Philip Trinder

Philip Trinder
Contributor since: 2012
Company: MLP Protocol
MLPData,
I totally agree with you that they could add some additional leverage up at the GP since it is about 0.9x levered on a stand alone basis. Some other GP stand alone basis leverage stats:
ETE - 4.0x
TRGP - 2.6x
OKE - 2.1x
TEGP - 1.6x
AROC - 1.2x
So the market does seem to show that PAA management could utilize leverage at the GP to purchase additional PAA units in 2016 as a source of funds for PAA growth capex. If they push the leverage level up they could potentially buy all of the PAA equity they may need to raise next year using proceeds from the GP entity and thus eliminate any need to raise PAA equity in the public market (or partially use it in conjunction with some possible asset sales, other sources, etc.).
On the split tax position and how that could impact any possibly GP/LP consolidation transaction, the various options get complicated. One aspect I would point out is the 66% that is held privately owns direct interest in "Plains AAP, LP" which is a K-1 tax entity. So hypothetically if PAA wants to consolidate in its GP then PAA could offer PAA units to the AAP unitholders and that portion of the deal would be a tax free exchange. I would imagine that the investor group (and management) would probably prefer a non taxable exchange on that part of the ownership structure.
A beneficial aspect of that split tax position occurs when holders convert their position in to PAGP Class A shares. There is a step up in tax basis that occurs and because of the step up in tax basis, the private holders who convert their position to PAGP Class A shares have a taxable event at that point in time. This change in tax position generates an intangible tax asset up at the PAGP level which is then amortized over the next 15 years and reduces PAGP's taxable income. So private holders convert and pay cash taxes and the public PAGP shareholders benefit with an increase in the tax shield at PAGP without PAGP spending any cash. The tax shield is why the dividends/distributions from PAGP are treated as 100% return of capital over the near to medium term. They address this concept on slide 114 of the June 4, 2015 Analyst Day Presentation.
Link to PAA Company Presentations: http://bit.ly/1eTpxH2
Congrats to anyone who made it through all that tax detail fun...
Best Regards,
Phil
MLPData,
Actually a group of investors and management own the ~66% economic interest in the GP that is not currently held in PAGP. The breakout is shown in page 5 of the most recent presentation: http://bit.ly/1eTpxH2
EMG 20%
Kayne Anderson 17%
Occidental Petroleum 12%
Management 11%
Others 6%
The group above owns direct interest in Plains AAP, LP, so that is in a different tax position than the PAGP Class A shares.
PAGP 34% [publicly held Class A shares]
Best Regards,
Phil
Hi Everyone,
Just to follow up on this thread, did anyone see this article today?
http://on.wsj.com/1WX10jc
"Thousands Hit With Surprise Tax Bill on Income in IRAs
Affected are investors holding master limited partnerships in retirement accounts
On Oct. 13, two days before the final 2014 tax-filing deadline, investor Steve Goldston of Phoenix received a surprise tax bill for $24,321. It was for units of a master limited partnership affiliated with Kinder Morgan Inc. that Mr. Goldston held in his Roth individual retirement account. The total included nearly $6,000 of late-filing penalties and interest."
A surprise tax bill to his IRA for $24,321 from owning 1,356 units of KMP, ouch. Sadly I think that counts as a horror story from holding K-1 generating investments in an IRA or any type of tax advantaged account. It looks like the IRA custodian called Pershing is filing 990-Ts and paying taxes from 5,000 accounts that held KMP units in IRAs, so that's at least 5,000 potential horror stories. And Pershing is just one custodian.
Friends don't let friends hold MLPs in their IRAs...
Best Regards,
Phil
Jim,
Is your theory that NSH won't be able to extend its Revolving Credit Facility that matures on June 27, 2016?
Here is the full extent of what NSH owns:
"We have no operations or sources of income or cash flows other than our investment in NuStar Energy L.P. (NuStar Energy) (NYSE: NS). As of September 30, 2015, we owned approximately 15.0% of NuStar Energy, consisting of the following:
• the 2% general partner interest;
• 100% of the incentive distribution rights ("IDRs") issued by NuStar Energy, which entitle us to receive increasing percentages of the cash distributed by NuStar Energy, currently at the maximum percentage of 23%; and
• 10,336,364 common units of NuStar Energy representing a 13.0% limited partner interest."
Source (see page 6): http://1.usa.gov/1Pe1guQ
So keep in mind that the GP ownership and the IDRs generate substantial cash flow for NSH, for 3Q15 that amounted to $12.766 million, which means that NSH will receive total payments of $24.084 million from NS on the same day that it will pay out $23.388 million of distributions out to NSH unitholders.
Source: http://bit.ly/1Pe1eDd
The total distributions that NSH paid for 3Q14 were $23.351 million so the 3Q15 payment is actually going to be a tiny bit lower than it was a year ago.
What is the basis for your belief that "NSH needs an increasing payment to keep their books in line"?
Basically NSH is fine as long as NS pays its distributions, if NS cuts its distribution then NSH will also cut its distribution.
Best Regards,
Phil
Dadgitator,
I am concerned that they are going to need serious covenant relief from their Lenders. The drop in EBITDA for 3Q15 must have been substantial.
2Q15 EBITDA: $17 Million
2Q15 Distributable Cash Flow: $13.5 Million
3Q15 DCF: $0 based on the press release last night
3Q15 EBITDA: ?? I'll just estimate around $3.5 Million-ish (basically 2Q15 EBITDA less the DCF equals $3.5 Million)
If 3Q15 EBITDA is in the $3.5 million area then here is the trend in EBITDA over the last 4 quarters:
4Q14: $36.3 Million
1Q15: $28.4 Million
2Q15: $17 Million
3Q15: $3.5 Million (ESTIMATED, admittedly this could be way off, they could have had higher EBITDA but used it to pay down their debt, we won't know until they file their 10-Q)
That is simply what I would call a horrible trend and as a result they will likely be right up against their Maximum Debt / EBITDA covenant of 3.0x and will need the Lenders to approve some covenant relief going forwards. If the current run rate of EBITDA is actually that low it becomes a question of can EMES remain solvent long enough for the frac sand market to turn around (and also the wholesale fuels market which isn't helping them either right now).
So thinking through those concepts if I am a Private Equity ("PE") Firm I am now thinking more like a vulture and may circle the name and wait and see a couple of more quarters of performance. If EBITDA doesn't improve substantially or the debt level doesn't come down substantially then the company may face bankruptcy. Some PE Firm could step in front of the common equity by offering some first lien / second lien / preferred equity combo type of deal that takes out the Lenders and gives them full control of the company and that makes the current common equity worth very little. The PE Firm could also wait and if things don't improve they could offer a pre-packaged bankruptcy deal at some point (to try and get the Lenders to take a haircut on their debt), which would mean that the current common equity is a zero.
If I hadn't already sold my entire position a while ago I would fully exit.
Best Regards,Phil
Hello Dividends#1,
You're welcome and I'm very glad it turned out so well for all of us who were invested in KMR instead of KMP!!! The tax free exchange into KMI shares was indeed a thing of beauty when compared to all of the angst everyone holding KMP felt and the taxes that they had to pay at the time.
Best Regards,
Phil
George,
Just FYI, I think Richard and others may be correctly referring to this press release from July 30, 2015: http://bit.ly/1MsG5Dg
Specifically the part where they state:
"LINN Energy, LLC (NASDAQ:LINE) ("LINN" or the "Company") and LinnCo, LLC (NASDAQ:LNCO) ("LinnCo") announced today financial and operating results for the three months ended June 30, 2015, the INTENT TO RECOMMEND SUSPENSION OF LINN's DISTRIBUTION AND LINNCO'S DIVIDEND and the repurchase of approximately $599 million of senior notes at a 35 percent discount." *emphasis added
That press release made the idea of complete elimination a fait accompli.
Congrats to everyone who made money on their short positions!
Best Regards,
Phil
OK so on the official guesses Bill Cunningham was closest on the distribution and on production Yurivelarde. Congrats!
And congrats to the longs on the decent price action in BPT today! I remain seriously impressed with the valuation being placed on BPT by the market.
Best Regards,
Phil
Just announced:
Distribution: $0.7029712
Production: 72,694 BBLS/Day
Press Release: http://yhoo.it/1MXFiJ0
I'm heading out but will post results tomorrow.
Best Regards,
Phil
Always Dubious,
Right, people can gather whatever information they feel they need if they are actually building a full quarterly projection model for BPT. There are many years of BPT public filings to dig through: http://1.usa.gov/1OTFnR2
Best Regards,
Phil
Hey Guys,
Here's some language from the 2014 10-K that addresses the decline curve that the field is experiencing (note the declining production per well):
"Historical Production
Production from the Prudhoe Bay field began on June 19, 1977, with the completion of the Trans-Alaska Pipeline System (“TAPS”). As of December 31, 2014 there were about 1,152 active producing oil wells, 30 gas reinjection wells, 156 water injection wells and 23 water and miscible gas injection wells in the Prudhoe Bay field. Production wells drilled in the field during the three years ended December 31, 2014 were: 44 in 2012, 57 in 2013 and new sidetrack completions in 50 existing wells in 2014. No exploratory drilling activities were conducted in the field during the three-year period. Production from the Prudhoe Bay field reached a peak in 1988 and has declined steadily since then. The average well production rate was about 211 barrels per day in 2010, 204 barrels per day in 2011, 197 barrels per day in 2012, 188 barrels per day in 2013 and 177 barrels per day in 2014."
See page 14, http://1.usa.gov/1CWwzVa
Best Regards,
Phil
Pablomike,
Here's the website: http://bit.ly/1kdnzfM
Here are my estimates, just in case they put out the press release tomorrow:
Production: 77,250 (I feel like I am being aggressive to the upside on production)
Distribution: $0.7327
Best Regards,
Phil
Pablomike,
I agree, the actual production is going to be the biggest source of margin of error for this set of estimates. I am going around in circles on my logic for the production estimate (sort of an internal battle of wits http://bit.ly/1KXJioW).
I am thinking that since commodity prices were much lower year over year then BP would actually spend less capex money in the underlying field. If this is true then that would likely mean that less of the wells were taken offline during the quarter, which in turn would mean that production for 3Q15 would be much higher than 3Q14 production, while at the same time that logic means that going forwards the overall decline curve for the underlying field will be slightly higher than it would have been if oil prices remained above $100 and BP kept spending more capex in the underlying field.
Always Dubious, do you have a production estimate?
The Finance Pupil, do you have one estimate for the distribution and production that is your expected case / most likely scenario?
I will probably post my estimates late Monday or on Tuesday next week.
Best Regards,
Phil
Thanks yurivelarde.
Also for anyone interested here's the current trend in the BPT short position (basically it has been increasing over the last 90 days):
http://bit.ly/1Anq9ag
Best Regards,
Phil
Stallionre,
Here's a thought, if I was the private equity sponsor behind EMES (the one who did the IPO and sold EMES units at much higher prices, like the partial secondary equity deal they sold at ~$109 back in June of 2014) I might look at taking it private. I would also see if the company announces a zero distribution for 3Q15 and then if the unit price gets crushed (say sub $5 or maybe even sub $2) I would make the go private offer. Sell high then buy low...
Richard,
As always thanks for posting all your solid content to Seeking Alpha.
Best Regards,
Phil
For full disclosure I just bought BPT puts again after posting my comment (just to have some skin in the game).
For those with a BPT model, for fun let's post our estimates for the next BPT distribution on this thread and let's also post our estimates of total production for the quarter, since that will be a main cause of a variance in the estimates. I'm dusting off my model now and will post my estimates after getting my finalized WTI pricing data together for 3Q15. Good luck everyone.
Best Regards,Phil
I am currently being shown an estimated cost to borrow BPT of only 6% per annum, the borrow cost has come down substantially over the last six months.
humptydump,
Here are some intelligent thoughts by Hinds Howard at Clarion Securities in response to Valuentum's blog theories: http://tinyurl.com/p3k...
Best Regards,
Phil
Here's a link to the Clarion Securities post by Hinds Howard with some thoughts in response to the Valuentum article: http://tinyurl.com/p3k...
Carl,
You make this statement in your news item:
"ETE shareholders also may be concerned the company is converting to a corporate structure as part of the deal, which plays into growing talk that the MLP business model may not survive the current difficulties."
Your statement is incorrect. ETE is definitely NOT converting to a corporate structure as part of the deal. ETE is creating an affiliate C-Corp taxed entity called Energy Transfer Corp LP (“ETC”) to use to consummate the transaction with WMB.
Why is ETE doing this? This construct is being utilized so the transaction is more attractive to the WMB shareholders by giving them the opportunity to take 100% "stock for stock" in the deal and have it be a 100% non taxable transaction.
Here is a link to the company press release for anyone interested: http://tinyurl.com/og5...
Best Regards,
Phil
speculative,
STON has never cut the distribution. The distribution that they paid in Feb of 2005 was actually for more than 1 quarter because the IPO closed on September 20, 2004. So basically they paid the minimum quarterly distribution of $0.4625 for the fourth quarter of 2004 plus the stub period at the end of the third quarter, resulting in the payment of $0.5128 in Feb of 2005.
They explained their plan for the first distribution on page 28 of the IPO Prospectus found here: http://1.usa.gov/1LiZiCn
Here is the key verbiage from page 28:
"Within approximately 45 days after the end of each quarter, beginning with the quarter ending December 31, 2004, we will distribute all of our available cash to unitholders of record on the applicable record date. We will adjust the minimum quarterly distribution for the period from the closing of this offering through December 31, 2004 based on the actual length of the period."
Best Regards,
Phil
David,
Is the list from the database supposed to be a list of "high cost crude oil producers"?
Best Regards,
Phil
Darren,
Thanks for the response and fair enough. I was looking at the 23% for 2014 but good point on the 2013 split being higher.
Best Regards,
Phil
Dirk,
They did also cut their distribution from $0.41 per quarter down to $0.225 per quarter back in early 2010, which could explain the lack of a recovery in the unit price.
Distribution History: http://bit.ly/1aksjT9
Best Regards,
Phil
Darren,
You make this statement in your article:
"Additionally, only roughly half of CPLPs distribution is classified as taxable (the rest is considered a non-taxable return of capital, thanks to high depreciation of ships)."
Do you have a source for that "roughly half" estimate?
Best Regards,
Phil
FM,
Quick math check / typo on the change in the oil rig count, the increase from 628 rigs to 672 rigs is an increase of 44 rigs (not the 74 shown in the summary bullet point and in your article). The increase of 44 is still a 7% increase vs 628 rigs though.
Best Regards,
Phil
Thanks for the responses.
Here's where you can track U.S. Exports of Crude Oil, with data going back to 1991 and a convenient chart: http://1.usa.gov/1IR5v82
Note the material change in the trend that occurred over a year ago starting in the week that ended June 20, 2014.
Best Regards,
Phil
Hey Guys,
Out of curiosity, because of the "export ban" do you guys think that the U.S. has been exporting Zero barrels of oil?
If I said that the U.S. exported 576,000 barrels of oil per day for the week ending August 7, 2015, would you believe me?
Thanks in advance for any responses.
Best Regards,
Phil
malevy,
It is good to see the continuation of increasing exports of Oil from the U.S.
Here's a chart of U.S. Oil exports since 1991: http://1.usa.gov/1IR5v82
Best Regards,
Phil
Thanks Dividends#1, best of luck to you in all your endeavors as well!
Valuentum Team,
Thank you for the response but your answer does not address the structural subordination concept and how that is impacting the debt ratings for ETE and WMB. WMB is also a corporation and the structural subordination concept can exist in both C-Corp, Publicly Traded Partnership and belnded company structures (like blended WMB and WPZ) and it is directly impacting the debt rating comparison in your article.
So for the benefit of the readers of your article, can you please go ahead and explain how structural subordination is impacting the debt ratings for ETE and WMB?
Best Regards,
Phil