" If perception of risk is reduced the market price often goes up on distribution reductions."
That's actually comical. You think Linn is going to rally on a distribution cut? Would that be after it falls below $20? I knew you had a screw loose and couldn't add without Sandforbrains calculator, but really, aren't you reaching a bit. I eagerly await to see the empirical data from this "test"....
And next you will be telling us again how Linn deserves to trade at a 7.5% yield. Yep, I remember that post you made. Still laugh that you think Linn ought to trade in line with some of the midstream players..
I can tell when you have painted yourself into a corner when you resort to changing the subject and fabricating lies. It's the same behavior exhibited by the degenerate sandforbrains before he tucked tail and left.
As has been illuminated for your numerous times..Linn foolishly left 30-40% of their oil unhedged (actually more when you back out the divestitures that actually brought the percentage up as volumes were shed but hedges were kept). You are getting carried away with thinking 80% is protected..go back and listen to what Kolja actually said.
And for grins, can you imagine how bad it would be had they not made the Berry acquisition which was deleveraging and also brought along much of the high quality California assets as well as the Wolfcamp acreage which is being traded for quality MLP assets. :)
Wonder what Kevin Kaiser will say if Linn cuts the distribution? You think Linn "bond" will be at $40 then?
You continue to try without success to spin your story. The fact is clear, Linn's lack of hedges on 30-40% of their '15 expected crude production is opening the door to a distribution cut. Perhaps you can borrow the degenerate sandforbrains calculator. 30,000 bpd X 365 days X ($??) (Assume $94 minus realized prices, which will fluctuate based on basis differentials and location). The point remains, you are beating a dead horse and doing a fantastic job of it no doubt.
NGL pricing has been terrible, but again, with NGLs being just 10% of '15 expected production, it isn't nearly as big a deal as it was when they had the Granite Wash, which they divested.
So, keeping trying sonny. One of these days you will get something right. It's bound to happen for you. Oh, and I notice your degenerate friend sandforbrains isn't hanging around anymore. Guess his ego got shattered..he was such a fragile nervous twit.
Nice try, but wrong again. Linn management failed to protect a significant portion of oil production, even assuming full divestiture of the Wolfcamp production the amount is meaningful and the impact to cash flow is significant. We are however in full agreement that management did a spectacular job of divesting their high decline assets before the full pain was felt.
As for holding the distribution in '15, we shall see. The lack of guidance was, shall we say, disturbing to "retail" investors but also to institutional holders. Of course, it will all depend on when and where crude bottoms.
Poor petulant Norris. Still cannot comprehend the conference call. Note, Ellis's comments regarding NGL production being, on a pro forma basis 10% of company '15 production. Oil is ~35% and 30-40% of that is not hedged in '15. I think you can see where this is going regarding volumes and margins...
You can prattle on and on about ethane rejection, but the reality is that Linn (and the rest of the industry) have been living with those issues for some time now. It is intuitively obvious to even "retail" investors that if Linn's oil production were 90% hedged in '15 at comparable prices, the very real threat of a distribution cut would be significantly diminished and we would be discussing whether Linn would nearly meet or barely beat 1.0x. Linn foolishly exposed investors to commodity risk by not hedging appropriately. As it stands, yawn, propane and ethane pricing would have to make meaningful increases to even come close to putting a dent in the lost revenue on their crude volumes that aren't hedged. If only poor degenerate nervous twit sandforbrains were here to loan you his calculator you could see the big picture.
Now all of that aside, our shop is quite optimistic that Linn will manage to likely be as capital efficient with their '15 maintenance budget as we have ever seen. We are intimately familiar with their excellent '08-'09 success and expect to see meaningful recompletions and midstream projects that will lower LOE and provide very low cost production. We believe the market will be very surprised at how much reduction Linn produces in terms of maintenance capital, both through the swapping out of high decline production but also through high-grading their inventory and focusing on only the highest returning projects. However, we don't believe it will be enough to save their bacon barring a sudden reversal in oil pricing. The piper must be paid. Highest in sector debt/ebitda is catching up with them.
The Saudi's other problem is that they are pumping ~10 million bpd and accepting $20 to $30/bbl less than they desire. That is nearly $70+ billion a year in "lost" revenue. I think they are "hoping" that the shale revolution isn't real, but alas, they will only succeed in promoting more technical innovation which will make shale more competitive.
The Saudi's aren't doomed, they still pump a lot of oil and with so much of it PDP, they have very low lifting costs, but it is clear that they no longer have the ability to "control" the market. They are still a very large player and can make things difficult, but American ingenuity will manifest itself in technological improvements that will keep shale competitive even if it isn't wildly profitable. I'd look for more pad drilling, longer laterals, improved frac'ing and of course midstream investments that will help improve netbacks.
Yawn. Poor silly norris. If you actually listened to the call, you would have heard that post all of the announced swaps (and not even taking credit for the remaining Wolfcamp production that they are working to divest), their NGL production on a pro forma basis has declined from 16% to 10% of total production, while natural gas has gone from 48% to 55% and oil has gone down from 36% to 35%.
The oil component is likely to drop further post Wolfcamp divestiture, but of course, we are not aware of what the pending mix will be but we can assume it will likely be more heavily weighted towards gas.
But by all means, continue to babble on about how it really is the NGLs that are dooming Linn and not the roughly 30,000 bpd of oil that management neglected to hedge (subject to reduction pending final Wolfcamp divestiture).
And the "retail" holders want to know when Linn bond will go back to $40 like schmuck sandforbrains and you said it would. One can only presume that will be about the time Linn "raises" its distribution to $3.08 (wink wink).
Oh...and...Ellis further went on to note "Now it's worth highlighting that our exposure to NGLs is expected to be less in 2015 than it is currently."
It is unusual. We will see if it can be sustained. A push to $18 or $19 would still have this yielding 12%+.
The whole sector is up nicely today with a few outliers/exceptions.
I think it will take a year of steady distributions and near 1.0x coverage to convince many investors.
It still thinks that Linn's fate is tied to NGL. Despite not realizing that the recent trades, especially the Granite Wash divestiture significantly reduced Linn's exposure to ethane/propane and heavier NGL pricing as a percentage of the overall portfolio.
And yet again you mistake me for posting something that clearly someone else posted. ("I would note to the flawed stuff rrb cut and pasted babbled about low oil prices driving down natural gas prices. Yet there is plenty of low cost gas coming off Marcellus. But the real price depressant below cost of production is associated oil."). Again you are wrong (as usual). If anything a reduction in oil drilling may assist gas prices. But of course, Linn's nearly fully hedged (with the exception of their natural hedge, i.e. the gas they consume in their California operations). So, they must rely (or hope) that gas prices rise above their put prices to gain...or meaningfully increase gas production to take advantage.
Sorry, you need to use "facts" next time rather than letting your emotion get the best of you. It is apparent to all that you continue to try to change the subject and muddy the waters (talking of margins rather than realizations). Linn's exposure on their unhedged oil (even assuming complete divesiture of the ~8000 BOE/d of remaining Wolfcamp production still only gets them to 70% hedged on crude (if one assumes all 8,000 boe/d is crude, which it isn't). Linn's 30%+ exposure (assuming results in a meaningful shortfall in DCF, more so than can be made up with the recent excellent swaps. It appears that Linn's management team has copied a page from our inept President's playbook and are simply relying on "hope" rather than good sense to hedge.
"I believe they can buy some time with production increases, rationalizations and the hedges. But if prices do not improve by the first quarter, distribution cut is more likely than not."
A quick pencil to paper calculation shows the gaping hole in DCF that arises from foolishly leaving 40% of their oil production unhedged. The 1031 swaps produced a lot of accretion (Hugoton alone produced $30-$40 million or $.10/unit), but absent an appreciable uptick in crude, they will be hardpressed to achieve anywhere near a 1.0x coverage ratio even despite all of the excellent trades to reposition the company. When you factor in that they have the highest in sector leverage, the potential for a distribution cut begins to look more and more realistic...of course, an equity yielding 12% ought to tell us something, after all, the markets are forward looking..
Valuation of ARP and all E&P MLPs is tricky. The whole idea is to use the equity and arbitrage the difference between private market transactions and what the market income seekers are willing to pay. In other words, mature production typically sells for 6x-8x cash flow, or a 12% to 16% return and you buy it using a blended average of debt (say 7% and equity, typically sub 10%).
The erosion in unit price has wiped out virtually all of the premium and you are buying the assets and the corporate structure at around NAV. Of course, the drop in commodity prices has not helped NAV.
I think ARP is undervalued, even counting the lousy management team. With the hedges they have in place, they should be able to achieve at least a .90x coverage in '15 (I am not as optimistic that they will raise $275 million for the private drilling program).
You hit the nail on the head, however, I do believe APL will benefit under Targa leadership.
They need to bring Dubay to ARP. They seem to believe now with plenty of acreage that they can increase fund raising...we shall see.
I am not sure if it is related to the conference call or related to general market sentiment regarding E&P. It does seem though that ARP takes a disproportionately harder hit than many of the others.
I guess at some point the fear will subside and the price will be silly cheap. I think the best thing ARP can do is to stop acquisitions, focus on operations and maintain the distribution and continue to remind the market of their hedge book.
No problem. I haven't had time to listen to the replay of the call. Disappointing is all I can say regarding market price. No doubt the E&P MLPs deserve a discount to the midstream but ARP appears to be one of the highest yielding in the sector. Really has fallen apart. The lack of drop-downs seems like a weak excuse. Long term it remains to be seen if Cohen will ever learn to run with a coverage ratio above 1.0x.
Looks like natural gas is climbing a bit. Will likely mean a slight uptick in distributions in a few months (owing to the lag in payments).
Additionally, I believe November is the last month that Burlington Northern is recouping overpayment. That should add almost $.01/unit to the monthly distribution starting in December.
Sounds like Mancos development is still progressing for WPX and Encana.
Yes, I agree. They need to strengthen hedges on both gas and oil for '15 and likely for '16 as well. I think the market would reward them with a lower yield if they could show strong margin protection going out 2-3 years.
Too bad they blew $600 million on oil properties right before the collapse and right before Quicksilver is likely to put a lot of nice Barnett properties on the market. Will be interesting to hear what they say about the growth prospects of Atlas Group given that ARP is likely to be static in '15.
Not spectacular. Not terrible. Par for the course for Atlas.
They ought to bring gas hedges up closer to 90% given the relatively predictable volumes in most of their basins and oil closer to 80% for 2015.
I looked at most of the assumptions for reaching 1.10x coverage in '15. I think the realized prices look right especially given their 70% gas hedge position and the recent pop in gas prices. If they hedge at the strip, essentially $80 they can achieve the $83.00 realized price.
The production on gas looks achievable. We know that the coal bed methane and Barnett production is relatively stable. The base Appalachia is low decline, with Utica and Marcellus mixed in. They actually project volumes about 5% below this Q, so that seems about right. Oil and NGL volumes are a bit higher than current, so it seems like they expect some production growth perhaps from the newly acquired EFS properties.
Maintenance capital seems about right. Not sure about the growth capital but it seems consistent with years past.
Private drilling program raise of $275 million seems like a major stretch. Perhaps they are optimistic now that they have some premium EFS locations to eat up a lot of capital to go along with the Marble Falls, Mississippi Lime and Utica/Marcellus. I'd expect something like $200 million. My hunch that they fail to meet $275 million is why I think they will not make 1.10x but rather something much closer to 1.0x
Operating costs (LOE) look normal/reasonable.
I think the reality is they will likely achieve coverage of about 1.0x for 2015 (on a $2.40/unit distribution). Not spectacular, but given the drop in crude and NGL prices, I don't think anyone can expect much better than trudging forward.
Atlas Group (the stub) will need to find a way to grow ARP. By far, the bulk of the $1.25 they project is coming directly from the ARP common and preferred units they own.
Agreed. Legacy appears to be much better positioned than the market perceives. While they no doubt will feel the sting of lower pricing on their unhedged volumes, their relatively low leverage and enviable position regarding their revolver means that they should be able to weather the storm for several years. I believe as they mentioned, they should be able to acquire properties in this downturn that will be accretive. I suspect that Legacy may throttle back or perhaps even entirely on distribution growth over the next year or so but I believe with their hedges and also firing power, they likely should be in a good position to cover the distribution.