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Philip Trinder

 
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  • BP Prudhoe Bay Royalty Trust: What Is BPT's Fair Value? [View article]
    dar43054,

    Thank you for adding your comment and I think even reposting it again after it was possibly censored as "abusive." I've actually got my basic model mostly together now and will likely post the full output including all assumptions, etc. on my website tomorrow for any interested parties to review and discuss.

    In order to further help people, I may even be willing to email people the full Excel file so they can tinker with it themselves and run whatever scenarios they feel are most appropriate. The model includes a "Scenario Summary" with 21 different projection scenarios and has 6 different WTI price cases so it does a decent job of covering a wide range of future outcomes.

    Yes, I know my definition of fun is different than most. And just so there is no confusion, I have no positions at all related to BPT.

    Cheers Everyone,
    Phil
    Jan 23 07:47 PM | 1 Like Like |Link to Comment
  • BP Prudhoe Bay Royalty Trust: What Is BPT's Fair Value? [View article]
    Prudent Investor,

    Please don't be confused and thinking I need any answers from your model, I am merely trying to determine if your projection model makes sense and what your many other projection scenarios told you about possible outcomes for BPT.

    Your model scenario is coming up with the following:

    "Cash distributions over the next 18 years are estimated to be $166.37 per share based on my assumptions."

    In your financial model what is your assumption for Consumer Price Index inflation?

    If you are assuming that WTI increases at 3% per annum then it seems consistent to assume that CPI rises at 3% per annum also, which means that the Cost Adjustment Factor would be increased at 3% per annum in your model.

    Assuming 3% CPI inflation over the projected period, what Cost Adjustment Factor and resulting Adjusted Chargeable Cost per Barrel does your model come up with for Q3 in 2030?

    For fun I started throwing together a BPT model last night. If inflation is 3% per annum going forwards, my BPT model is coming up with a Cost Adjustment Factor of 2.943 and a resulting Adjusted Chargeable Cost per Barrel of $158.94 for Q3 2030 (to keep it simple I assumed the Q4 2013 Cost Adjustment Factor stayed flat from Q3 2013 at 1.794 and then began escalating in 2014).

    Another critical assumption is the production decline curve for the Prudhoe Bay field, what is your annual decline curve assumption in your model?

    Regards,
    Phil
    Jan 22 11:15 AM | 1 Like Like |Link to Comment
  • Arc Logistics Partners: Near-Term Upside Catalysts, Longer-Term Questions [View article]
    Elliott,

    Small typo in the paragraph under the pie chart:

    "Arc Logistics Partners estimates that its 10.3 percent interest in this LNG import terminal will generate $8.7 BILLION in distributable cash flow over the 12 months ending Sept. 30, 2014, enabling the MLP to cover its targeted minimum distribution by 1.2 times."

    BILLION should be million.

    Cheers,
    Phil
    Jan 21 06:05 PM | Likes Like |Link to Comment
  • BP Prudhoe Bay Royalty Trust: What Is BPT's Fair Value? [View article]
    A Prudent Investor,


    You make this interesting statement in your article: "Oil is not made any more and it's only found in the hardest places today." The oil and gas companies operating within the United States certainly seem to be doing an incredible job of "finding" more oil as evidenced by the increasing trend in total U.S. oil production, which you can see here: http://1.usa.gov/1juwxHl

    I respectfully submit that the United States should not be viewed as one of the "hardest places" to find more oil in today.

    In your financial modeling did you run various price scenarios on the forward price of WTI? While we all know that the future is completely uncertain and nobody at all can have any clue what the actual prices of crude will be over the next 20 years, there is a futures market where energy players can hedge off risk for those forward prices so it reflects some collective viewpoint from energy participants. The forward curve may be a good "Sensitivity Case" for your financial model.

    Here's the WTI futures curve: http://bit.ly/10ovlQr

    If you input the futures prices into your model, how does that impact your estimated fair value?

    Also what inflation factor are you using to escalate the Cost Adjustment Factor? You state that "Real inflation is much higher than 2%" so I am assuming you are using a number greater than 2%.

    Here is another source for possible future WTI pricing scenarios. It is a survey of many of the banks that lend directly to oil and gas companies. The lenders all come up with estimated forward price decks to use when evaluating how much an oil and gas company can Borrow against its reserves. The lenders use these price scenarios to calculate the Borrowing Base amount for their secured oil and gas loans (so they are definitely a conservative mindset). Macquarie Tristone is nice enough to post the survey results here: http://bit.ly/1juwyLe


    Note that the survey has a Base Case and a Sensitivity Case that all of the lenders utilize, so now you can use 3 different projected price decks to further sensitize your BPT model:


    1. WTI Futures Curve
    2. Lender Survey Base Case
    3. Lender Survey Sensitivity Case

    Given the screaming uncertainty of future WTI prices it seems prudent to run some sensitivity analysis in your model to get a better feel for various possible future outcomes. I think it would be very interesting to see the output of your model on those three additional scenarios.

    Cheers,
    Phil
    Jan 21 12:11 PM | 4 Likes Like |Link to Comment
  • Natural Resource Partners: One Response To The Distribution Cut [View article]
    ba37840,

    Thank you very much for adding a real world example.

    Also for any of you who are sitting there realizing you may run into this Recapture problem from holding K-1 investments in an IRA, etc.; hypothetically, if I found myself in that position here is what I would do:

    Sell Deep In The Money Call Options on the entire MLP position in the IRA and use the LOWEST Call strike price available.

    Why?

    Because when you get called away at the specific call strike price, that strike price should get recorded as your sale price for the MLP position and your K-1 is calculated using that strike price / sales price (i.e. the lower Call price instead of current market price). You then effectively gain 100% from the sale of the call option (since you kept all the proceeds), which is non-taxed in an IRA; while also potentially reducing the ordinary gain / UBTI portion in your sale of the MLP position.

    So using the CLMT info provided by ba37840 and assuming a position of 100 CLMT units, I would sell one CLMT140816C15 contract and expect to get called away right before the next "Ex-Div" date (or worst case be called away by the August Ex-Div date, unless CLMT is below $15 for some reason).

    ba37840, sorry to impose, but could you go in and use $15 per unit as the sales price for the CLMT position and see what comes out as Ordinary Income and Long Term Capital gain and post it in a comment? Thanks in advance for your help.

    Please keep in mind this is just my theory and no I have never actually done it so I cannot speak from experience because I NEVER hold any K-1 generating investment in an IRA. I am not a tax expert, don't ever believe anything I say, always consult with your professional tax advisors and tax attorneys before starting any exercise err I mean trading startegy, and whatever other caveats and disclaimers could be applied here....

    Cheers Everyone,
    Phil
    Jan 17 05:31 PM | Likes Like |Link to Comment
  • Natural Resource Partners: One Response To The Distribution Cut [View article]
    rlaakso,

    You're welcome, just keep in mind those are very, very rough estimates. Also it is always a good habit to hang on to every single K-1 that you receive, just in case.

    Cheers,
    Phil
    Jan 17 01:34 PM | Likes Like |Link to Comment
  • Natural Resource Partners: One Response To The Distribution Cut [View article]
    rlaakso,

    I would think about a "long time" more in the context of receiving lifetime total distributions from the specific MLP position of more than $2,000.

    My insanely rough estimate is that if the specific MLP investment had received $2,000 in distributions then it would be possible that the Adjusted Tax Basis would have been lowered by ~$1,600 (assuming ~80% of the distributions are treated as "Return of Capital" and thus reduce the tax basis of the position on the K-1*). This reduction of $1,600 would then typically be treated as "Recapture" upon the sale of the specific MLP position. You can find some links to various MLP Tax Related Info here (scroll down for the Tax section): http://bit.ly/1aBuOtm.

    If that ~$1,600 of Recapture is in an any kind of Tax Advantaged account and is treated as UBTI then it exceeds the $1,000 threshold and the Tax Advantaged account will owe taxes to be paid directly out of the account via the fun 990-T tax form Larry A mentioned (which is exactly why I don't personally run that risk, it just seems sub-optimal to me, sort of like holding tax free Muni Bonds in an IRA).

    So if your definition of "considerable amount of NRP" means that you held more than 2,000 units you may need to check with the broker where your hold your account to see if you will need to have them prepare and file a 990-T for your account for 2013(some brokers will also charge the account a fee if they have to do a 990-T). Your broker will probably want you to send them copies of all of the K-1s that you receive for that specific Tax Advantaged account.

    Here's the back of the envelope insanely oversimplified math for an NRP position:

    - 2,000 purchased (average price $17.50, so a total investment of only ~$35,000)
    - 2 distributions at $0.55 each
    - Total Distributions received $2,200
    - Assuming 65% tax deferred distributions for NRP results in an estimate of ~$1,430 of reductions to tax basis, meaning an estimate of ~$1,430 of Recapture upon sale
    - Taxes due on the ~$430, the taxes will be paid directly out of the tax advantaged account (plus any fee your friendly broker charges as well)

    Thus it seems extremely easy to me to go over the $1,000 threshold.

    Larry A would have the view that the Recapture is not considered UBTI. I don't mind at all, I just avoid the potential issue entirely by NEVER holding any K-1 investment in any Tax Advantaged account of any kind.

    Best Regards,
    Phil

    *These are insanely rough estimates as there are many, many other factors that impact the Adjusted Tax Basis of a given MLP position. Also my current estimate is that NRP distributions are about 65% tax deferred (vs. the 80% used in the first math example above).
    Jan 15 01:17 PM | Likes Like |Link to Comment
  • Natural Resource Partners: One Response To The Distribution Cut [View article]
    Dividend Sleuth,

    You're welcome and thanks.

    Larry A,

    Indeed the confusion surrounding MLPs, UBTI and the tax code is breathtaking. People tend to want to believe whatever is best for their personal situation. I merely mention the risk for people just in case it may help someone from having issues at some point. Personally I won't ever have to worry about that UBTI issue because I never hold any K-1 generating investment in an IRA (or any tax advantaged account).

    I've seen estimates that ~30% of the K-1s that get sent out each year are sent to tax advantaged accounts (although that is by number of K-1s and I would be much more interested to know actual dollar amounts of investment, i.e. it could still be that 98% of the MLP value is still held in taxable accounts and it is just many tiny dollar amounts held in IRAs). As an MLP investor and trader I'm very, very grateful for anyone and everyone who invests in the space as that increases overall liquidity (even if they may be using IRA funds that are ill advised to allocate to K-1 investments).

    Best Regards,
    Phil
    Jan 15 10:37 AM | Likes Like |Link to Comment
  • Cypress Energy Partners: IPO Could Flow Nicely Uphill [View article]
    Looks like CELP priced at $20, I'm impressed.
    Jan 14 09:50 PM | Likes Like |Link to Comment
  • Cypress Energy Partners: IPO Could Flow Nicely Uphill [View article]
    Don,

    The $20 price looks a little high to me given CELP's very small size, risk profile, pro forma leverage and my view on its growth rate but if the price gets low enough I might like it. The collective market view could also be for a higher growth rate but we'll see once the pricing press release comes out.

    - 7 of the last 9 MLP IPOs priced below the mid-point*
    - 4 of the last 9 MLP IPOs priced below the low end of the price range*

    *Excludes CQH

    Cheers,
    Phil
    Jan 14 08:48 PM | Likes Like |Link to Comment
  • Cypress Energy Partners: IPO Could Flow Nicely Uphill [View article]
    Don,

    Do you think it will price at $20 or does it seem possible that it might price below the low end of the range?

    Cheers,
    Phil
    Jan 14 03:42 PM | Likes Like |Link to Comment
  • Natural Resource Partners: One Response To The Distribution Cut [View article]
    Dividend Sleuth,

    One thing to be aware of when holding MLPs in an IRA (or any tax advantaged accounts) is that the recapture portion incurred when selling an MLP in an IRA generates UBTI, so it is extremely easy to go over the $1,000 threshold when selling an MLP position that has been held for a long time.

    From Hinds Howards’, excellent MLP blog:

    "UBTI recapture in an IRA? When you sell an MLP in any account, there is ordinary income recapture. But in an IRA, is there anything such as UBTI recapture? In other words, beyond the annual UBTI tax (assuming you are above the $1,000 threshold) is there some cumulative UBTI tax that is triggered when I sell an MLP I have owned for a long time in an IRA?

    - When you sell an MLP in a regular taxable account, the difference between your original purchase price and your adjusted basis (adjusted down for distributions, and up for allocated income) is recaptured at ordinary income tax rates. The difference between your selling price and the original purchase price is taxed at capital gains rates.

    - When you sell an MLP in a IRA or otherwise tax-exempt account, the part that would have been considered ordinary income recapture above would be taxed at UBTI’s graduated tax rates (for any amount above $1,000). So, there are two components of UBTI: the annual UBTI that gets allocated each year, and there is the UBTI recapture upon sale."

    Source: http://bit.ly/GU3KdB

    Cheers,
    Phil
    Jan 13 01:25 PM | 1 Like Like |Link to Comment
  • 3 Aggressively Growing High-Yield MLP Plays For 2014 And Beyond [View article]
    arbtrdr,

    Is there a specific reason that you think PAA's "yield ... could get hit if and when we get a spike in interest rates"?

    Do you have a company specific view on only PAA or do you view all MLPs as likely to "get hit if and when we get a spike in interest rates"?

    Thanks in advance for any responses.

    Cheers,
    Phil
    Jan 10 02:10 PM | 2 Likes Like |Link to Comment
  • IPO Preview: Cheniere Energy Partners LP Holdings [View article]
    If a company has $4.6 million of cash to pay dividends out at the end of a quarter and that company has 231.7 million common shares outstanding, what dividend can that company pay per common share?
    Jan 8 10:25 PM | Likes Like |Link to Comment
  • IPO Preview: Cheniere Energy Partners LP Holdings [View article]
    Right so CQH will not receive any cash distributions from CQP on either of those until some time in 2017 thus CQH will only get cash from the CQP Common units that it owns. So CQH will only be able to use the cash flow stream from the ~12MM CQP common units it owns to be able to pay dividends to its 231.7MM common shares.
    Jan 8 09:52 PM | Likes Like |Link to Comment
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