Finally you get it about Cohen. Yes, he is a shill. He has no clue how to run a company. Reckless, clueless.
I don't laugh at investors losses, but I laugh at ATLS, which is on life support. It's Cohens baby. It is essentially insolvent.
Ellis was desperate to plug gapping holes in their DCF. So, he overpaid to get Berry. He also neglected to continue hedging out 5 years. He and Rockov were far to reckless. Remember, this was supposed to be an MLP, where they mitigated risk by hedging and operating mature, low risk, stable production and operated them to maximize cash flow.
Instead, he abandoned the plan and decided to be a wildcatter. Granite Wash, Hogshooter, etc.
But, to be clear, many of the assets in Linn's portfolio are quite excellent and will be eyed up when they go bankrupt.
Oil and gas prices are low at present, but long term equilibrium prices will be much higher. Who knows what that price will be, but it won't be $32 and $1.80. Smart money buyers can snap up attractive properties like the Hugoton package, where they have size/scale, low operating costs and excellent midstream connectivity.
Don't forget that Alinda Capital owns half of the Incentive Distribution Rights, you know, when MRMC was cash strapped, they had to divest half of the golden goose.
They clearly stated on the call that the leverage ratio would deteriorate in 2016. Don't get MRMC and MMLP confused. Also note they attributed some of MRMC's improvement to lower working capital. Will that reverse itself if crude oil rises?
See quote below from Joe McCreery on the conference call.
"So, a slight leverage creep kind of based on our cash flow prediction for 2016."- This is in regards to their projected 2016 debt/ebitda ratio.
Again, with a coverage ratio of 1.0x MMLP will need to borrow money from the revolver to retire notes (at a discount). This is a profitable exercise retiring notes at 80 cents on the dollar and borrowing at a few percent to get a cash on cash return of 10%. But that comes at the expense of increasing the revolver, and the banks are not always thrilled with accepting risk so junior (subordinate) debt can be retired.
I highly doubt they buy back any equity. To make a meaningful impact, they would push the leverage ratio up towards 5.0x. That didn't work well for Kinder Morgan.
Too bad MMLP doesn't handle LNG.
Seriously, they just did a call where they detailed their lack of direct commodity price exposure, and then you claim the price of LNG rising will push the "dividend" higher. Of course, perhaps you really meant LPG, which would force me to ask, do you know the difference?
Also, it's a distribution, and with leverage anticipated to rise from 4.59 to 4.6-4.7x on a 30 million dollar debt increase means Ebitda increases by 2-5 million in 2016 over 2015 (this is just the math of 2015 debt/ebitda metric adjusted for a ~30 million increase in debt and divided by either 4.6 or 4.7 to give you the range in the delta).
If you assume that this translates into 1.6 to 2 million in DCF (80%), when you account for the 50/50 split in the IDRS, you are talking about a max increase of 7 cents per unit in the distribution assuming 100% payout. That's fine, it's 2% which is about inflation rate, but leverage is moving the wrong direction so I do not anticipate any increase. If anything, they need to cut the distribution, utilize cash savings to retire notes at a discount. With the high exposure to MRMC, they should operate sub 4.0x leverage, not 4.5x. Heck, EPD, with high quality integrated systems operates at sub 4.5x leverage.
They also only revealed that senior leverage ratio of MRMC was 2.5x, but what about total leverage? Quiet. MRMC must have a good chunk of debt.
The market yawned on good results, because they want to see MMLP address leverage rather than kick the can down the road.
I think TLP will likely report another quarter of strong coverage. These guys have one of the better balance sheets to go along with 1.3x+ coverage on the distribution and they are mostly on the downstream side of the refinery, meaning little exposure to weak E&P counterparties.
One of my favorite holdings and I continue to add on the dips.
I follow and regularly listen to the conference calls of around 20+ midstream MLPs. I hear the questions asked by both Gabe Moreen as well as Michael Blum. I'd say calling Wells Fago "infinitely more knowledgeable" is grossly inaccurate and smacks of being just a bit defensive.
I do not think analysts lowering expectations because management cancelled a conference call is a hissy ft. If anything, NGL management appears to be having the hissy fit.
The balance sheet t NGL is not ideal. The divestiture of the TLP GP brought in a lot of cash and if they monetize the LP units that they hold, they will have made some real progress, but I suspect that ultimately, these guys need to do more deleveraging, which potentially means a distribution cut.
Merrill Lynch dropped the hammer on NGL. Lowered its price objective to $6.00. Ouch. Analysts seemed upset about management having no conference call.
NGL would be wise to monetize the TLP units and focus on balance sheet repair.
Not really correct. HEP is a heavily into moving refined products as well for HollyFrontier. As HEP's counterparty is HFC and not the E&P's, it is a little different than just saying they are focused on oil, which they also gather and bring to the HFC's and others refineries.
MMLP does have natural gas assets, but the storage component is facing a major headwind when they have to renew contracts. Other than that, they have an LPG pipeline investment. The remaining assets are refinery centric.
I think more than anything, the leverage is the real issue. MMLP needs to address near 5.0x debt/ebitda. A cut is one of the easy but painful ways to accomplish it.
They stopped layering on hedges several years ago after Kaiser shellacked them. Yes, I fully understand that Kaiser got lucky, but nevertheless, his criticism of the accounting of the puts caused Linn to abandon further hedging entirely, which we all know doomed them. Had Linn been sitting pretty with another near 100% hedged out several years at above market prices, they would be in much better shape. No, not doing well, but not staring at Ch. 11, which is what is highly likely.
As for the maturities, the first is still several years out. This is really about management not husbanding cash and negotiating better. It shoudl come as no surprise that management, in their ineptness, cannot execute on any plan. Not hybrid growth and value. Not Granite Wash. Not Hogshooter. Not DrillCo. Not refinancing.
They have assembled a nice collection of producing assets and while field level operation based on LOE appears to be quite good, they have managed to bungle everything on the financial side.This is the management team that you sold your soul defending in one post after another over the past 4+ years. :(
Then you sheepishly tuck tail and run, explaining poor outcomes on "ex ante" returns rather than acknowledging that poor management teams produce poor results.
But fear not, when Linn files for bankruptcy, you will then be released from your indentured servitude and be free to claim some other equity as your darling, defending it against all forms of critique and blaming our President for all the ails Linn. I only hope I am lucky enough to know which equity it is that you fall in love with next, and to find some fatal flaw in it as I did with Linn and its falling hedges.
Will you be moving in with sandforbrains?
I've been investing long enough to know I will never be able to pick the exact bottom, but I know that selling my MWE at $69 a few days after the announcement and then buying back about a 1/3rd position in MPLX at $22 isn't that bad. I'll add some more at current prices and bring my average down to around $20 and have another 1/3 position left to go to average down further if necessary.
I do not expect MPLX to do great things but clearly combining MWE and MPLX makes the balance sheet strong (at least for former MWE holders) at the expense of original MPLX holders.
Even low single digit distribution growth is acceptable in these chaotic times.
It is a bit funny to be on this board. I was a longtime MWP holder. Buying in when MWP was sub $100 million market cap, when MWE was just floated. Made a lot of money following John Fox and then Frank Semple. Traded out after the roll-up and then back and forth over the years. Not happy to see the IDRs back, but MWE had way too much on its plate to handle. I only wish EPD had purchased them instead.
Little synergy between MPLX and MWE assets, but MPC does provide some backing on financing.
It is nice to assume that every producer has a deposit and that KMI will simply close the valve, but reality is that you are dealing with a major integrated hydraulic system. I am not losing sleep over potential missed payments. The lag is that bankruptcies can drag on for months. People come and go. Relationships are severed. Sometimes systems don't work, even in the golden computer age.
Cheap natural gas may deter producers from drilling in some basins, such as the Barnett, Fayetteville and others. Low prices are bad for cash flow.
Unfortunately, not all lines are FERC regulated. Note that a large portion of KMI's lines are indeed, but some of the more recent forays into gathering (Hiland, Haynesville) open them up to some risk.
Natural gas producers really don't have options, crude producers can, as you mention truck/rail crude, but trucking is typically from the wellhead to an injection point (pipeline) or to a rail facility.
As for CHK, I think you need to define "huge" when you mention huge volume increases.
I am no longer shocked at large moves up or down or both in a single day!
By my back of the envelope calculations, KMI is trading at a little over 15x Enterprise Value/Projected 2016 DCF. Not a metric that is widely used, but one that I think gives an investor a fairly clear idea of his/her total return if they owned the whole enchilada. This is, the summation of the market cap (common shares + preferred shares) and ~$44 billion in debt, all divided by ~$5 billion in 2016 DCF, which is of course after interest expense and maintenance cap ex.
This is actually more expensive than a number of names (like CEQP, APLP) etc. but most of those names have less stellar assets like crude by rail, gathering, or a lack of monopoly like compression assets.
EPD is trading at a similar multiple.
Yes. Linn 's massive debt load is too much to overcome. Had management not abandoned their strategy of hedging out 5 years, it is possible that they could have kept the company afloat a few more years, and buying runway is what is important while waiting for oil to recover to whatever the "new normal" will be. Kaiser's attack on the puts caused management to not only shun puts, they completely walked away from all hedging, which was outright foolishness.
Linn is an asset rich company and there is no doubt that had they been able to hang on for a few more years, they might have caught a break and been able to divest some of the prized undeveloped acreage. I guess as inept as the management team is, it shouldn't surprise me that they failed in the execution of so many things, but I really thought these guys would survive in 2017. The now premature purchase of notes at 65 cents on the dollar hurt. The inability to meaningfully reduce notes outstanding through a swap also hurt them.
Oh, and should we chuckle at all of the pie in the sky hoopla over the GSO deal (DrillCo) and how Linn was going to get all of those wonderful carried interests? At the end of the day, the wonderfully consolidated Hugoton package will be particularly interesting to PE funds. Perhaps Merit will gobble it up and control the whole basin having already acquired Oxy's holdings which were the 2nd largest behind Linn's at the time.
Your statement regarding the announcement 5 days before the cut was announced is simply misleading. You need to read it closely. Feel free to go to the website or google a cached copy to make sure it hasn't been doctored. You probably read what you wanted to see.
To me, they clearly forecast a cut. I have copied select passages from the 12/4/2016 press release.
"DCF per share Consistent with Previous Guidance of 6 to 10 Percent above 2015 Dividend
KMI to take required action to maintain investment grade rating and stable outlook
2016 cash flow sufficient to fund growth capital needs in 2016
KMI will announce capital funding plan and dividend policy in the coming days
In its third quarter earnings call, Kinder Morgan, Inc. (NYSE: KMI) indicated an expected 2016 growth range of 6 to 10 percent over its 2015 target dividend of $2.00 per share. KMI has now completed its 2016 budget process and expects to generate 2016 distributable cash flow of slightly over $5 billion, which would be sufficient to support dividend growth in the range discussed in the third quarter call. Alternatively, this cash flow can be used to fund some or all of KMI’s equity needs for 2016. KMI’s board will be reviewing the dividend policy and financing plans in the coming days and the company will announce that policy and plan when finalized. KMI will construct its 2016 plan to maintain an investment grade rating with all three agencies..."
Now let me ask a loaded question. Is the value of KMI's well connected storage terminals and pipelines worth 65% less than a year ago even though they will generate only marginally lower ebitda in 2016 than in 2015?
It is a problem for several reasons:
1. If their current arrangements are above market rate, then in bankruptcy, it is possible that they opt to seek a "at market" rate. This is similar to Quicksilver/Crestwood issue as well as Chesapeake/Williams. If they are at "market rate", then it is likely that KMI continues to get paid.
2. Bankruptcy may result in some disruption of customers being behind. As noted above, it is likely that KMI gets paid at least a "market rate" and that any lag is likely not more than a month or two behind normal. Amazing how suppliers stop shipping when they don't get paid. Kind of like the light company.
3. Bankruptcy typically means reduced drilling programs for E&P (this should be obvious). Other customers may not be E&P, they could be utilities (not likely, US citizens are the rate base payers), wholesalers, traders, refiners, industrial etc. All of this really boils down to reduced activity. Less potential for expansion. Economic contraction.
4.On the bright side, companies that do some form of reorganization (bankruptcy, equity infusion, asset sales etc) are likely to move up the credit rating scale, not down.
Oh, yes, I am fully aware that KMI is a 1099 delivering C corp and not a K-1 issuing MLP, as EPB and KMP were pre roll up. I've followed the MLP sector since 2000. I am all too knowledgeable of the late March K-1 packets arriving just in time to file without an extension.
As for Rich Kinder being inept, no. Overconfident yes. If the credit rating agencies had not threatened the downgrade, it is possible that they would have sought to continue to issue preferred equity and not cut the dividend. If anything, I think you could blame greed as well. Dan Duncan recognized the drag that the IDRs were, he cut them to 25% first, then when he finally took out Shell's part of the GP, he ultimately eliminated the rest, without charging EPD as I recall. With KMI being public (the first time around), Rich did not have as easy an option to streamline the cost of capital. But that is all water under the bridge. The roll-up necessitated adding debt, debt which ultimately pushed them to a level that made the credit rating agencies, which were really enablers for many years, uncomfortable. The collapse in oil prices and the subsequent stock market sell-off was the straw that broke the camels back.
As for the price recovering to $20. I think KMI is going to have the execute on projects for the next 3 years, work to get their debt/ebitda down close to 5.0x or lower and show discipline in terms of capital management. If they can do this, I think the market will reward them with a much higher multiple. Remember, Kinder has already ripped the band aid off. Others have yet to do so. KMI is now relatively free to buy assets, build out high ROI projects, buy back stock, pay down debt etc. The high dividend gravy train is derailed, but now you can buy for 60% off what others were drooling over at $40 a year ago. Rest assured, the market is ugly, but refined product demand and natural gas demand is strong (even growing modestly) and will throw off lots of cash for years and years to come.
A per usual, you resort to name calling and theatrics but nothing involving facts! Must get under your skin knowing your precious Linn is, well, not doing so well.
I just have to chuckle, not at the collapse of Linn, which employs many people and by all accounts, assembled a nice collection of oil and gas assets, but at the fact that for the past 4+ years that I have been on this board, you have done everything in your power to defend management and attack (not rebut) my posts.
Out of curiosity, when Linn files bankruptcy and Yahoo shuts down this board, will you be moving to another board?