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Elliott Gue

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  • Near-Term And Intermediate-Term Outlook For U.S. Natural Gas Prices [View article]
    Louisiana gas production WAS is decline prior to late 2008 and early 2009. Consider that in August 2008 the State's gas production was about 120,788 million cubic feet. When it hit its highs in late 2011 production was over 275,000 million cubic feet. So, that's more than a double in just three years.

    The EIA changed the way it reports Louisiana gas production in 1997 (started breaking our production from the Gulf of Mexico). But, late 2011 Louisiana gas production was likely at least a two decade high, hardly a characteristic of a State with production in "terminal decline."

    Since late 2011 Louisiana gas production has backed off to around 200,000 to 220,000 million cf per month. But, that's not really because producers can't increase production it's because they don't want to at current low gas prices -- the rig count in the State has dropped from a high of about 220 to a recent low of just over 100 (a two decade low).

    The largest shale field in Louisiana is the Haynesville, which is a dry gas field meaning that it doesn't have much natural gas liquids (NGLs) content. That means that producers with major acreage in the Haynesville just aren't drilling there and are deciding to target liquids-rich plays like the EagleFord in southern Texas or the Marcellus instead.

    If natural gas prices ever do rise over $5/MMBTU, I suspect you'd see drilling activity pick up again quickly in the Louisiana Haynesville and, given how prolific that play proved to be back in the 2008-2011 period natgas production would rise quickly to new highs.

    At any rate, the idea that Lousiana or US natgas production are in a state of terminal decline is just plain incorrect and has no support in the data.
    Jul 18, 2013. 08:48 AM | 7 Likes Like |Link to Comment
  • Near-Term And Intermediate-Term Outlook For U.S. Natural Gas Prices [View article]
    I am not passing a death sentence on natural gas. Not do I lack enthusiasm for the benefits of rising American energy production; on the contrary, cheap energy prices are enabling a real renaissance in US manufacturing and represent a major advantage over virtually any other country around the world.

    Rather, I'm just saying that it will take a lot longer for gas prices to rise significantly again because the US faces a glut of gas. It will be years before a significant capacity of LNG export terminals will be constructed to move the needle on US gas. It will be even longer before the US makes a major switch to gas (or electricity for that matter) as a transport fuel.
    Jul 18, 2013. 08:34 AM | 7 Likes Like |Link to Comment
  • Why Linn Energy Is Not A Ponzi-Like Scheme [View article]
    Yes, both Linn (LINE) and Linn Co (LNCO) are switching from quarterly to monthly distributions and the payouts are identical. Both went ex-dividend on the 8th for their first monthly distribution.
    Jul 10, 2013. 12:51 PM | 6 Likes Like |Link to Comment
  • Why Linn Energy Is Not A Ponzi-Like Scheme [View article]
    Linn Energy (LINE) has NOT cut its distributions. The partnership has simple switched from a quarterly distribution to a monthly distribution but pays the exact same $2.90 per year.

    As I have argued in several posts on SA and elsewhere in recent months, the author is quite right in indicating that the arguments from the short sellers concerning Linn are deeply flawed.
    Jul 9, 2013. 05:06 PM | 36 Likes Like |Link to Comment
  • Linn Energy: Don't Believe The (Negative) Hype [View article]
    I recommend caution with stops on MLPs like Linn (actually it's an LLC). I think a lot of investors put stops on these names and then get flushed out of the stock in volatile markets.

    One example: on May 5, 2010 Linn closed at $25.23 and on the 6th it closed at $23.69. BUT, intra-day on the of May 6, 2010 it traded to as low as $12.60. A lot of people watched their stops get hit and ended up selling at the worst possible time on that day.
    May 9, 2013. 05:25 PM | 2 Likes Like |Link to Comment
  • Linn Energy: Don't Believe The (Negative) Hype [View article]
    I have been covering Linn since 2006. Back then it was pretty cutting edge to have an MLP involved upstream as most MLPs were midstream energy firms. So, for a time I considered it an aggressive recommendation.

    Since the inception of my current publication late in 2012, however, I've had it as a "medium" risk recommendation.
    May 9, 2013. 05:20 PM | 2 Likes Like |Link to Comment
  • Linn Energy: Don't Believe The (Negative) Hype [View article]
    A look at Note 7 in the 10-K reveals that Linn paid $583 million for put option positions in the year ended December 31, 2012. But it also states that these puts cover the period from 2012 through 2017.

    In 2012, spot natural gas hit a low of under $2/MMBTU in mid-April. But, even with spot and front-month gas prices under $2/MMBTU at the lowest levels in more than a decade, futures expiring in 2015, 2016 and 2017 were trading at much higher prices.

    Using April 19, 2012, an extreme low for spot gas prices, I see that NYMEX gas futures expiring in April 2015 were trading at $4.15, futures expiring in January 2017 more like $4.75/MMBTU. And this was the case if one had tried to hedge on the very day that natural gas prices hit extreme lows.

    Those claiming that Linn is purchasing "in the money" put options fail to recognize that there is a big difference between the spot or prompt price of natural gas and the price of natural gas to be delivered 2, 3 or even 4 years in the future. A look at the five year average futures prices is a far better guide of what's in the money for a company looking to hedge production over a multi-year period.

    So, let's take a closer look at these numbers. According to their 10-K covering the year ended 12/31/2011, Linn had puts covering total volumes of 30,660 due to expire in the year 2014. The average hedge price on those puts was $5.50. By the end of 2012, they had put hedges covering 79,628 MMMBTU due to mature in 2014. The average price on that entire position was $5/MMBTU.

    So, just doing the maths suggests they hedged around 48,968 MMMBTU of 2014 gas production volumes over the course of 2012 at a price of roughly $4.69. This certainly doesn't suggest they're buying deep in the money puts to manufacture earnings; there were several occasions in 2012 when 2014 NYMEX futures prices were trading well above $4.50/MMBTU.
    May 9, 2013. 04:16 PM | 6 Likes Like |Link to Comment
  • America To The Rescue: Saving The World From $200 Oil [View article]
    Yes, I still like PER. While there are some real and legitimate concerns about well results in SandRidge's Mississippian play I see no real evidence that the Permian wells are coming in below expectations. The production shortfall n Q4 appears to be related to the reduction in the number of rigs drilling in the region and a spike in the number of wells that have been drilled but have not yet been placed into production.
    Feb 7, 2013. 03:08 PM | 1 Like Like |Link to Comment
  • Why Eni Is A Better Buy Than ExxonMobil Corp [View article]
    Yes, the pullback in Eni's shares is due to a weak showing from Saipem, an oil-related engineering and construction firm in which they own a 43% stake. I think the weakness at Saipem is temporary (due to contracts signed in a weak pricing environment). Eni also said that the company's dividend policy is based on their long-term cash flow outlook, which suggests this will have no impact on their payout. I still like Eni.

    I am long E
    Jan 30, 2013. 08:32 AM | 1 Like Like |Link to Comment
  • SandRidge Permian Trust: What Every Investor Needs To Know [View article]
    My numbers are based on forecasts of future commodity prices so they're forecasts, not a deterministic value. But, I feel my numbers reflect conservative assumptions and build in a significant margin of error.
    Jan 9, 2013. 11:00 PM | 1 Like Like |Link to Comment
  • SandRidge Permian Trust: What Every Investor Needs To Know [View article]
    Thanks, I will try to post analysis of more trusts in future.
    Jan 9, 2013. 10:57 PM | Likes Like |Link to Comment
  • SandRidge Permian Trust: What Every Investor Needs To Know [View article]
    Thanks again. Sure, let me try to answer those queries:

    1. Basically, the only cash withheld from the trust cash flows consists of $1.0 million in its first quarter for the establishment of an initial cash reserve, post-production expenses such as gathering and compressing, property and Texas franchise taxes, and trust administration expenses paid to the trustee and SandRidge. I don't think they're really building a war chest but do reserve cash each quarter for the payment of future taxes.

    2. Yes. The trust's current estimate is that the final value of the trust units will be $1.80 each due to the sale value of the remaining reserves. I just adopted that estimate in my analysis but it really doesn't matter all that much to the valuation target as $1.80 paid in 2031 is worth less than $0.50 per unit discounted to a present value at 7.5%.

    The NPV calculation simply estimates future distributions, discounts them using a particular rate and then sums up these payments to give you a current dollar value.

    What I think many people are missing when it comes to the trusts is that it doesn't matter that the units lose value as the termination date approaches. If I sold you a piece of paper for $10 that pays a total of $1.50 per year for 10 years and then is absolutely worthless, you are still earning an return on your investment over your holding period even though the piece of paper has no value at expiration.

    3. Basically, yes. that is how I performed the calculation. To estimate the value of the hedges you need an assumed price for WTI-Cushing, the total amount of hedges that are part of the trust and the price at which oil was hedged. This information is provided in summary form in the prospectus.
    Jan 9, 2013. 10:56 PM | 3 Likes Like |Link to Comment
  • SandRidge Permian Trust: What Every Investor Needs To Know [View article]
    Thank you for the kind comments. I actually do a similar analysis for all publicly traded trusts on an ongoing basis in my newsletter, The Energy and Income Advisor, including SDR, SDT and CHKR and update my buy recommendations accordingly. I have a free report on my site that covers SDR.

    I'll try to post more trust-related analysis on SA in future.
    Jan 9, 2013. 10:32 PM | 4 Likes Like |Link to Comment
  • MLP Investing Basics: Incentive Distribution Rights Explained [View article]
    I did not say that drop-downs are contingent upon IDRs. And it's certainly true that sponsors get paid partly due to their stake in the LP.

    But, you will find that the vast majority of MLPs set up to grow via drop downs are structured with IDRs. If you look at the industry over the past few years you'll find that many of the fastest growing MLPs share a similar trait: they began their growth spurts as newly listed MLPs that are still in the low tiers of their IDR structure but have a sponsor with MLP-able assets. As the sponsor drops down assets to the MLP, they can quickly move the MLP through the tiers and generate even more rapid growth in their IDRs.

    More broadly, understanding IDRs and how they're calculated is important. That's why I wrote this article on the topic. However, IDRs are not the only fundamental factor of importance when analyzing MLPs. If you had ignored all of the MLPs with an IDR structure over the past five years you would have passed up on several of the best-performing MLPs of all.
    Dec 29, 2012. 03:16 PM | 1 Like Like |Link to Comment
  • MLP Investing Basics: Incentive Distribution Rights Explained [View article]
    Thanks for the kind comments.

    SBR, PBT and CRT are all US royalty trusts, not MLPs. While I haven't covered these three before, I have written about the group in general on Seeking Alpha in the November 2, 2012 piece "US Oil and Gas Royalty Trusts: Good Buys for Disciplined Investors."

    I'll be writing more about trusts early in the New Year.
    Dec 28, 2012. 07:10 PM | 1 Like Like |Link to Comment