Actually TOO's market cap is up over 20% from a couple weeks ago, if you factor in the massive dilution and new shares just issued.
ETP may not be a driver of growth for ETE going forward (their IDR structure now makes ETP noncompetitive for new projects, look at PAA/PAGP for what happens after IDRs fully kick in), but ETE is growing through its own investments and other LP entities. SUN and SLX have a lot of growth left and ETE directly owns very valuable export projects. ETE will likely be able to yield close to $2/share in a few years, that means that ETE can continue to grow distributions 10% YoY for a while and still have lots of excess cash flow for new projects. ETE will hit 3% yield again by the time this energy cycle runs itself over the next several years.
There is no way WMB is paying anything, the question is how much if any ETE pays.
Either way this will all be done soon and life for both firms will go on.
The build in liquidity was amazing, they did a great job there. The advantage of course is now they are positioned to go for more growth projects as the energy market improves, instead of being stuck underwater and bailing out leverage.
They did screw themselves a bit by not having an analyst call in Feb when every other MLP was being very open about their situation and plans. NGL used to be well followed by analysts and a favorite of a few. But on the last call there was only one analyst on and it was a short CC as a result. I think NGL will be ignored a bit by analysts for a bit, not that I think it matters. Management should just focus on growing DCF from here. That's what I care about.
Of course there will be a settlement, the question is how much. Even a $2B payment is easily manageable by ETE and vastly better than having the merger go through, and that is very much on the high side. It is likely we will end up in the $500M to $1.4B range. Or to put it another way a couple months to half a year of cash flow. That is very manageable and makes the entire merger fiasco go away.
Or have to pay a nominal amount worth only one or two quarters of cash flow. In the grand scheme that is not much.
Once the merger issue is cleared, we are looking at a very stable cash flow greater than $1.3/share today and growing rapidly over the coming few years with clear visibility as projects come online with a run rate of around $2/share by 2018/19.
In today's ZIRP (or NIRP) environment what do stocks with a stable $2 of annual distributable cash flow trade at? Hint: It's not below $20 or even $30.
The reasons for ETE's drop was the merger and the large capex program at ETP that ETE needed to support. We are close to both of those issues closing, after that we are going to see a monster run.
They should have been better prepared to fund their capex program. Most of these projects were committed to in 2014 and early 2015, TOO could have very easily and affordably raised the funds then, mostly with long term cheap debt.
But instead they waited and then the bottom fell out of them market, and then they waited again till June when they were up against hard deadlines and had to issue equity at any price offered. This was stupid, massively stupid.
I've been a long term holder of TOO and first got in in 2009, but was able to reload up in the $3 range a few months ago and re-reloaded a very large position over the past couple days in the $4 range, overall I am in TOO at a better price than these hedgies.
Even with this dilution, TOO is set to offer $2-3/share of DCF. The stock is a steal today.
ETE is currently running at 1.5x coverage and debt is reasonable (without the WMB merger).
If the merger goes through the ETE dist will be eliminated for at least a few years, this is not news.
If the mergers does NOT go through, ETE will have plenty of flexibility to raise the dist. They will likely maintain for a short while to support ETP into 2017, but then would have room for large increases. ETE will likely be generating $2/share by 2018, without the WMB merger we could be looking at a near doubling of the dist. Remember a year ago ETE was forecasting 15-20% annual increases.
I have a little BTE but it is important to remember these are operational numbers that don't take into consideration the debt load. Even at $50 oil BTE still has long term issues since it won't generate enough FCF to pay down it's debt. So yes they are breaking above even here, but BTE is still a leveraged play that oil will be above $70 at some point in the next year. That is a bet I've made, but it's still not all roses at $50 oil.
Sync you keep making the same analogy that once dividends are cut they are not restored, but you are making these statements in a vacuum with no understanding of the reasons for the cut.
Most firms cut dividends because business goes south, when that happens it rarely returns.
TOO (and KMI) did not cut because business went south, in fact their business and cash flow is UP this year. They cut because of a massive capital plan that was unfunded when the energy market crashed. This is a temporary situation only. Once the capital program is complete they are fully able to raise the dividend back and then some, what would they do otherwise, just build a mountain of cash? No they will pay it out because TK needs the IDRs. (you do know what those are right?)
The thing to remember is they won't inch up the dividend, the parent TK needs the GP payouts to support itself, they are very financially motivated to jack up the dividend to the highest sustainable level as quickly as possible. This is probably late 2018 after the capex program is completed and paid for. Part of the debt restructuring limits dividend payouts for now. This is all fine, at the end of 2018 TOO's leverage will be reduced to the 3.2x range from 4.7x today and they will have plenty of room to restore the dividend. Just buy and wait for that.
Well some of that just closed and look at the reaction. We should see a bigger reaction after the rest of the capital program closes.
The real risk here is can they close the capital program as claimed on the call. We should know by end of the month.
It was 5.16x coverage as of last month's call, will be north of 7x coverage after the capex program comes online (contracted out 10 years). If you look at cash flow and not the current payout you are buying at well over a 50% yield at today's prices. After debt is paid down some that will redirect to shareholders.....
After over estimating cash flow again and again, management is finally taking a conservative approach to guidance, which is positive. They are now guiding $500M DCF post the Grand Mesa expansion using very low energy prices.
Just a few quarters ago with the same assets they were estimating well north of $600-700M. Given that even the IEA has come around to the fact supply is rebalancing, it is not unreasonable to expect prices moderately above $50 throughout the rest of the year, which provides significant upside to their $500M DCF guidance. The stock definitely has more upside from here.
"These last few years have demonstrated thats a hopeful but not realistic scenario."
How so, if anything these last few years have shown the resiliency of the business. The core business is operating as strong in 2016 as it was in 2014, operations and cash flow are exactly as expected.
The only thing that changed is TOO initiated a massive capex growth program that relied on access to capital market, when the capital markets closed that created the funding gap and forced the dist cut, not actual business which is sound.
The contracts, if you understand them, are also rock solid. TOO is involved in the extraction side of the business. Once all the infrastructure is put in place to pump oil out of a hole 4 miles under water, the marginal costs are quite low. The operations always run until the hole stops producing oil, no matter how low oil prices go. So yes the contracts are sound, this is very different from Seadrill and others, who's contracts have been cancelled.
That is clearly what most in the market think, but does not reflect an understanding of TOO's business and structure.
The GP/LP structure of TK/TOO is a structure that incentives large payouts by TOO to the parent. TOO is structured as a YieldCo, nothing has changed that other than a temporary funding gap.
There are no real assumptions to make a long term forecast, TOO's contracts are solid and very long term. They could win zero new business and just right out the existing contracts and the company is still a steal at today's prices, because it is not understood. Instead the market prices this with the VLCC shippers which are short term and about to be in over supply.