20% Dividend Potential With Northern Tier [View article]
Bandit,
Thanks for the kind words, I'm probably a bit more of an obsessed investor than others.
OK so IF the actual NTI Refinery gross product margin per barrel of throughput averages $25 for 2Q13 (keeping mind that the net margin at the NTI refinery takes into account the benefit they receive from favorable crude input mix prices i.e. partial mix of WCS) and the volumes match the estimate from the Prospectus then the estimated 2Q13 distribution is around $0.39 (also I've made some other slight adjustments to my model based on reported 3Q12 and 4Q12).
If the actual NTI Refinery gross product margin per barrel of throughput averages $30 then the estimated 2Q13 distribution increases to $0.53, both of these are substantially lower than the $1.27 needed to have a forward yield of 20%. The 2Q13 distribution will be paid at the end of August/early September.
Current Futures Prices (so not spot prices, not location adjusted for NTI, not crude slate adjusted for NTI's input mix, etc., just showing as a very rough benchmark):
The key will be what they announce for the 2Q13 distribution (we'll know 1Q13 soon enough). IF there are a large number of information asymmetric investors in NTI that blissfully think they are getting a 20% yield, haven't done enough due diligence and suddenly see a $0.39 distribution (5.8% annualized yield at current $26.70), they may turn into panicked sellers. Be prepared.
20% Dividend Potential With Northern Tier [View article]
Bandit,
Thanks again! And no worries I'm starting to think that individual investors don't actually read any Prospectus!!
So the 3Q12 and 4Q12 distributions were substantially higher than the Prospectus estimate. Why? The main reason is that the crack spread they actually experienced was substantially higher than the estimate in the Prospectus.
Let's now focus in on the 2Q13 estimate, in the Prospectus they actually project a slightly higher refinery crack spread in 2Q13 vs 1Q13 BUT they project substantially lower throughput volumes due to the turnaround (page 80). The volumes are estimated to be 36% lower. Notice how that translates into an estimated distribution of $0.24 (refinery gross product margin estimate for 2Q13 of $17.85 /Bbl in the Prospectus), lower throughput volume means lower distributable cash flow.
Higher crack spread means higher distributable cash flow so let's back solve for what crack spread they would need to experience during 2Q13 in order to pay a distribution that matches your estimate of $0.95 to $1.00. They provide a bunch of detail on pages 80-81 that allow you to build a sensitivity model to make adjustments, I used that to build such a model.
So using the model and their projected volumes they would need to experience a refinery gross product margin of $42 - $44 per barrel to be able to pay a $0.95 - $1.00 distribution for 2Q13.
Does that seem likely?
What is a rough ballpark estimate for the current Nymex 3-2-1 Crack Spread?
Is everyone still thinking the low case forward yield is ~16%?
20% Dividend Potential With Northern Tier [View article]
Bandit,
Thank you again for your response. OK so your view on the second and fourth quarters is that based on using knowledge you gained from the quarterly projections that were provided in the Prospectus?
I'm honestly trying to see if investors utilize all the public information that is out there for their benefit. It almost seems like there is consistent information asymmetry in the market because some segment of the investing public makes investment decisions without expending much effort to analyze them fully.
For fun could somebody please post the estimated quarterly distributions that NTI provided in their Prospectus for 1Q13 and 2Q13 (or post all 4Qs they provided, either way). The projections can be found on page 81 on the line item called "Cash distributions to common unitholders."
20% Dividend Potential With Northern Tier [View article]
LaurenRS,
NTI is designed to only payout 100% of its distributable cash flow per quarter.
Is the payout ratio that you are looking at based on a non-cash flow related number like "earnings"?
How does that price/cash flow metric you mention of 10.03 compare to NTI's peer group? How does it compare to the full universe of publicly traded refiners? I'm wondering what context you are using for your statement that the price/cash flow is "very high."
20% Dividend Potential With Northern Tier [View article]
Bandit,
Excellent, thank you very much for providing specific estimates on NTI. Also thank you for bringing up an important additional piece of information that I don't think has been covered in this article or discussion yet, which is the second turnaround scheduled in 2013 that will occur in October.
From NTI's 10-K:
"We are currently planning a major plant turnaround to occur during April 2013 and another partial turnaround for our fluid catalytic cracking unit during October 2013, for which we have budgeted aggregate spending of approximately $55 to $60 million. The refinery is currently expected to have reduced throughputs during the months of April and October 2013 to complete the turnarounds."
So during parts of 2 of the quarters in 2013 the refinery will not be producing distributable cash flow because they will be conducting turnarounds, keeping that in mind let's revisit your quarterly distribution estimates:
1Q13: $0.95 to $1.00 (Refinery running 100% of the Q) 2Q13: $0.95 to $1.00 (Refinery running 72% of the Q) 3Q13: $1.25 to $1.40 (Refinery running 100% of the Q) 4Q13: $0.95 to $1.00 (Refinery running 84% of the Q, I'm assuming that the partial turnaround takes the refinery offline for 15 days)
Does it seem likely that NTI will generate the same distributable cash flow in quarters where it only generates cash flow for 72% and ~84% of the quarters?
NTI provided estimates for 2Q13 which includes the impact of the turnaround that is currently underway (pages 80-81): http://1.usa.gov/W3MjLQ
Is the current consensus in this discussion that the low case for NTI's next twelve month yield is 16% or do we think it might be lower as a result of the turnarounds?
We also haven't even begun to address changes in the crack spread.
20% Dividend Potential With Northern Tier [View article]
rheimerl,
You make an excellent point, so the MLP peer group of refining MLPs that pay variable distributions are NTI (IPO 7/25/12), ALDW (IPO 11/19/12) and CVRR (IPO 1/16/13).
All 3 have different expected yields over the next twelve months.
20% Dividend Potential With Northern Tier [View article]
Equity Options Guru,
OK fair enough so what about the three quarters after 1Q13?
Do the analyst reports you are looking at provide any estimates for distributions per unit past 1Q13?
In the NTI IPO Prospectus they provide a breakout of projected distributable cash flow for the first four quarters they would be public (so last summer they provided projections through the end of June 30, 2013). You can find it starting on page 80.
The 20% yield number you are using in your conclusion is based on projecting a $1.27 distribution for each of the next four quarters. Please take a quick look at their numbers in the Prospectus, it also makes sense to adjust their numbers for the ever changing crack spread, things they've announced since their IPO, etc. They provide an estimate of each quarter's distribution per unit on page 81, the line item is called "Cash distributions to common unitholders."
After reviewing their own projections and adjusting as you see fit, how comfortable are you that NTI yields 20% on a go forward basis?
Does the additional data provided in the Prospectus change your projection model?
See page 67 for KPMG audit letter, here are the highlights:
"In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Linn Energy, LLC and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Linn Energy, LLC’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 21, 2013, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting."
Spotting The Undervalued And The Overvalued Small Midstream Companies (Part III) [View article]
Value Digger,
Nice job on SEMG, it looks like that one might break the uptrend on its chart so may get some additional technical selling pressure near term. Thanks for the response.
Spotting The Undervalued And The Overvalued Small Midstream Companies (Part III) [View article]
Value Digger,
Did you short TRGP? They just announced an 8.2% quarter over quarter increase in their divided, which is also a 35.6% year over year increase.
If you haven't put on a short position then there may be a jump in TRGP's price as a result of the dividend increase that you could then sell short, although personally I wouldn't recommend shorting TRGP.
Put Safe Haven BreitBurn Energy Partners On Your Buy List [View article]
Casey,
You may also want to look at LINE's hedging position on a total production basis so including the NGL production that they have, because it is hard to hedge NGLs out past 18 to 24 months.
NGLs currently represent around 22% of LINE's total production (prior to the impact of the BRY acquisition), so they are not 100% hedged on a total production basis over the next four years as many seem to conclude from looking at the Natural Gas and Oil hedge positions.
IPO Watch: USA Compression Partners [View article]
The USAC IPO Prospectus explains their distribution policy on page 15:
"Our general partner will adopt a cash distribution policy that will require us to pay a minimum quarterly distribution of $0.425 per unit ($1.70 per unit on an annualized basis) to the extent we have sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to our general partner and its affiliates. We refer to this cash as "available cash," and it is defined in our partnership agreement included in this prospectus as Appendix A and in the glossary included in this prospectus as Appendix B. Our ability to pay the minimum quarterly distribution is subject to various restrictions and other factors described in more detail under the caption "Our Cash Distribution Policy and Restrictions on Distributions." For the first quarter that we are publicly traded, we will pay a prorated distribution covering the period from the completion of this offering through March 31, 2013, based on the actual length of that period."
Put Safe Haven BreitBurn Energy Partners On Your Buy List [View article]
David,
After taking all of the factors you mention in your article into account, S&P rates BBEP as a B+ Corporate Rating and rates its bonds as a single B, so on a comparative basis it may not be as safe as the larger investment grade MLPs (hence the higher yield).
Here's the blurb S&P put out when BBEP added on to its outstanding bonds last September:
"Mon Sep 24, 2012 12:46pm EDT
Sept 24 - Standard & Poor's Ratings Services said today the 'B' rating on BreitBurn Energy Partners' senior unsecured notes due 2022 would remain unchanged following the company's plan to add $200 million. This brings the total issue amount to $450 million. The recovery rating on the note remains '5', indicating our expectation of modest (10% to 30%) recovery for lenders in the event of default. BreitBurn plans to use the proceeds to refinance borrowings under its credit facility.
The ratings on Los Angeles-based oil and gas property developer BreitBurn reflect our assessment of the company's "vulnerable" business risk and "aggressive" financial risk. The ratings incorporate the company's relatively small asset base and production levels, some geographic concentration(about 50% of its total proved reserves are in Michigan), and modest organic growth prospects from its mature asset base. The ratings also take into account its acquisitive strategy as a master limited partnership (MLP) that focuses on maintaining its dividend and its relatively high cost structure compared with other exploration and production (E&P) companies. These risks are adequately mitigated at the rating level by a significant hedge book over the next few years that should help offset natural gas and oil price volatility, a large concentration of proved developed reserves in its asset base, long-lived reserves, and diversity between oil and gas."
Also for those unfamiliar with the S&P debt ratings scale here's a link to their Credit Ratings Definitions: http://bit.ly/YXrIy2
I know many might argue that the ratings agencies are less than perfect in their ratings, so I am merely providing the information as additional data for investors to use in understanding and evaluating BBEP.
20% Dividend Potential With Northern Tier [View article]
Thanks for the kind words, I'm probably a bit more of an obsessed investor than others.
OK so IF the actual NTI Refinery gross product margin per barrel of throughput averages $25 for 2Q13 (keeping mind that the net margin at the NTI refinery takes into account the benefit they receive from favorable crude input mix prices i.e. partial mix of WCS) and the volumes match the estimate from the Prospectus then the estimated 2Q13 distribution is around $0.39 (also I've made some other slight adjustments to my model based on reported 3Q12 and 4Q12).
If the actual NTI Refinery gross product margin per barrel of throughput averages $30 then the estimated 2Q13 distribution increases to $0.53, both of these are substantially lower than the $1.27 needed to have a forward yield of 20%. The 2Q13 distribution will be paid at the end of August/early September.
Current Futures Prices (so not spot prices, not location adjusted for NTI, not crude slate adjusted for NTI's input mix, etc., just showing as a very rough benchmark):
WTI Oil: $88.51 / Bbl
Gasoline: $2.7642 / Gal
Heating Oil: $2.7823 / Gal
Resulting 3-2-1 Crack Spread: $27.84 / Bbl
The key will be what they announce for the 2Q13 distribution (we'll know 1Q13 soon enough). IF there are a large number of information asymmetric investors in NTI that blissfully think they are getting a 20% yield, haven't done enough due diligence and suddenly see a $0.39 distribution (5.8% annualized yield at current $26.70), they may turn into panicked sellers. Be prepared.
Information Asymmetry is bad for your portfolio.
Cheers,
Phil
20% Dividend Potential With Northern Tier [View article]
Thanks again! And no worries I'm starting to think that individual investors don't actually read any Prospectus!!
So the 3Q12 and 4Q12 distributions were substantially higher than the Prospectus estimate. Why? The main reason is that the crack spread they actually experienced was substantially higher than the estimate in the Prospectus.
Let's now focus in on the 2Q13 estimate, in the Prospectus they actually project a slightly higher refinery crack spread in 2Q13 vs 1Q13 BUT they project substantially lower throughput volumes due to the turnaround (page 80). The volumes are estimated to be 36% lower. Notice how that translates into an estimated distribution of $0.24 (refinery gross product margin estimate for 2Q13 of $17.85 /Bbl in the Prospectus), lower throughput volume means lower distributable cash flow.
Higher crack spread means higher distributable cash flow so let's back solve for what crack spread they would need to experience during 2Q13 in order to pay a distribution that matches your estimate of $0.95 to $1.00. They provide a bunch of detail on pages 80-81 that allow you to build a sensitivity model to make adjustments, I used that to build such a model.
So using the model and their projected volumes they would need to experience a refinery gross product margin of $42 - $44 per barrel to be able to pay a $0.95 - $1.00 distribution for 2Q13.
Does that seem likely?
What is a rough ballpark estimate for the current Nymex 3-2-1 Crack Spread?
Is everyone still thinking the low case forward yield is ~16%?
Cheers,
Phil
20% Dividend Potential With Northern Tier [View article]
Thank you again for your response. OK so your view on the second and fourth quarters is that based on using knowledge you gained from the quarterly projections that were provided in the Prospectus?
I'm honestly trying to see if investors utilize all the public information that is out there for their benefit. It almost seems like there is consistent information asymmetry in the market because some segment of the investing public makes investment decisions without expending much effort to analyze them fully.
For fun could somebody please post the estimated quarterly distributions that NTI provided in their Prospectus for 1Q13 and 2Q13 (or post all 4Qs they provided, either way). The projections can be found on page 81 on the line item called "Cash distributions to common unitholders."
Link to Prospectus: http://1.usa.gov/W3MjLQ
Cheers,
Phil
20% Dividend Potential With Northern Tier [View article]
NTI is designed to only payout 100% of its distributable cash flow per quarter.
Is the payout ratio that you are looking at based on a non-cash flow related number like "earnings"?
How does that price/cash flow metric you mention of 10.03 compare to NTI's peer group? How does it compare to the full universe of publicly traded refiners? I'm wondering what context you are using for your statement that the price/cash flow is "very high."
Any responses are greatly appreciated.
Cheers,
Phil
20% Dividend Potential With Northern Tier [View article]
Excellent, thank you very much for providing specific estimates on NTI. Also thank you for bringing up an important additional piece of information that I don't think has been covered in this article or discussion yet, which is the second turnaround scheduled in 2013 that will occur in October.
From NTI's 10-K:
"We are currently planning a major plant turnaround to occur during April 2013 and another partial turnaround for our fluid catalytic cracking unit during October 2013, for which we have budgeted aggregate spending of approximately $55 to $60 million. The refinery is currently expected to have reduced throughputs during the months of April and October 2013 to complete the turnarounds."
So during parts of 2 of the quarters in 2013 the refinery will not be producing distributable cash flow because they will be conducting turnarounds, keeping that in mind let's revisit your quarterly distribution estimates:
1Q13: $0.95 to $1.00 (Refinery running 100% of the Q)
2Q13: $0.95 to $1.00 (Refinery running 72% of the Q)
3Q13: $1.25 to $1.40 (Refinery running 100% of the Q)
4Q13: $0.95 to $1.00 (Refinery running 84% of the Q, I'm assuming that the partial turnaround takes the refinery offline for 15 days)
Does it seem likely that NTI will generate the same distributable cash flow in quarters where it only generates cash flow for 72% and ~84% of the quarters?
NTI provided estimates for 2Q13 which includes the impact of the turnaround that is currently underway (pages 80-81): http://1.usa.gov/W3MjLQ
Is the current consensus in this discussion that the low case for NTI's next twelve month yield is 16% or do we think it might be lower as a result of the turnarounds?
We also haven't even begun to address changes in the crack spread.
Cheers,
Phil
20% Dividend Potential With Northern Tier [View article]
You make an excellent point, so the MLP peer group of refining MLPs that pay variable distributions are NTI (IPO 7/25/12), ALDW (IPO 11/19/12) and CVRR (IPO 1/16/13).
All 3 have different expected yields over the next twelve months.
What yield do people expect for each one of them?
Cheers,
Phil
20% Dividend Potential With Northern Tier [View article]
OK fair enough so what about the three quarters after 1Q13?
Do the analyst reports you are looking at provide any estimates for distributions per unit past 1Q13?
In the NTI IPO Prospectus they provide a breakout of projected distributable cash flow for the first four quarters they would be public (so last summer they provided projections through the end of June 30, 2013). You can find it starting on page 80.
Link to Prospectus: http://1.usa.gov/W3MjLQ
The 20% yield number you are using in your conclusion is based on projecting a $1.27 distribution for each of the next four quarters. Please take a quick look at their numbers in the Prospectus, it also makes sense to adjust their numbers for the ever changing crack spread, things they've announced since their IPO, etc. They provide an estimate of each quarter's distribution per unit on page 81, the line item is called "Cash distributions to common unitholders."
After reviewing their own projections and adjusting as you see fit, how comfortable are you that NTI yields 20% on a go forward basis?
Does the additional data provided in the Prospectus change your projection model?
Cheers,
Phil
20% Dividend Potential With Northern Tier [View article]
What are your projections for the next 4 distributions for NTI?
Are you assuming that they will be able to pay $1.27 per quarter for each of the next four quarters?
Cheers,
Phil
Linn Energy: A Solid Choice For Income [View article]
Just a heads up, the financial auditor information is included in every public company's Annual 10-K filing, for Linn Energy the auditor is KPMG.
Link to Linn Energy's 10-K: http://1.usa.gov/YvkCx6
See page 67 for KPMG audit letter, here are the highlights:
"In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Linn Energy, LLC and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Linn Energy, LLC’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 21, 2013, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting."
Cheers,
Phil
Spotting The Undervalued And The Overvalued Small Midstream Companies (Part III) [View article]
Nice job on SEMG, it looks like that one might break the uptrend on its chart so may get some additional technical selling pressure near term. Thanks for the response.
Cheers,
Phil
Spotting The Undervalued And The Overvalued Small Midstream Companies (Part III) [View article]
TRGP didn't jump and looks to be slipping downwards this morning along with the overall market, do you add to short position here?
Also do you have any thoughts on perhaps doing a pairs trade so short TRGP and long a peer company that you view as undervalued?
Have you reviewed any General Partner peers that you consider undervalued?
Cheers,
Phil
Spotting The Undervalued And The Overvalued Small Midstream Companies (Part III) [View article]
Did you short TRGP? They just announced an 8.2% quarter over quarter increase in their divided, which is also a 35.6% year over year increase.
If you haven't put on a short position then there may be a jump in TRGP's price as a result of the dividend increase that you could then sell short, although personally I wouldn't recommend shorting TRGP.
Cheers,
Phil
Put Safe Haven BreitBurn Energy Partners On Your Buy List [View article]
You may also want to look at LINE's hedging position on a total production basis so including the NGL production that they have, because it is hard to hedge NGLs out past 18 to 24 months.
NGLs currently represent around 22% of LINE's total production (prior to the impact of the BRY acquisition), so they are not 100% hedged on a total production basis over the next four years as many seem to conclude from looking at the Natural Gas and Oil hedge positions.
Cheers,
Phil
IPO Watch: USA Compression Partners [View article]
"Our general partner will adopt a cash distribution policy that will require us to pay a minimum quarterly distribution of $0.425 per unit ($1.70 per unit on an annualized basis) to the extent we have sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to our general partner and its affiliates. We refer to this cash as "available cash," and it is defined in our partnership agreement included in this prospectus as Appendix A and in the glossary included in this prospectus as Appendix B. Our ability to pay the minimum quarterly distribution is subject to various restrictions and other factors described in more detail under the caption "Our Cash Distribution Policy and Restrictions on Distributions." For the first quarter that we are publicly traded, we will pay a prorated distribution covering the period from the completion of this offering through March 31, 2013, based on the actual length of that period."
Link to Prospectus: http://1.usa.gov/XO4hsq
So USAC has the more prevalent MLP structure with a Minimum Quarterly Distribution and Incentive Distribution Rights to the General Partner.
Cheers,
Phil
Put Safe Haven BreitBurn Energy Partners On Your Buy List [View article]
After taking all of the factors you mention in your article into account, S&P rates BBEP as a B+ Corporate Rating and rates its bonds as a single B, so on a comparative basis it may not be as safe as the larger investment grade MLPs (hence the higher yield).
Here's the blurb S&P put out when BBEP added on to its outstanding bonds last September:
"Mon Sep 24, 2012 12:46pm EDT
Sept 24 - Standard & Poor's Ratings Services said today the 'B' rating on BreitBurn Energy Partners' senior unsecured notes due 2022 would remain unchanged following the company's plan to add $200 million. This brings the total issue amount to $450 million. The recovery rating on the note remains '5', indicating our expectation of modest (10% to 30%) recovery for lenders in the event of default. BreitBurn plans to use the proceeds to refinance borrowings under its credit facility.
The ratings on Los Angeles-based oil and gas property developer BreitBurn reflect our assessment of the company's "vulnerable" business risk and "aggressive" financial risk. The ratings incorporate the company's relatively small asset base and production levels, some geographic concentration(about 50% of its total proved reserves are in Michigan), and modest organic growth prospects from its mature asset base. The ratings also take into account its acquisitive strategy as a master limited partnership (MLP) that focuses on maintaining its dividend and its relatively high cost structure compared with other exploration and production (E&P) companies. These risks are adequately mitigated at the rating level by a significant hedge book over the next few years that should help offset natural gas and oil price volatility, a large concentration of proved developed reserves in its asset base, long-lived reserves, and diversity between oil and gas."
Source: http://reut.rs/ZsIIIY
Also for those unfamiliar with the S&P debt ratings scale here's a link to their Credit Ratings Definitions: http://bit.ly/YXrIy2
I know many might argue that the ratings agencies are less than perfect in their ratings, so I am merely providing the information as additional data for investors to use in understanding and evaluating BBEP.
Cheers,
Phil