Very true, NGL hedging has a very long way to go to approach the depth and breadth of the crude oil, natural gas, refined products, etc. markets: http://bit.ly/14hjuk4
Actually Hedgeye is a pure research shop only and they do not manage any funds at all, so technically can't be considered an actual "Hedge Fund." They exist to provide value-added and actionable investing ideas for their paid subscribers so making a big public call and then seeing it partially come to fruition probably helps boost their company profile and overall business.
Also I personally have found the short thesis and its impact on LINE, LNCO and BRY to be incredibly interesting, especially the variety of articles that have addressed the subject in Barron's and the various articles here on Seeking Alpha. And I think I've seen something to the effect that Jim Cramer has recently blocked all of the Hedgeye employees on Twitter (I haven't verified that though). I never expected an MLP/LLC structured company to ever generate this much excitement.
The key as an investor is to understand what you own and then react correctly to whatever the market throws at you.
One thing I think some people seem to forget about short positions, if the Company doesn't collapse then typically the entire short position is essentially pent up demand to buy the stock or units (ignoring short positions put on as hedges for convertible debt issues). You also have to pay the distributions if you are short at the close of the record date. LINE is changing to pay monthly distributions starting next month, which may mean that a bunch of the ~10.8 million LINE units will be repurchased between now and then so they don't have to come out of pocket to pay ~$2.6 million of distributions per month starting in July.
Just a small technical point on Linn's total hedge position, in your article you stated:
"It should also be noted that Linn Energy has about 100% of its pre-Berry production hedged through 2016."
If you meant to talk about Total Production, then your statement is ignoring their NGL production so on a Total Production basis they are hedged at less than 100% through 2016. In the slide from their company presentation right below your statement the footnote reads:
"Note: LINN's hedge percentages based on internal estimates. Excludes NGL production and natural gas puts used to hedge NGL revenues associated with BP Hugoton acquisition."
So how much of LINN's pre-Berry Total Production comes from NGLs? About 20% to 22%.
It's subtle but that means that if you are thinking about what percentage of their Total Production is hedged then it might be more along the lines of ~80% through 2016 (depending on how you look at the BP Hugoton acquisition put position). This NGL impact will of course be reduced as a percentage of Total Production once the Berry acquisition closes.
Navios Maritime Partners LP: Charter Expirations And Industry Fundamentals Suggest Distribution Cut Is Likely [View article]
Alex,
I'm not sure the market would be pricing in a distribution cut at NMM if the yield is close to 13%. Is there some analytical basis you use to determine that view?
Obviously the future is uncertain and who knows if the contracts rolling off will cause a large enough reduction in NMM's distributable cash flow to force them to cut the distribution. However, if investors want a 13% yield from NMM and then NMM hypothetically cuts the distribution by 50% does it logically follow that investors would cut the unit price by 50% to get the required yield back to 13%?
You can look at the history of OXF over the past 12 months as an example of what happens when an MLP starts reducing its distributions. It's a coal MLP so not an exact business peer but a definite example of MLP distribution cuts (although OXF provides a K-1 and NMM provides a 1099-DIV so that helps with NMM's investor receptivity).
Calumet: An 8% Yielder To Hold "Forever" [View article]
Magnetshar,
They may have spoken with some Investment Bankers recently that were talking about various concepts like buying in the GP and IDRs.
If I owned that GP though I would wait because the total dollar amount of the cash flow going to the GP isn't that high yet. They are just moving into the high 50%/50% split (when the quarterly distribution is above $0.675 per unit) which means that the cash flow to the GP will start growing at its fastest possible rate going forwards as long as CLMT can continue to raise its distributions. The total dollar amount of cash flow to the GP also always increases whenever an MLP issues more LP units (like CLMT just did on March 25).
Calumet: An 8% Yielder To Hold "Forever" [View article]
Hey Guys,
I listened to the CLMT Investor & Analyst Day call today and noticed I grabbed an incorrect number for that rough hedging % calculation. The 73,800 Bbls/d number I showed above was Fuel Products Sales Volume while it should be Production Volume instead which was 65,395 Bbls/d for 1Q13. So here is the updated 5 Year CLMT Crack Spread Hedging Summary (data from slide 25 of today's presentation) :
2013 - Max / Up to 75% - Actual ~34.4% 2014 - Max / Up to 75% - Actual ~21.4% 2015 - Max / Up to 75% - Actual ~20.0% 2016 - Max / Up to 75% - Actual ~1.5% 2017 - Max / Up to 75% - Actual 0% 5 Year Average Hedge Position: ~15.5% (so still plenty of room to add more hedging and I made a slight wording change to replace the word "Target" which seems a little strong vs. how they talked about hedging)
These are just very rough numbers because keep in mind they had a turnaround going on at their Superior location during 2Q13.
They hired a new IR Director and he helped to enhance the look and amount of data, etc. in their presentation, which you can find on their website here: http://bit.ly/P82R6o
Calumet: An 8% Yielder To Hold "Forever" [View article]
John,
Do you have a link to a "Charts" website?
Also does this "Charts" website have the ability to show the actual quarterly distributions paid, because that is completely different than "Earnings"?
Calumet: An 8% Yielder To Hold "Forever" [View article]
Bill,
Hedging is always helpful at reducing commodity price sensitivity / risk in a Company's cash flow, so CLMT's hedging program definitely does help.
As the slide in Bret's article shows, the Company states that their goal is to hedge up to 75% of their expected fuels production for up to 5 years, which is an excellent target. They have a long way to go to actually get to that level of hedging. You can see how far along they are towards that goal by checking their most recent 10-Q, pages 22 through 31: http://1.usa.gov/1bkQZ7F
I would assume flat Fuels production as a basic starting point over the "projected" period and then aggregate and compare all of the hedging positions to come up with the % of Estimated Fuels production that is actually hedged.
They also provided a summary chart of their crack spread hedges on page 24 of the NAPTP Presentation on May 23: http://bit.ly/P82R6o
Sales volumes for Fuel Products for 1Q13 was 73,800 Barrels / day so you could use that and compare it to the crack spread hedges to get the estimated % that is currently hedged. So based on the data from slide 24 here is a 5 Year CLMT Crack Spread Hedging Summary:
2013 - Target 75% Actual ~30% 2014 - Target 75% Actual ~19% 2015 - Target 75% Actual ~18% 2016 - Target 75% Actual ~1% 2017 - Target 75% Actual 0% 5 Year Average Hedge Position: ~14%
When you saw the slide in the article (it's from slide 23 in the 5/23 NAPTP presentation) did you think to yourself, "OK they have hedged 75% of their Fuels production for 5 years so that's really reduced the risk."?
When I look at an actual average crack spread hedge position over the next 5 years of ~14% I tend to think that "the company will be impacted significantly by rising or declining crack spreads."
CLMT's Gross Margin for 1Q13 was 53% from the Fuel Products side of the business and 47% from the Specialty Products side, so clearly the crack spread exposure from the Fuel Products side of the business remains very, very important.
Don't Let Rising Bond Yields Push You To Sell This Winner [View article]
ATrautmann,
I don't expect all the publicly traded GPs will disappear in 5 years. Western Gas Equity Partners, LP (WGP) is pretty close to being a pure GP, the only other assets it owns are LP units in its underlying Western Gas Partners, LP (WES). WGP just went public on December 6, 2012.
Since its IPO WGP has gone up ~67%, that strong market reception may lead to other GP owners deciding to pursue IPOs as well.
It seems like the trend could be going in the other direction and lead to more publicly traded GPs to invest in, which would be great.
Calumet: An 8% Yielder To Hold "Forever" [View article]
Brett,
Do you have the data to extend the Distribution per Unit vs. Average Unit Price for the Quarter chart back to 1Q06?
You mention that they went public in 1Q06 so the full historical analysis seems like it would show a more full picture of how the units have done as a "forever" investment.
3 High-Yield Refiners For Income Investors [View article]
postnasaldrip,
It is pretty easy to go over the $1,000 UBTI threshold in an IRA when you sell an MLP that you have held for a long time because the Recapture taxes are treated as UBTI (since the K-1 generating investment was held in a tax advantaged account).
3 High-Yield Refiners For Income Investors [View article]
adecinvestor,
I didn't write a specific article about CVRR but I probably have put up long winded comments everywhere so maybe you are thinking about some of my rambling comments perhaps?
To figure out the crack spread impact you just need to get the info from their IPO Prospectus and then update it for all info provided since that point and also the commodity price environment impacting their cash flows.
They provide quarterly estimates and sensitivity adjustment info on pages 80-81. You can then take all of that info and build up a basic way to make adjustments in Excel.
On page 81 you can see their estimate for the distribution that they will pay for 2Q13, what is the number that they are showing? The line item is called "Available cash per unit" and found on page 81.
What adjustments do people want to make to update that estimate from last summer for today's market and all of the data provided by NTI since then?
Has Linn Energy Finally Bottomed? [View article]
Very true, NGL hedging has a very long way to go to approach the depth and breadth of the crude oil, natural gas, refined products, etc. markets: http://bit.ly/14hjuk4
Cheers,
Phil
Has Linn Energy Finally Bottomed? [View article]
Actually Hedgeye is a pure research shop only and they do not manage any funds at all, so technically can't be considered an actual "Hedge Fund." They exist to provide value-added and actionable investing ideas for their paid subscribers so making a big public call and then seeing it partially come to fruition probably helps boost their company profile and overall business.
Also I personally have found the short thesis and its impact on LINE, LNCO and BRY to be incredibly interesting, especially the variety of articles that have addressed the subject in Barron's and the various articles here on Seeking Alpha. And I think I've seen something to the effect that Jim Cramer has recently blocked all of the Hedgeye employees on Twitter (I haven't verified that though). I never expected an MLP/LLC structured company to ever generate this much excitement.
The key as an investor is to understand what you own and then react correctly to whatever the market throws at you.
One thing I think some people seem to forget about short positions, if the Company doesn't collapse then typically the entire short position is essentially pent up demand to buy the stock or units (ignoring short positions put on as hedges for convertible debt issues). You also have to pay the distributions if you are short at the close of the record date. LINE is changing to pay monthly distributions starting next month, which may mean that a bunch of the ~10.8 million LINE units will be repurchased between now and then so they don't have to come out of pocket to pay ~$2.6 million of distributions per month starting in July.
Cheers,
Phil
Has Linn Energy Finally Bottomed? [View article]
Just a small technical point on Linn's total hedge position, in your article you stated:
"It should also be noted that Linn Energy has about 100% of its pre-Berry production hedged through 2016."
If you meant to talk about Total Production, then your statement is ignoring their NGL production so on a Total Production basis they are hedged at less than 100% through 2016. In the slide from their company presentation right below your statement the footnote reads:
"Note: LINN's hedge percentages based on internal estimates. Excludes NGL production and natural gas puts used to hedge NGL revenues associated with BP Hugoton acquisition."
So how much of LINN's pre-Berry Total Production comes from NGLs? About 20% to 22%.
It's subtle but that means that if you are thinking about what percentage of their Total Production is hedged then it might be more along the lines of ~80% through 2016 (depending on how you look at the BP Hugoton acquisition put position). This NGL impact will of course be reduced as a percentage of Total Production once the Berry acquisition closes.
Cheers,
Phil
Calumet: An 8% Yielder To Hold "Forever" [View article]
Here's the org chart from the IPO prospectus: http://1.usa.gov/13AZwBV
Cheers,
Phil
Navios Maritime Partners LP: Charter Expirations And Industry Fundamentals Suggest Distribution Cut Is Likely [View article]
I'm not sure the market would be pricing in a distribution cut at NMM if the yield is close to 13%. Is there some analytical basis you use to determine that view?
Obviously the future is uncertain and who knows if the contracts rolling off will cause a large enough reduction in NMM's distributable cash flow to force them to cut the distribution. However, if investors want a 13% yield from NMM and then NMM hypothetically cuts the distribution by 50% does it logically follow that investors would cut the unit price by 50% to get the required yield back to 13%?
You can look at the history of OXF over the past 12 months as an example of what happens when an MLP starts reducing its distributions. It's a coal MLP so not an exact business peer but a definite example of MLP distribution cuts (although OXF provides a K-1 and NMM provides a 1099-DIV so that helps with NMM's investor receptivity).
Cheers,
Phil
Calumet: An 8% Yielder To Hold "Forever" [View article]
They may have spoken with some Investment Bankers recently that were talking about various concepts like buying in the GP and IDRs.
If I owned that GP though I would wait because the total dollar amount of the cash flow going to the GP isn't that high yet. They are just moving into the high 50%/50% split (when the quarterly distribution is above $0.675 per unit) which means that the cash flow to the GP will start growing at its fastest possible rate going forwards as long as CLMT can continue to raise its distributions. The total dollar amount of cash flow to the GP also always increases whenever an MLP issues more LP units (like CLMT just did on March 25).
Cheers,
Phil
Calumet: An 8% Yielder To Hold "Forever" [View article]
Thanks for the info.
Cheers,
Phil
Calumet: An 8% Yielder To Hold "Forever" [View article]
I listened to the CLMT Investor & Analyst Day call today and noticed I grabbed an incorrect number for that rough hedging % calculation. The 73,800 Bbls/d number I showed above was Fuel Products Sales Volume while it should be Production Volume instead which was 65,395 Bbls/d for 1Q13. So here is the updated 5 Year CLMT Crack Spread Hedging Summary (data from slide 25 of today's presentation) :
2013 - Max / Up to 75% - Actual ~34.4%
2014 - Max / Up to 75% - Actual ~21.4%
2015 - Max / Up to 75% - Actual ~20.0%
2016 - Max / Up to 75% - Actual ~1.5%
2017 - Max / Up to 75% - Actual 0%
5 Year Average Hedge Position: ~15.5% (so still plenty of room to add more hedging and I made a slight wording change to replace the word "Target" which seems a little strong vs. how they talked about hedging)
These are just very rough numbers because keep in mind they had a turnaround going on at their Superior location during 2Q13.
They hired a new IR Director and he helped to enhance the look and amount of data, etc. in their presentation, which you can find on their website here: http://bit.ly/P82R6o
I do appreciate good company presentations.
Magnetshar,
Nice pun!
Cheers,
Phil
Calumet: An 8% Yielder To Hold "Forever" [View article]
Understood, thanks for the responses.
Cheers,
Phil
Calumet: An 8% Yielder To Hold "Forever" [View article]
Do you have a link to a "Charts" website?
Also does this "Charts" website have the ability to show the actual quarterly distributions paid, because that is completely different than "Earnings"?
Cheers,
Phil
Calumet: An 8% Yielder To Hold "Forever" [View article]
Hedging is always helpful at reducing commodity price sensitivity / risk in a Company's cash flow, so CLMT's hedging program definitely does help.
As the slide in Bret's article shows, the Company states that their goal is to hedge up to 75% of their expected fuels production for up to 5 years, which is an excellent target. They have a long way to go to actually get to that level of hedging. You can see how far along they are towards that goal by checking their most recent 10-Q, pages 22 through 31: http://1.usa.gov/1bkQZ7F
I would assume flat Fuels production as a basic starting point over the "projected" period and then aggregate and compare all of the hedging positions to come up with the % of Estimated Fuels production that is actually hedged.
They also provided a summary chart of their crack spread hedges on page 24 of the NAPTP Presentation on May 23: http://bit.ly/P82R6o
Sales volumes for Fuel Products for 1Q13 was 73,800 Barrels / day so you could use that and compare it to the crack spread hedges to get the estimated % that is currently hedged. So based on the data from slide 24 here is a 5 Year CLMT Crack Spread Hedging Summary:
2013 - Target 75% Actual ~30%
2014 - Target 75% Actual ~19%
2015 - Target 75% Actual ~18%
2016 - Target 75% Actual ~1%
2017 - Target 75% Actual 0%
5 Year Average Hedge Position: ~14%
When you saw the slide in the article (it's from slide 23 in the 5/23 NAPTP presentation) did you think to yourself, "OK they have hedged 75% of their Fuels production for 5 years so that's really reduced the risk."?
When I look at an actual average crack spread hedge position over the next 5 years of ~14% I tend to think that "the company will be impacted significantly by rising or declining crack spreads."
CLMT's Gross Margin for 1Q13 was 53% from the Fuel Products side of the business and 47% from the Specialty Products side, so clearly the crack spread exposure from the Fuel Products side of the business remains very, very important.
Cheers,
Phil
http://mlpprotocol.com
Don't Let Rising Bond Yields Push You To Sell This Winner [View article]
I don't expect all the publicly traded GPs will disappear in 5 years. Western Gas Equity Partners, LP (WGP) is pretty close to being a pure GP, the only other assets it owns are LP units in its underlying Western Gas Partners, LP (WES). WGP just went public on December 6, 2012.
Since its IPO WGP has gone up ~67%, that strong market reception may lead to other GP owners deciding to pursue IPOs as well.
It seems like the trend could be going in the other direction and lead to more publicly traded GPs to invest in, which would be great.
Cheers,
Phil
Calumet: An 8% Yielder To Hold "Forever" [View article]
Do you have the data to extend the Distribution per Unit vs. Average Unit Price for the Quarter chart back to 1Q06?
You mention that they went public in 1Q06 so the full historical analysis seems like it would show a more full picture of how the units have done as a "forever" investment.
Cheers,
Phil
3 High-Yield Refiners For Income Investors [View article]
It is pretty easy to go over the $1,000 UBTI threshold in an IRA when you sell an MLP that you have held for a long time because the Recapture taxes are treated as UBTI (since the K-1 generating investment was held in a tax advantaged account).
Cheers,
Phil
3 High-Yield Refiners For Income Investors [View article]
I didn't write a specific article about CVRR but I probably have put up long winded comments everywhere so maybe you are thinking about some of my rambling comments perhaps?
To figure out the crack spread impact you just need to get the info from their IPO Prospectus and then update it for all info provided since that point and also the commodity price environment impacting their cash flows.
Let's look at NTI, here is the prospectus: http://1.usa.gov/W3MjLQ
They provide quarterly estimates and sensitivity adjustment info on pages 80-81. You can then take all of that info and build up a basic way to make adjustments in Excel.
On page 81 you can see their estimate for the distribution that they will pay for 2Q13, what is the number that they are showing? The line item is called "Available cash per unit" and found on page 81.
What adjustments do people want to make to update that estimate from last summer for today's market and all of the data provided by NTI since then?
Cheers,
Phil