I think so, hard to explain otherwise. They have to dump big lots on the market and there just isn't that kind of response from retail buyers, it craters the price temporarily. You could BWP fallout, but just LINE? Don't make sense.
So, I'll get around to it, but how was the q&a? Did anyone roast them over the guidance miss, the plane, the dissidents, the nepotism, the unfortunate public and private utterances, etc etc?
Nah, it's a micro cap (27 cent stock), there's no call market. The most optimistic outlook is a 2X over a year, but it's just too small to bet any serious amount of money on. I'm looking for leverage.
Well capitalized, making money (that's a novel concept), but . . . I see nothing on the horizon to indicate it's a spec candidate, modest growth, doing waterfloods in CA (in a drought?). Good company, but not sexy.
The Apollo deal allowed for it, yes, but can they pull it based on the reserves in place? Not now, surely, they're about 50% tapped as it is. They've got, what, $40-50M in capex money, plus AK's share, that should get them 2-3 quarters in, and with new reserves in place maybe then they can get a line for the next capex round. No one's going to give them $100M on the come.
I think those numbers are off after the acquisition, we'll get more color here in a couple weeks. 3.75 is not the goal, 3.0 is.
You know what, based on a forecast of a 60 cent distribution in 2015, capped at 8% (no way it deserves less), that's $7.50, add some for DCF undistributed, if things go well, maybe $10, but that's a couple years out. $8 sounds pretty drastic, but there's an argument.
Certainly down from here seems like the best bet. But can it be played? The longest dated puts are Sept. and the $12.50 ask is $1.50. If it was to sink to $8 the potential profit on that is 200% at par. Unfortunately I think it will probably hold in the $10-15 range, hope springs eternal. But I'll watch it, if there's some irrational exuberance here and the price melts up, a put buy before the next quarter's horrific call might be fun.
Yeah, another forecast unfulfilled, it was suppose to be 4,000 by 12-31 of course. Given this, and the financing being done, I see no reason for this to move in the next couple of quarters, and I stepped out of the way on my May calls. At this point I only have stock, Jan 15 calls (thanks!) and some protective puts.
It looks like this is going to be a long slog, burdened by less than sterling management. No grand slam, maybe a single or two. So, what else is out there for a spec play?
Well, $16 is certainly more reasonable than $20, gotta say that. The question is, $16 when? Two years out? I could see that, unless things get worse.
Looks like same late inning selling over at LNCO, probably more of that Berry carryover, funds dropping positions. If so it was poorly timed, they ran out of buyers. The rest of the upstreams recovered today, so it looks like BWP contagion isn't a big issue. As far as weather goes, LINE has already confirmed Q4 guidance, so apparently they got through it okay. The other issues in the weak MLP's have nothing to do with LINE, BWP is over-leveraged, poorly positioned and living on borrowed time for quite awhile.
I don't really care about "earnings", what concerns me is cash flow, and their comments on future prospects are not good. The location of their primary assets is badly placed, outside of nearly all the hotspots for gas production, and management said contracts expiring would be renewed at a lower rate due to lack of demand. Storage is apparently gone as a cash flow source, and they need to borrow from the sponsor to even pay for the next project that might offset some of this damage. They're heavily over-leveraged already. Why would you pay to get 8% some years out, when you can buy a well-hedged upstream yielding at the same rate or higher, and paying cash right now?
Well, I think the target of $1.60 capitalized at 8% = $20 is just crazy. There's zero visibility on when that cash flow stream will start up again, and they're going to use the pre-disaster yield rate on this as if the distribution was being paid, without even accounting for the lack of payment? Huh??
It's so difficult to value an MLP that's not paying its DCF, even if it may have that potential in the future. I can't see this getting over $15, but it may also stay above $10 just on potential, though a dollar or two outside of that range I could see for short periods of time.
There's another MLP disaster you can look at, EROC. When they turned in a horrific quarter a year ago, and the distribution looked to be in jeopardy, initially the unit price took a big dive, from over $10 into the $8's. Then, by some miracle, the market provided a gift to bail, when the unit price climbed back over $10. Another equally disastrous quarter followed, and this time it dived nearly to the $6's. Once again the market provided a gift when it recovered over $8. Anyone who continued to hold suffered, as they did in fact cut the distribution, and the unit price cratered, currently in the $5's.
The big difference between EROC and BWP is that coverage here is several times larger, if you believe management. There's the prospect of cash distributions being substantially higher in the future. Taking all that into account, I think $10-15 is fair, and that's where it might settle. But, if this actually recovers anywhere near the high teens, I'd look to EROC and use that as a gift to get the heck out. This thing is a mess.
Personally I want nothing to do with it except to trade. If it runs up, I may buy some puts if they're anywhere near reasonable. If it dumps under $10 by a fair amount, I may choose to throw the dice on some calls. Otherwise, why bother with it?
Bit of a dead cat bounce this morning, but I think the analyst targets ($20) are daylight madness. The big news to me is that there wasn't any serious contagion, so far this is being viewed as an isolated event. It's not the first time an MLP screwed up, BWP had themselves isolated down on the mid gulf where there's not a lot of gas activity going on. They had practically no presence in the hot spots. They were also way over-leveraged, I have no idea why pipelines get to carry such heavy debt to EBITDA ratios. Upstreams are much safer imho, look at BBEP, management is perflunked when debt gets over 3X. BWP is cutting their distribution to get "down" to 4X!
Historically speaking, pipelines yield the lowest, below 4% in some cases, midstreams next, upstreams the highest, up to 9-10% even in good times. LINE, being the largest by far, yielded the lowest, around 7-8% in the salad days, so to speak. Why? Because pipelines typically are fee based, and don't take commodity risks, and because pipelines and processing plants last longer than reserves. Fair enough.
The problem is, it doesn't do a lot of good to have all that installed steel if you're not in the right place, and there's no real way to move it. Does LINE care about what's happening around their properties? Not really, so long as there's an orderly way to get their product out. They sell every drop of oil and every whiff of gas they lift, at prices they fixed a long time ago. Which turned out to be riskier then? Obviously it was BWP.
So, does that mean the market should do a re-think on relative risk? Yeah, I think so, the "safety" of pipelines and midstreams has been over-stated. Will that happen? No, in fact most of the upstreams took a hit today, all MLP's get tarred with the same brush (though LINE is holding up so far). The worst thing about BWP? Hedgeye gets to crow. Unsufferable.