Seeking Alpha
View as an RSS Feed

Elliott Gue  

View Elliott Gue's Comments BY TICKER:

Latest  |  Highest rated
  • 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, 2012. 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, 2012. 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, 2012. 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, 2012. 10:06 AM | 5 Likes Like |Link to Comment
  • Plenty Of Opportunity To Increase Production For Legacy Reserves LP [View article]
    Mea Culpa: That should read million. The "M" and the "B" are far too close to one another on the keyboard.
    Jun 21, 2012. 12:57 PM | Likes Like |Link to Comment
  • North American Coal And Natural Gas: Producers Scrambling To Get Out [View article]
    Perhaps I should have elaborated on the confusing history of the Atlas Energy in my article.

    Chevron on Feb. 11, 2011, acquired Atlas Energy Inc. You can read the press release here:

    As part of the merger, Atlas Energy spun off Atlas Pipeline Holdings LP (NYSE: AHD), which on Feb. 23, 2011, changed its name to Atlas Energy LP but kept the ticker AHD. You can read the press release announcing the name change here:

    To make matters even more confusing, Atlas Energy LP on April 28, 2011, change its ticker to ATLS--the ticker of the former Atlas Energy Inc, the company that Chevron acquired. You can read that press release here:

    Mea Culpa: I should have specified that Chevron acquired Atlas Energy Inc.
    Jun 13, 2012. 07:27 PM | 2 Likes Like |Link to Comment
  • Solid As Granite: Chesapeake Trust Ramping Up Distributions [View article]
    Thanks for the additional comments. I do try to respond to comments on my Seeking Alpha articles though sometimes it does take me a few days. I have continued to write about $CHKR both in free forums such as the SA columnist conversation and on my publishers website Investing Daily. Here's an example of the latter from late April:

    I do not believe what I publish on SA is at all "fluff." The articles I post here are either completely original for this website or are gleaned from the pages of newsletters I write. Of course, I offer more frequent advice/updates for readers of my subscription-based publications but I do believe I have been quite responsive to readers' comments and questions on SA.

    Finally, I am not part of any investment company that invests in MLPs and the positions I disclose in my writings are my personal portfolio holdings.

    Here's my latest take on $CHKR:

    Units of Chesapeake Granite Wash Trust (NYSE: CHKR) have sold off for two reasons. First, the trust’s sponsor and parent, Chesapeake Energy Corp (NYSE: CHK), has been besieged by a litany of negative headlines over the past few months, including allegations that the CEO Aubrey McClendon hasn’t acted in shareholder’s best interests. These allegations have been accompanied by more pressing concerns about Chesapeake Energy’s ability to fund its planned $12 billion 2012 drilling program.

    But investors’ fear about Chesapeake Energy is overblown. Since most of its 2012 capital spending budget is discretionary, the company could delay some projects until it’s able to raise funds through planned asset sales. Any news on these divestments would be a strong upside catalyst for the stock.

    If the stock were to trade at a depressed valuation for some time, don’t be surprised if a larger integrated oil company steps in with a takeover bid.

    Bottom line: Chesapeake Energy shouldn’t have any trouble funding the wells it’s scheduled to drill on Chesapeake Granite Wash Trust’s behalf over the next few years.

    Chesapeake Granite Wash Trust’s recently announced quarterly distribution of $0.6588–about 11 percent below the target–also contributed to the selloff. Lower-than-expected price realizations on natural gas liquids (NGL), which account for about one-third of the trust’s production, were the culprit.

    Weaker oil and NGL prices may mean lead to another disappointing distribution in the second quarter, though we expect these commodity prices to recover in the back half of 2012.

    I stress-tested my valuation model for Chesapeake Granite Wash Trust by assuming that the quarterly distribution will be 15 percent below the targeted level throughout the trust’s life. I also factored in a 7.5 percent discount rate when calculating the present value of the units.

    Even with these conservative assumptions, the model yields a valuation of more than $18 per unit.

    Disclosure: Long $CHKR
    May 20, 2012. 08:39 PM | 2 Likes Like |Link to Comment
  • Solid As Granite: Chesapeake Trust Ramping Up Distributions [View article]
    CHKR provides distribution projections for the trust through its termination date. To calculate fair value I typically calculate the net present value (NPV) of all future cash flows. I tend to look at a conservative case (lower distribution projections, higher discount rate) a base case (moderate distribution projections and a slightly lower discount rate) and an aggressive case (higher cash flow projections and a lower discount rate). To give you an idea of how this works, I offer a free article showing how I value Whiting USA Trust II here ($WHZ):

    As for $CHKR my base case valuation is about $25. I actually recommended selling some to readers of Energy Strategist when it was trading in the $27 to $30 area earlier this year as to get to that valuation, one had to make some heroic assumptions in terms of commodity prices or accept a discount rate of well under 5 percent annualized. At current prices I do think it's a buy.

    And, yes, I am also talking my own book.

    Disclosure: Long $CHKR
    Apr 23, 2012. 05:13 PM | Likes Like |Link to Comment
  • Big Opportunity In Big Oil: Total [View article]
    My publisher has a policy preventing me from buying a stock I recommend for a period of 30 days after I recommend it in The Energy Strategist. This recommendation is still within that window; therefore, I don't yet own Total $TOT.
    Apr 22, 2012. 12:14 AM | 5 Likes Like |Link to Comment
  • Solid As Granite: Chesapeake Trust Ramping Up Distributions [View article]
    Thanks for the kind comments about my articles. The April 18th Reuters article about Aubrey McClendon's loans doesn't change my opinion on $CHKR (or $CHK for that matter) in the least. I really don't think this was much of a revelation; we've known about the CEO's deal to acquire a piece of $CHK's wells for years and his contract doesn't prevent him from taking out loans based on his personal holdings. I really don't see how this represents a conflict of interest or anything scandalous or improper.

    The article that sparked all of this appears to be just dredging up old news. McClendon has always been a controversial CEO--people seem to love him or hate him--so this article is just playing into those sentiments.

    I don not currently recommend Chesapeake common stock in my newsletter, the Energy Strategist, due mainly to the fact that I don't like their exposure to natgas prices. That said, I do think they're executing well on their plans to dispose of assets and raise capital to help fund their development plans. I do recommend Chesapeake's preferred shares in the newsletter and am happy holding onto those.

    I don't think this has any impact on $CHKR. In fact, I have recommended $CHKR as a buy only on dips under $25; I recommended taking profits back in late February/early March when its valuations ran out of control. So, yesterday marked the first time since late January where I considered $CHKR a buy candidate. I see this as a buying opportunity.

    Disclosure: Long CHKR and CHK Preferred D
    Apr 19, 2012. 04:01 PM | Likes Like |Link to Comment
  • Penn Virginia Resource Partners: Much To Like About This Low-Risk, 8 Percent Yielding LP [View article]
    Hi David--

    Thanks for the comment and for subscribing.

    I in no way interpreted your prior post as an insult. I value comments to my articles and the conversation here on SA.
    Mar 31, 2012. 01:12 PM | 1 Like Like |Link to Comment
  • Penn Virginia Resource Partners: Much To Like About This Low-Risk, 8 Percent Yielding LP [View article]
    Thanks for the kind words, it's always appreciated.
    Mar 30, 2012. 11:31 AM | 1 Like Like |Link to Comment
  • Penn Virginia Resource Partners: Much To Like About This Low-Risk, 8 Percent Yielding LP [View article]
    It seems to be reacting to the negative newsflow about natural gas prices in that ultra-low gas prices will tend to drive more gas use and less demand for coal.

    What I believe is way under-appreciated is the partnership's midstream energy business which is likely to be the source of nearer term distribution growth. If you look at a long-term chart of this name you will see that, like many MLPs, it does see these periodic bouts of extreme volatility. Often these have proved to be opportunities.

    I'm not changing my view on this one.

    Disclosure: Long PVR
    Mar 30, 2012. 11:16 AM | 1 Like Like |Link to Comment
  • Worried That The Market Is Overbought? Play Defense With Kraft Foods [View article]
    Thanks for the comment. I actually recommend Nestle in my Personal Finance newsletter as well so I agree with you that it's a good play. That said, I think Kraft's proposed split probably means that KFT has more upside catalysts this year.
    Mar 29, 2012. 03:11 PM | 1 Like Like |Link to Comment
  • Recent MLP IPO LRR Energy Yields Nearly 10% At Current Prices [View article]
    Thanks for the comments. This illustrates precisely why I pay so much attention to IPOs of Master Limited Partnerships (MLPs), US Royalty Trusts and other income-paying securities. Websites like Yahoo Finance and most brokerage sites only show a company's actual historical payouts. To calculate yield, sometimes these payouts are annualized and sometimes they simply show the yield based on a single quarterly payout.

    In the case LRE, Yahoo Finance is showing an annualized payout of 0.928 which is based on their January 27 dividend of $0.232 annualized ($0.232 x 4 equals $0.928). But as Borderite points out that first dividend payout was based on just part of a quarter.

    This opens up a huge opportunity. If you look through the actual S-1 filings of LRE or other new IPOs with the SEC, they lay out precisely what they intend to pay. You can often pick up new IPOs offering very attractive yields long before the crowd realizes their full income potential. When the yield figure starts to show up correctly on other financial websites, interest in the security picks up.

    A classic case of this was when Seadrill (SDRL) listed in the US for the first time back in 2010. I recommended the stock at the time due in part to the quality of their fleet and to their intention to offer a double digit (at the time) yield. It took six to nine months before that yield started to show up on financial websites correctly. It was a great opportunity to get in.

    Disclosure: Long SDRL
    Mar 20, 2012. 11:42 AM | 3 Likes Like |Link to Comment