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Elliott Gue

 
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  • Profiting From A Second Golden Age For Refiners [View article]
    Thank you and all of the other commenters here for your kind words about my article.

    As I explain in a December 26, 2012 Seeking Alpha article "MLP Investing Basics: Incentive Distribution Rights Explained" http://bit.ly/X0hmxL Incentive Distribution Rights (IDRs) are fees paid by a limited partner (LP) to their general partner (GP) as compensation for managing the assets of the MLP.

    Because IDRs are based on the distributions paid to LP unitholders, they help align the interest of the LP and GP. In other words, the GP gets higher IDRs when the LP generates higher distributable cash flows for its unitholders. That said, IDRs do raise an MLP's cost of capital because the GP is essentially taking a share of the LPs cash flows.

    I have no specific knowledge why Alon decided not to include IDRs for the MLP they created. I'd assume that two factors influenced1. their decision:

    1. Alon USA Partners is one of the first of a handful of new variable distribution MLPs. Unlike traditional MLPs, these partnerships aren't set up to provide a minimum quarterly distribution and consistent growth over time but simply pay out the majority of their cash flows as distributions. Since investors aren't particularly familiar with this concept just yet, I suspect Alon wanted to sweeten the package a bit to make its MLP more attractive.

    2. Sine Alon already owns 84% of the MLP, they already have plenty of incentive to grow the MLPs' distributions over time.
    Dec 28 03:54 PM | 2 Likes Like |Link to Comment
  • MLP Investing: Distribution Growth Trumps Yield [View article]
    Thanks for the compliment, Gary. I recently posted an extensive article on Energy Transfer Partners that may be of interest to you: http://seekingalpha.co...

    My publication also covers all 86 energy-related MLPs.
    Oct 30 10:54 AM | Likes Like |Link to Comment
  • Why Energy Transfer Partners Is Cheap: It's Complicated [View article]
    Thank you for the kind comments about my work and I look forward to welcoming you as a new subscriber.
    Oct 18 12:24 PM | 1 Like Like |Link to Comment
  • Why Energy Transfer Partners Is Cheap: It's Complicated [View article]
    Thanks for the comment. Although it isn’t illegal to hold MLP units in a retirement account, we’re firmly of the opinion that these securities are better-suited for taxable portfolios.

    For one, we prefer to hold securities that offer no tax protections in a retirement account and keep our MLP positions in a taxable account to take full advantage of their tax-deferral characteristics.

    Also, some of the net income that MLPs allocate to their unitholders is classified as unrelated business taxable income (UBTI). Each taxpayer has a $1,000 total annual allowance for UBTI paid into a 401(k) or IRA account; annual UBTI over this threshold could incur a tax liability. However, many MLPs generate negative or modest levels of UBTI, ensuring that you likely won’t have to lose sleep over this issue.

    If you exceed your annual UBTI exemption, you don’t need to file any additional forms with the IRS; the custodian of your IRA or 401(k) is responsible for filing a Form 990 and paying the tax out of your account’s funds. Most investors find that the above-average yields offered by MLPs more than compensate for any UBTI-related taxes.

    Some investors avoid these problems altogether by purchasing a close-end or exchange-traded fund, neither of which produce UBTI. These investment products also disburse normal, qualified dividends to their shareholders and report these payments on a Form 1099, eliminating any vexation that might arise from dealing with the unfamiliar Form K-1.

    However, these minor conveniences don’t make up for the biggest problem with closed-end and exchange-traded funds: portfolios that skew heavily toward names with the largest capitalization.
    Oct 18 12:23 PM | 7 Likes Like |Link to Comment
  • Under Pressure: Profit Margins On North American Hydraulic Fracturing [View article]
    We'll know more after the Q3 calls but it seems to me that the overcapacity continues to grow given the continued drop in drilling activity targeting deep shale gas.

    The rate of pricing deterioration may begin to lessen in Q3 but I'd rather see concrete signs of a turn before trying to call a bottom in these stocks. Earnings estimates for HAL and BHI continue to take a hit heading into their quarters.
    Oct 9 05:13 PM | 1 Like Like |Link to Comment
  • Under Pressure: Profit Margins On North American Hydraulic Fracturing [View article]
    That's true and it will ultimately push gas prices higher. However, I think the time frame for this is considerably after 2014. The thing is that the first plant or two will have only a modest impact because it will take time for exports to ramp up to a level that moves the needle on the supply glut.

    Also, keep in mind that there are a number of dry gas basins in the US (little liquids content) like the Haynesville, Barnett, Montney in Canada and part of the Marcellus Shale that have been essentially moth-balled as producers scale back drilling activity due to low gas prices. As demand for exports ticks up and prices begin to rise, I'd expect these plays to come back on stream, pushing supplies higher.

    Bottom line: while I believe your sentiment on LNG exports is directionally correct I think it will take longer than 2 years to get back to 6 to 8 dollar gas.
    Oct 9 05:08 PM | Likes Like |Link to Comment
  • Under Pressure: Profit Margins On North American Hydraulic Fracturing [View article]
    Thanks for the comment. They did sound rather upbeat but I can't think of any reason they would be taking share.

    One thing that strikes me is that HAL and BHI also sounded more upbeat on the potential for a bottom in pressure pumping margins than Schlumberger (SLB). Since SLB is not that exposed to pressure pumping, they have less of an incentive to sound optimistic so I wonder if some of that upbeat tone might be wishful thinking.

    Long: $SLB
    Oct 9 05:04 PM | Likes Like |Link to Comment
  • Under Pressure: Profit Margins On North American Hydraulic Fracturing [View article]
    It's tough to say for certain but I do think pricing will continue to deteriorate at least through the balance of 2012. The key catalyst for the pressure pumping levered stocks like $HAL and $BHI will be margins finding a bottom and I'll keep looking for signs of that as I listen to Q3 and future quarterly conference calls.

    For now, I like stocks in the oil services and equipment industries that are focused offshore and/or in international markets.
    Oct 9 01:30 PM | 1 Like Like |Link to Comment
  • Under Pressure: Profit Margins On North American Hydraulic Fracturing [View article]
    Thanks for the comment. I am familiar with Gasfrac (Toronto: GFS, GSFVF) and have consistently suggested investors avoid the stock.

    Not only are they facing the same cyclical headwinds as I noted for $BHI and $HAL above, I just don't see much momentum developing behind their LPG (butane and propane) fracturing process. I can't think of a compelling reason producers would switch large-scale from water/sand based fracturing fluids in the current environment.
    Oct 8 05:08 PM | Likes Like |Link to Comment
  • My 2012 Midyear Outlook For Oil Demand [View article]
    Over the past five years, the S&P 500 Energy index is up on a dividends reinvested basis while the S&P 500 is down on the same measure. Even more aggressive, economy-sensitive groups within energy like the Philadelphia Oil Services Index aren't down even close to 40% (actually the OSX is down 22 percent).

    As one of the commenters below alludes, I am a big proponent of picking individual stocks and sectors within energy rather than buying the index. And there have certainly been plenty of opportunities within energy over the past five years.

    For example, how about one of my favourite groups, the Master Limited Partnerships (MLPs), which I have written about frequently here on SA? The Alerian MLP Index is up 61% over the past five years--a more than 10 percent annualized gains in one of the worst stock markets of the post-war era is hardly "dead money."

    Or, how about buying into deepwater drillers when the media and public panicked in the wake of the Gulf oil spill of 2010 as I suggested in this SA article bit.ly/9UxNB1 ? Deepwater driller Seadrill (NYSE: SDRL), for example, is up 135% since June 1, 2010. That's not dead money either.
    Jul 13 03:18 PM | 4 Likes Like |Link to Comment
  • My 2012 Midyear Outlook For Oil Demand [View article]
    The US produces around 6.2 million barrel of oil per day and consumes about 19 million bbl/day so it's a long way from being a net oil exporter. While shale and deepwater production will probably push up US output, I think some analysts are being far too optimistic about US oil production growth. I suspect the US will become less import dependent over the coming decade but not energy independent when it comes to oil. By the way, this is still a huge advantage over other developed countries that I do not think is fully appreciated.

    Oil prices won't drop into the $60's unless there's a serious global recession. Politicians like to talk about oil prices but the truth is that th US President has no control over oil prices whatsoever. A President can certainly help to enact policies which will influence oil prices up or down on the margin but oil is a global market and I wouldn't put much money on politicians' forecasts of where oil is headed.
    Jul 13 10:31 AM | 3 Likes Like |Link to Comment
  • My 2012 Midyear Outlook For Oil Demand [View article]
    I agree that natural gas will become a more important fuel in the US both for transportation as well as electricity generation. It is, however, important to note that this shift will take time -- 10 years ago, most experts thought the US faced a shortage of natural gas, not a glut. Many manufacturing companies are still worried that low US natural gas prices are just a temporary phenomenon. It takes time to change that mindset.

    Eventually, sustained high oil prices will prompt consumers and companies to make the shift from oil but it's probably a multi-decade shift.
    Jul 13 10:26 AM | 2 Likes Like |Link to Comment
  • My 2012 Midyear Outlook For Oil Demand [View article]
    Thanks for the comment. Yes, I do believe crude is bottoming. Crude oil corrected a lot more than the broader stock market and has already priced in a great deal of bad news about the global economy. Interestingly, the Treasury bond market has also priced in a lot more negative news than stocks.

    So while I think stocks could see some more downside this summer I think oil has limited downside from here. I believe the Fed will announce as much as $500 billion in QE in August or September and that also tends to be bullish for commodities.

    The opening of the Seaway pipeline from Cushing to the Gulf Coast will help to narrow the WTI-Brent discount to a degree but I think WTI will continue to trade at a sizeable discount to Brent due to the fact that the US production growth outlook is so much better than for any other non-OPEC country.
    Jul 13 10:21 AM | 1 Like Like |Link to Comment
  • Plenty Of Opportunity To Increase Production For Legacy Reserves LP [View article]
    Thanks for the comment. When you say "make" I think you're probably talking about GAAP earnings which would include the effect of the mark to market hedge accounting as well as depreciation and other accounting charges. Looking at distributable cash flow, Legacy made $108.5 million in 2011 up from about $89 million the year before.

    Legacy's use of hedges isn't a commentary on where they think oil and gas prices are going, rather it's simply the recognition that MLP investors are typically looking for a sustainable, gradually growing yield. You can't deliver sustainability if you're cash flows are dependent on the vagaries of commodity prices.

    I'd also say that you generally don't want to see MLPs generate GAAP earnings. The reason is that those accounting charges--like depreciation for the pipeline MLPs--are the main reason MLPs offer a tax shield for investors.
    Jun 25 10:34 AM | 3 Likes Like |Link to Comment
  • Plenty Of Opportunity To Increase Production For Legacy Reserves LP [View article]
    GAAP earnings are an irrelevant measure for Master Limited Partnerships (MLPs) and LLCs. An upstream MLP like Legacy tends to put hedges in place covering production for years into the future. Each quarter, they're required to mark those hedges to market. They must mark hedges to market not just for the quarter in question but their entire hedge book, however far in the future it extends. These are non-cash accounting profits and losses as they do not have to post additional collateral to cover hedge" losses."

    You will often read (typically computer generated) headlines about how a particular MLP "missed" or "beat" earnings expectations in a particular quarter. Often the big "beats" are caused by falling commodity prices in a particular quarter which generates massive earnings as the hedge book is marked to market.

    I look at distributable cash flow--a measure of earnings that strips out non-cash accounting charges--not earnings when evaluating MLPs.
    Jun 22 10:06 AM | 5 Likes Like |Link to Comment
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