-18 months past 2016. The Saudi sovereign wealth fund is diminishing by the day.
All of these reasons are why I feel so strongly that late 2016 crude starts to move up into the high $50's and maybe even into the low $60's. The weak will have collapsed by then (another 2 borrowing base determinations will have come and gone).
I hear what you are saying about the revisions, and I still wonder how that could happen, I have not looked in detail at it. One would think that an error of that size should not really happen, certainly not a second time.
I keep thinking that at some point we will have a slow and steady decline week over week..but it never seems to materialize. In any event, it is difficult to know what the "builds" in inventory are outside the US. I think one can assume that "most" storage is being utilized but Cushing continues to show declines in utilization. I think this means that the Goldman $20 call won't happen, or at least yet. Storage needs to fill up before production starts getting shut in en masse. And of course, we would only need to shut in less than 2 million bpd.
The "frack log" of wells waiting to be completed appears to be another issue. It really is quite amazing to think that this oversupply caught so many off-guard, including the analysts!
I think the consensus is for US production to decline to 8.7-8.8 million bpd. Who really knows though. We may end up forcing a lot of the off shore (Norway, North Sea, West Africa) projects to be slowed down or delayed. As the boys at Core Labs have said "decline is real and it never sleeps". I have no doubt the supply and demand imbalance will be corrected. It may take another year to 18 months, but it will happen. Investment is dropping and will drop below the point at which increased efficiencies can overcome it. Economics still works wonders when there are shortages and surpluses.
Thank you. I was looking on the "weekly" production page, which had not yet updated.
I agree with lucios.rodin however, a 17,000 bpd drop is "noise". We seem to be stuck between 9.1 and 9.2 million bpd. This has got to be disconcerting to the Saudi's, and makes me believe they will not cut, if they do cut, it will be insignificant, on the order of 200K bpd or something, essentially shutting off some of their "surge" production.
It further strengthens the lower for longer thesis.
As I stated previously, the company appears to be accumulating cash at a rate of $2-$3 million per month. Of course, we are not privy to all of the capital expenditures until they are announced, but I think we know generally that MCEP is likely to be conservative until the borrowing base issue is known.
I have to agree with luscious.rodin, it could very well be possible that the delay is because they are going to be over the base and the deficiency reduction plan is being discussed.
While this is an issue, I think that the absolute amount it is lowered to will not be lower than $170 million. Of course, this is simply my opinion and I could be completely wrong. If you look at the NAV of the company assuming a price deck of $40, the banks are covered, but not comfortably so if you assume a lower for longer scenario it could be lower than $190.
I do believe we could see a reduction to something like $180 million, which would be a meaningful drop from the current $220 million level.
I think the banks would like for MCEP to term out the debt and they may be "pushing" them in that direction by insinuating that the next redetermination will also result in a reduction. It's called staying one step ahead of the banks. I saw this unfold with Sanchez Production Partners (the old Constellation Energy Partners) where the banks did not want to force a default, but also wanted to slowly unwind their exposure and give the company time to monetize or recapitalize. It worked.
I expect MCEP lenders will walk this down slowly, which will limit MCEP's ability but not push them into a death spiral like many others find themselves in (XCO, HK, SD, MHR, PVA, CHK). The capital structure at MCEP is clean (only bank debt), they operate well over 95% of their properties, their production is 90%+ oil, which means little NGL processing exposure or natural gas. It should be a very "easy" analysis for the lenders. It also helps that they are concentrated into just a few basins.
Given that the management team has been prudent in eliminating completely, I would expect that the banks will not force an insolvency event. I don't want to understate the "risk" but look at the leniency given to ARP, to SD to many other E&P's.
As luscious.rodin stated, if the base is reduced significantly, one must remember that they have already paid down to $190 million, with the base at $220 million if my memory is correct. So, they were already $30 million under the base. I would imagine that they may be hoarding cash right now, to the tune of $2-3 million per month. If the base is cut to say $170 million, they would be $20 million in the hole. That would however be a very large reduction.
Yes Cooperman and Cohen want to save their investment.
Of course, you could apply the logic that they should have been doing that all along, right?
If Cohen can't keep ARP from crashing and burning WITH the hedges, what makes you think he is going to be able to pull off some miracle now with limited liquidity and hedges rolling off?
As for Cooperman, he's along for the ride. Not much he can do but sell or wait to see if they can save the company.
You have the audacity to say that ARP, trading at $1.60/unit, with a debt to ebitda ratio of over 5.1x and likely to rise as the higher dollar hedges roll off the books, is not a distressed company? I'm obliged to ask if you work for the company? Because only a shill could say that with a straight face.
Atlas will be lucky, yes, lucky if they survive and if they end up with any equity value.
It is fine to hope for $80 oil, but the reality is that oil might not get back to $80 for several years. The strip, which isn't terribly reliable says many years longer than ARP's hedges. You can talk about hedges all you want, but I would be willing to bet that YOU have not run the numbers, the way luscious.rodin has, calculating cash flow per year (and per unit) using the strip pricing for unhedged volumes.
You are delusional if you think ARP is going to be in a position of strength.
ARP has already admitted that nothing aside from the Eagle Ford is economic at current prices, and buying back bonds exceeds that by a country mile. It is only the need to deploy capital at AGP that pushes them to pursue these marginally economic plays.
I fully expect unit holders to be completely dissatisfied with what Cohen chooses to do with the cash, which will likely not be the prudent thing, which is to retire notes at 40 cents on the dollar, but rather to dump a lot of that cash into his dreamy scheme aka Atlas Growth Partners. You have missed the forest for the trees. Cohen is going to do whatever he has to do to save his baby, ATLS. He salivates at the thought of his little incubator in Lightfoot and AGP. Ok, so he destroyed ARP. So what. He intends to save ATLS so he can float some other scam, whether it be midstream or upstream is of no consequence. It's all about finding OPM and taking a slice, then another slice and then walking away.
Rest assured, Cohen will drive this one into the ground, but not before sucking every penny out that he can.
I look for him to either get ARP to divert cash from debt buy backs to "investing" in Atlas Growth Partners, or a merger of ATLS and ARP. That would move ATLS's debt over to ARP. But look for Cohen to make sure to spin off a non economic control GP to himself so that he can maintain control of the cookie jar.
Poor Leon Cooperman. What a chump. He fell for Eddies nonsense hook line and sinker.
For goodness sakes, ARP is in no condition to be making "strategic" acquisitions of assets from distressed companies. ARP is a distressed company, or couldn't you tell by the slow steady grind down to $1.50 per unit and reduction in distribution to 15 cents per year?
Yes, there are plenty of quality assets that will be coming to market over the next 6-12 months. Many would be perfect for an E&P MLP. This includes Quicksilver's legacy Barnett shale production, but I will be very surprised to see ARP manage to land any of these. The cash will likely be frittered away on projects that are neither strategic nor economic. The Eagle Ford shale at a 20% IRR makes little sense when you can buy notes at 40 cents on the dollar and get a comparable cash on cash return, yet accept no geological/drilling or operational risk and also get the huge back end tailwind of retiring debt at 60% discount.
It is no wonder that so many execs are bailing out. Wearing pinstripes probably doesn't appeal to them.
I can't wait to see the permabulls reactions when ATLS fleeces ARP out of a bunch of cash or they propose a merger.