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Energy
3 Comments
Outrageous Opportunities in Upstream MLPs
First PV-10 prices are NOT lower than current hedged prices. Where did you get that information? Have you looked at hedging lately? The curve is in backwardation and no dealer will make a market at those prices.
Second, 10% is a generous rate? Are you kidding me ? The typical oil & gas company can not earn a return greater than 12-15% IRR (which I am certain none of you will not believe and that is a good thing for me), so how can 10% be acceptable? I am sure you been one of the poor saps on the other side of my hedge fund's trades and am glad you are out there for my liquidity.
Third, the debt markets aren't open. Those acquistions you cite were done on bank revolvers and can not be termed out in the debt market...pick up a copy of the WSJ one of these days.
For full disclosure - I am currently short only a few of upstream MLPS at this time...been have been mostly short the refiners and long corn, soy, and silver. Cheers and hope this info has helped somebody.
Outrageous Opportunities in Upstream MLPs
If Mr. Heycke really thinks anyone in their right mind would buy a E&P company at PV-10 shows an extreme lack of understanding of basic oil & gas analysis, which he further compounds by forgetting the simple fact that non-cash FAS 133 hedge accounting is not including in DCF making it completely irrelevant.
At least the author was correct about the PIPE issue, because that is one of the issues. In addition the markets overriding concern that E&P MLPs not having adequate access to either equity or debt markets to fund development drilling on a go forward basis...but that is not worth mentioning...right?
Why U.S Gas Prices Will Continue to Rise Rapidly
Futher, the article does not address the ever important concepts as to why cracks have fallen so hard, and why they are not likely to return at a rapid pace anytime soon. First, the refining cycle has been pushed too far by artificial demand pulls by MTBE phase-out, desufurization, etc. that are no longer prevalent.
Second, aggregate distillate inventories are the highest in well over a decade with deseasonalized demand down 5% YoY, causing the wholesale rack price to push while the price of crude is in a pull. We are seeing the same thing in Singapore "dirty" cracks, kerosene cracks, and heating oil cracks.
As for the comparison between XOM and cracks, its a strange analysis since only 23% of XOM's cash flow is from downtream activities and does not make sense. The R&M index peaked over a year ago, making the arbitrary correlation btw XOM and cracks spurious at best.