We are looking to add some Master Limited Partnerships to some of our portfolios in the near future with these depressed prices in the commodity arena. With the commodity prices hedged and new wells being drilled we see two years with guaranteed, as much as can be, yields and a growing production base in some of these plays. That should give Europe enough time to fix their problems and China to resume growth, but it seems that the EU has been at this for two years already so nothing is a sure bet. When you can get 5-10% in yield before factoring in capital gains in the underlying share price that is always a good thing (we do recognize that these are not C-Corps but we wanted to put the argument in simplest terms so everyone can understand the cash flows we expect). We will alert you when we do buy into some of these securities.
Oil & Natural Gas
Chesapeake Energy (CHK) has come under further scrutiny after the Wall Street Journal reported over $1 billion in liabilities which are not reported on the financial statements. The article seemed like a rehash of old news, focusing on the VPP agreements that the company has set up. The Journal believes that the operating expenses associated with the VPPs should be recognized as a liability and the company contends that with accounting rules they are not required to. This is not something new, but it is the first time many have seen a number associated with the argument and the number is quite large.
Kodiak Oil & Gas (KOG) rose $0.10 (1.13%) to close at $8.94/share yesterday. We still think that $9/share is an important level for the company, and that the company recently broke out of a downward trend. We feel that this does depend more on the price of oil than anything else moving forward however and will have to watch not only the market price of oil, but how much higher a price the company is able to collect for its production once pipelines are hooked up.
Cheniere Energy (LNG) rose $0.65 (3.92%) to close at $17.22/share on volume of 3 million. Volume is moving lower on this and fewer people are talking about it, however we think that it is important to recognize that as many natural gas plays have rallied recently on higher prices, the company's shares have held strong as those prices hardly impact them. This leads us to believe that this is further evidence that long-term natural gas prices will not be rising dramatically here in North America and that a glut will remain. When shares trend lower on no news regarding operations but in tandem with natural gas prices rising - then we will begin to worry about our thesis on natural gas but until then we will hold to trading on those assumptions.
Rare Earths
Molycorp (MCP) released earnings yesterday after the close and there was not much in the form of fireworks. It is probably safe to say many were surprised the lack of fireworks for either the bears or the bulls. The company missed on revenues but beat by a penny on the earnings per share basis. We know that rare earth prices were higher, and continue to move higher - but certainly not at the rate they did when rare earths were the toast of Wall Street and Bay Street alike (for those who do not know, Bay Street is Canada's Wall Street). The company's competition should have a plant up and running in June, so it will be interesting to see how that ramp-up proceeds.
Iron-Ore
Vale (VALE) invoked force majeur at the Goro Project, which is one of the top nickel mines in the world. The problem arises to a reported accident at the sulfuric acid plant, and although no one was killed or the plant damaged, it does halt production at the $4 billion mine. This will be interesting to watch in how it impacts the metals markets and Vale's share price - we are not expecting it to have a dramatic impact based on what we have read.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
