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Elliott Gue  

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  • Lower For Longer: Why You Should Stand Aside On U.S. Oil Producers [View article]
    Think about what happens when their hedges expire...
    May 21, 2015. 08:35 AM | Likes Like |Link to Comment
  • Lower For Longer: Why You Should Stand Aside On U.S. Oil Producers [View article]
    Think about what happens when their hedges expire...
    May 21, 2015. 08:35 AM | 2 Likes Like |Link to Comment
  • Lower For Longer: Why You Should Stand Aside On U.S. Oil Producers [View article]
    Thank you for all the comments. Let me address a few issues generally:

    1) First, I'd like to address those that are asking where I was during last year's oil price collapse. Obviously, I don't always get every prediction or call right -- no one does and if they tell you they do, they're lying to you.

    However, if you have a quick look at my profile on Seeking Alpha, you'll find I wrote a series of articles on this site last year warning investors to get out of stocks like Seadrill (SDRL) and fracturing sand names like Hi-Crush Partners (HCLP).

    I also flagged a number of energy names in SA that did well including the refiners.

    2) Oil price outlook: My Outlook is for more of a W-shaped "Double-Dip" sort of scenario. I think we've seen the middle of that W and will see the second dip shortly (likely already starting now). Longer term, I see oil remaining in the $40 to $60 per barrel range.

    3) The US rig count reductions and declines in supply. As for the drastic reduction in the rig count, please remember that many of the rigs that have come off in the last few months are not in the core shale fields. Producers have mainly been taking rigs off marginal regions and refocusing on the core of the shale.

    There probably will be a dip in US oil output (see today's 112,000 bbl/day EIA reported production decline). However, this dip will be temporary as all I heard from the major shale producers this quarter was talk about ramping up their drilling activity in the second half.

    4) The "rally" in oil since March

    Remember, producers don't really care what the price of oil is right now because they don't sell all their production in a single month. Most of these producers really look at the 12-month calendar strip (average price of oil over the next 12 months) because they can hedge their production forward to lock in prices.

    In fact, looking at the spot price of crude is really misleading. Consider that while the spot price of WTI has rallied from a low of $43/bbl in March to a current $58 (35%), the futures curve has been far steadier. For example, on March 18, 2015 the front month oil futures price closed at about $44.66 and, on that same date, the December 2016 oil futures closed at $60.09. Today, the December 2016 futures trade for around $63.05.

    So, while everyone is talking about this massive rally in oil, December 2016 futures are up just around 5 percent since March 18th. What has really happened is that the market is less concerned about running out of oil storage this spring; therefore, the front of the futures curve has bounced.

    Recently, most producers have been able to hedge output in 2016 at prices around $60 to $65 and they've been hedging aggressively all through this rally.

    They've even been building "fracklog" wells that they'll be putting into production by early 2016 or sooner.

    None of this suggests a major reduction in US oil production. In fact, the hedging suggests that the glut will persist longer than many expect.

    5) Saudi Arabia. When you artificially boost the price of a commodity (or anything really) you'll get too much supply and too little demand. To maintain high prices you need to either manipulate supply or demand.

    In the early 80's Saudi Arabia maintained high prices by cutting supply. This was not good for the country because they eventually had to cut their output by 70% to maintain prices. The problem is that using supply to manipulate prices creates a vicious, self-reinforcing cycle: you cut supply to maintain prices, encouraging new supply which requires further supply cuts, etc.

    This time they have said (quite clearly) they aren't going to repeat that mistake. That means market forces will need to rebalance the global oil market. That's exactly what's happening right now and financial history tells us it always takes time.

    6) Finally, some readers have commented that I'm just trying to "sell my products." As you can clearly see from my profile, I own a publishing firm that produces subscription-based research and analysis on energy markets. Therefore, obviously, one of the main reasons I publish articles on SA is to gain exposure for me and my business. I'm not trying to hide that -- it's right at the top of this page for all to see.

    That said, I'm not sure why anyone would find this to be a negative. If I were to publish rubbish, that would NOT be good for my reputation or business. So, I try to put up quality work that reflects my research.
    May 20, 2015. 08:07 PM | 6 Likes Like |Link to Comment
  • Lower For Longer: Why You Should Stand Aside On U.S. Oil Producers [View article]
    Occidental Petroleum (OXY) is definitely one of the better names and I like Chazen but I think we'll get an opportunity to buy most of these upstream names at much lower prices.
    May 20, 2015. 07:16 PM | 1 Like Like |Link to Comment
  • American Midstream Partners LP: Be Cautious, Yield Moths! [View article]
    We do expect more consolidation in the midstream space, in the near term focusing on the greatest pain points: gathering and processing and exploration and production companies looking to raise cash by monetizing their midstream assets.

    Comments from likely consolidators suggest better values will emerge once the market has a better understanding of the volumetric risk at play. Brookfield Infrastructure Partners (NYSE: BIP), which reported has raised about $8 billion to deploy in energy assets, asserted that the market has yet to price in the risk associated with gathering and processing names that have acreage dedications but lack firm, take-or-pay agreements.

    Williams Partners' management team highlighted the volumetric risk in basins that rely heavily on natural gas liquids to bolster rates of returns.

    As for DPM shining light on the health and direction of the midstream space, much of the attention will focus on the restructuring of its general partner, which holds assets that entail significant commodity risk. At least for now, less attention will be paid to DPM's hedge position, which declines dramatically in 2016.

    I don't make a habit of responding to questions on Seeking Alpha because I'm usually doing research or writing for my newsletters; I post excerpts from our content on this site to raise awareness of our products. You can draw your own conclusions based on what you see here.
    Feb 24, 2015. 08:31 AM | 3 Likes Like |Link to Comment
  • Linn Energy, LLC: Why There's More Downside To Come [View article]
    No, they aren't impacted. Linn hasn't even yet done its first deal using the Blackstone financing.
    Jan 17, 2015. 10:29 AM | Likes Like |Link to Comment
  • Linn Energy, LLC: Why There's More Downside To Come [View article]
    Linn has hedged 100% of its gas production for 2015 and 2016; however, this excludes some volumes of gas produced in Califonia that it does not hedge. This California gas isn't sold but is used internally by Linn to produce steam that is used in its heavy oil production in the Golden State (steam flooding).

    So, they're producing 650, hedging roughly 525 and using the difference for steam flooding.

    I hope that helps.
    Jan 17, 2015. 10:27 AM | 10 Likes Like |Link to Comment
  • Drilling Into Transocean Partners LLC And Seadrill Partners LLC [View article]
    Russia may wish to drill their Arctic acreage but it's going to be expensive and probably doesn't make sense at current oil prices.

    Also, keep in mind that most of the world's deepwater drilling activity (and hence demand for floating rigs) is focused on what's called the "Deepwater Golden Triangle," which includes offshore Brazil, the US GoM and offshore West Africa.

    I really don't see Russia bailing out the floater market over the next 2 to 3 years.
    Nov 13, 2014. 05:39 PM | Likes Like |Link to Comment
  • Drilling Into Transocean Partners LLC And Seadrill Partners LLC [View article]
    Hi Rob,

    Thanks for the comment and question. Yes, that's a risk but it wouldn't make much sense for Seadrill to do that.

    Seadrill continues to own more than a third of Seadrill Partners. In addition, like most MLPs, Seadrill (as the general partner to the MLP) receives what are known as Incentive Distribution Rights (IDRs) from the MLP. To make a long story short, IDRs are calculated based on distributions paid to LP unitholders so they offer an incentive for Seadrill take actions that result in steady growth in distributions to LP unitholders.

    If you pay attention to the IDR structure for MLPs it gives you a pretty good idea how quickly the partnership's distributions are likely to grow.

    I hope that helps.
    Nov 13, 2014. 05:36 PM | 1 Like Like |Link to Comment
  • Drilling Into Transocean Partners LLC And Seadrill Partners LLC [View article]
    I have never seen this website nor do I post articles to it. The company affiliation listed there is incorrect.

    I have been recommending investors sell Seadrill for over a year now.
    Nov 11, 2014. 02:48 PM | 2 Likes Like |Link to Comment
  • Drilling Into Transocean Partners LLC And Seadrill Partners LLC [View article]
    Thanks for the comments. Whenever you write a bearish article on a stock, you'll get more than your fair share of negative comments (and some personal attacks) as was the case with my two previous articles on parent Seadrill (SDRL) linked in the article above.

    I welcome negative comments and different opinions. In fact, I addressed many of the comments on my September Seadrill article in a follow up piece on the same stock in October.

    You'll find that knowing which stocks to avoid can do as much or more to help your overall returns than knowing which stocks to buy.

    Just to reiterate and remove any ambiguity, I do NOT think Seadrill (SDRL) is a good buy here. Seadrill, like most deepwater drillers, topped out more than a year ago and many investors don't understand the fundamental drivers of the downturn.

    I covered the headwinds facing the industry at length in the two Seadrill articles on Seeking Alpha referenced in this article. Just to review, the major integrated oil companies -- firms like Total, Shell, BP and Exxon -- are the main drivers of deepwater drilling activity and investment. Towards the end of 2013, these firms began to announce plans to rein in or, at least, slow the growth of their CAPEX budgets for 2014.

    Deepwater CAPEX boomed coming out of the financial crisis and a shortage of rigs pushed up day-rates to the extent that it was impacting the profitability of deepwater projects. The big oils appear to be taking a pause to evaluate the success of their deepwater programs and focus on cash flow rather than production growth.

    This decision had little to do with oil prices as budgets were coming down long before the recent drop in crude. It also had nothing to do with Russia or sanctions.

    At the same time, a number of new deepwater rigs are scheduled to come out of shipyards over the next two years and other rigs are due to come off long-term contracts. These rigs will likely have to accept lower day-rates to find work.

    The recent drop in oil prices happens to coincide with a period when many large integrated energy firms are working on their budgets so that's not going to help matters for the group.

    The outlook for deepwater drillers in 2015 already looks bad and the longer oil prices remain at current levels, the more likely it is the downturn will persist well into 2016.

    I don't recommend any of the deepwater drillers -- Seadrill, Ensco, Diamond, Transocean included -- until we see some signs of a stabilization in this market. That might include rigs being put into storage (coldstacked) or scrapped, helping to balance supply and demand. I'd also like to see investor sentiment turn on the group -- there are far too many people looking to buy the dip or that are attracted to Seadrill's sky-high yield.

    My opinion on this group has not changed and I do NOT rate Seadrill a buy anywhere. I've been advising investors to switch out of Seadrill into Seadrill Partners for the reasons I outlined in the article above; since the beginning of this year, Seadrill Partners has outperformed Seadrill by 23.8%.

    As I noted in the article above, investors tend to throw out the proverbial baby with the bathwater in the short-term, selling SDLP when SDRL gets hit. This is an opportunity.

    I've spilled a great deal of ink on Seadrill and the deepwater space in free articles on SeekingAlpha and elsewhere. I have addressed many of the bulls' key arguments on the stock. I believe my record on the deepwater drillers speaks for itself.
    Nov 11, 2014. 02:42 PM | 6 Likes Like |Link to Comment
  • Our Take On Enterprise Products Partners LP's Acquisition Of Oiltanking Partners LP [View article]
    NS is under new management. Former CEO Curtis Anastasio left (he's now CEO at GLOP). New management appears to have their heads screwed on straight and have a credible plan. Dock space makes NSH a potential takeover candidate. Investing is about looking at future, not past.
    Oct 6, 2014. 08:34 AM | 2 Likes Like |Link to Comment
  • 4 Key Takeaways From The Year's Biggest Acquisition In The Energy Patch [View article]
    The article makes no mention of holding ACMP. One rationale for doing so would be that the terms of the merger with WPZ might be sweetened.

    At this stage, we'd prefer to own WMB, which benefits whether or not the proposed WPZ-ACMP tie-up goes forward. We cover every energy-focused MLP at EnergyAndIncomeAdvisor...
    Jul 23, 2014. 10:05 AM | 1 Like Like |Link to Comment
  • Arc Logistics Partners: Near-Term Upside Catalysts, Longer-Term Questions [View article]
    Initial reaction: Move provides potential to move crude oil to West Coast refinery complex. Obviously, need to dig into this a bit more to develop a more nuanced opinion.
    Jan 23, 2014. 08:40 AM | Likes Like |Link to Comment
  • Dynagas LNG Partners LP: A Dynamite Investment? [View article]
    No, actually the webinar recording is free of charge.
    Dec 27, 2013. 04:12 PM | 3 Likes Like |Link to Comment