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Summary

  • Northern Tier Energy reports Q2 2014 results.
  • Margins were down both Q/Q and Y/Y as a result of weaker crude oil differentials.
  • However, throughput volumes were robust, near maximum capacity.
  • As I noted in a prior article, the company remains on track to offer a nearly 10% TTM yield.

It has been a while since I last discussed Northern Tier Energy (NYSE:NTI). NTI came to my attention in late 2012, when it and a flurry of other downstream (refining) MLPs came to market. They sure started out with a bang, offering yields in excess of 20%, a byproduct of the extremely high crude oil differentials seen during that period. However, this euphoria soon ended, as the variable distributions started trending lower, with some such as Alon USA Partners (NYSE:ALDW) reducing the quarterly payout to zero in late 2013. Fortunately, NTI has been the best-performing of the bunch, likely a result of its favorable location in St. Paul Park, Minnesota, near two cheap feedstock sources via the Bakken and the Canadian oil sands.

Turning to NTI's quarterly results, the company had a fairly good quarter operationally. Throughput came in at 93,022 BPD, a major improvement compared to the 55,486 BPD posted last year, which was a result of a major planned turnaround (scheduled maintenance). However, the company saw a large decline in its refining margins, down 40% to $15.03 per BBL compared to $24.91 per BBL last year, and down 17% $18.08 per BBL last quarter. This decline was caused by a lower crack spread, as well as a temporary shift away from the cheaper heavy oil. Do note that refining margins are HIGHLY volatile and can fluctuate greatly Q/Q.

NTI's cash available for distribution, or DCF for short, came in at $49.2 million, down 31% from $71.2 million last quarter. As a result, NTI declared a $0.53 quarterly distribution for Q2 2014, down from $0.77 last quarter. Looking forward into Q3, the company is expecting throughput to range between 90,000 and 95,000 BPD. Note that the quarterly distribution is variable and is very likely to change quarter to quarter. However, assuming margins are similar to Q2, a very big "if", NTI's forward TTM yield is between 8% to 10%. While hardly close to the 20% plus yields enjoyed in prior periods, this level of income is still way above that of the average MLP.

Disclaimer: The opinions in this article are for informational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned. Please do your own due diligence before making any investment decision.

Disclosure: The author is long NTI. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.