You are viewing the chat in desktop mode. Click here to switch to mobile view.
X
Return toCapitalist Times
2/27/25 Capitalist Times Live Chat
powered byJotCast
View Full Chat Next Page
AvatarRoger Conrad
1:41
Welcome to our Capitalist Times live webchat for February 2025.
 
As always, there is no audio. Just type in your questions and we’ll get to them just as soon as we can comprehensively and concisely. If you’ve been with us a while, you know these things tend to go on for a while. So if you have to go away before your question is answered, rest assured that tomorrow morning we’ll be sending you a link to the transcript of the entire Q&A.
 
Thanks for joining us today. Per usual, we’ll be starting with our answers to queries we received prior to the chat.
 
Q. Hi Roger.

I've got some shares of Everus Construction Group (NYSE: ECG). I think that came from a spinoff of MDU Resources (NYSE: MDU). It's been dropping like a stone. I can't find ECG in the Utility Report Card. What's your advice on ECG? Regards—Kerry T.
 
A. Hi Kerry
 
I did not pick up coverage of either Everus Construction (NYSE: ECG) or Knife River Corp (NYSE: KNF), following their spinoff from MDU Resources.
1:42
. I do continue to track the remaining MDU Resources (NYSE: MDU) in the Utility Report Card, as it continues to operate electric and natural gas utilities as well as regulated gas pipelines. I am happy to answer questions regarding the spinoffs though.
 
The advice on both Everus and Knife River as they were rising last year was to consider taking partial profits--or for those who needed income to consider redeploying the funds into dividend paying stocks. That's still my advice for Knife River, a well run company with a great asset base but that sells for close to three times what it did at the spinout date--even after backing off a bit from its high point over $100 in late January/early February. I thought KNF's Q4 results were basically solid (EBITDA up 12% and net income per share up 14%--primarily on improved margins as revenue was up just 2%. It's important to remember this business performed cyclically as part of MDU and almost surely will going forward as an independent company. I think the company
will continue to boost margins with internal efficiency measures. And there's the potential for a takeover. Guidance for 2025 ($3 to $3.2 bil rev, $485 to $535 mil EBITDA) is also pretty solid. But the stock has come a long way in a hurry. And if the economy should slow, I think it would go somewhat lower in the near term before heading higher.
 
As for Everus, it came out even hotter than KNF after the spinoff--I think in large part because KNF did so well. But since Feb 11 when the company issued earnings, it's definitely been crushed and is in fact lower than where it was at the spin last year. 
 
The numbers weren't horrible--Full year EBITDA was up 4.3%, primarily on the strength of a 30 basis point improvement in margins. Full year revenue was basically flat with 2023. But Q4 sales advanced by 19.5% and backlog ended the year at $2.8 bil, up 38.3% from the year before. On the other hand, the results also demonstrated that Everus' core business is highly cyclical and that results can be quite lumpy. And
2025 guidance clearly shows management expects a slowdown despite the statement that the company "has strong momentum heading into 2025." Mainly, the revenue guidance range is $3 to $3.1 billion, a 7% increase at the mid-point implying slower sales growth from what we saw in Q4. And the EBITDA guidance range of $210 to $225 million compares to 2024 EBITDA of $232.2 million, implying a -6.3% decline at the midpoint.
 
Again, we saw this kind of quarter by quarter volatility of results when Everus was part of MDU--and there was no reason at the spinoff to expect anything different after though many investors appear to have. The core pieces of this business occupy solid niches as they have for decades--Electrical and Mechanical has a strong connection to data center growth, Transmission and Distribution is seeing a nice pickup with its regulated utility customer base that should definitely continue this year. And this company generates a great deal of free cash flow to support management's continuing guidance of
1:43
5-7% annual revenue and 7-9% annual EBITDA growth going forward. 
 
Why the severity of this selloff? The catalyst in my view was disappointment with the EBITDA (meaning margins) guidance, which pretty obviously was not what the people bidding this stock up last year expected. But a bigger takeaway from this earnings reporting season is that stocks of companies perceived to "miss" expectations have been dumped en masse--with a far greater impact on stock prices than the actual news and numbers would justify. I definitely believe that to be the case here--though it's also likely true investors bidding this stock up the past couple months weren't really seeing Everus for the cyclical stock that it is. This stock right now trades at about 13.7X its trailing 12 months earnings and 1X annual sales.
That looks cheap for what is still a solid company that's well positioned to capture orders and could get a takeover bid. It may not get to where it was in the post-split run-up. But I think it's worth holding onto now after this selloff.
 
Q. There’s been lots of publicity on gold lately. Do you have any general advice for investors who know nothing about gold as an investment My holdings have grown to a point (thanks to you) that I need to start thinking about ways to protect it from a long-term bear market. I am 90 years old in fair health. I am still an active trader but not nearly as much as in the past.
I know this is an impossible request, but any comments you have would be appreciated.—Dan P.
 
A. Hi Dan
 
I think Newmont Mining (NYSE: NEM) is a good way to own gold without taking on a lot of risk.
. The company is now the largest gold mining company in the world after taking over Newcrest Mining of Australia. And it has a massive opportunity the next few years to (1) Sell gold at historically high prices, (2) cut debt deeply by selling less profitable mines and (3) cut operating costs substantially by focusing efforts on the most profitable mines--which also contain a great deal of copper.
 
The dividend yield is low currently (2.27%) as the company has been declaring only its "base" dividend of 25 cents per share, holding the "variable" portion to zero and devoting the saved free cash flow to aggressively buying back stock ($1.2 bil in Q4). They announced Q4 earnings on Feb 20, featuring a record $1.6 bil in Q4 free cash flow (up 155%). Gold production of 6.8 mil oz met guidance (up 14%), including 5.7 mil oz from the "Tier 1 portfolio."
 
Debt was cut by $1.4 bil driving down net debt to EBITDA to just 0.6X. Bottom line is Newmont's efficiency and restructuring plans are very much on track and we
1:44
should continue to see strong results in 2025, including lower production costs and higher margins. Targets are still 6 mil oz of gold and 150,000 tons of copper production every year--that's even as gold prices remain well above the $1,700 oz management appears to have based reserve value on. I expect a dividend 2-3X the current level and a share price north of $100 in the next 2-3 years.
 
 
Q. Are the dividends from BUI, Blackrock Utility Infatructure tax advantaged? Best--Aaron S.
 
A. Hi Aaron
 
Blackrock Utilities (NYSE: BUI) is a closed end fund that pays a regular monthly distribution.
The breakdown of the payout for tax purposes differs from month to month. For example, for fiscal year 2025 through January 31, BUI's distribution was 31% net realized short-term capital gains, 15% long-term capital gains and 54% tax advantaged return of capital. But by the end of the year, a substantial portion will be qualified dividends as well--depending on what the fund's holdings pay out. The fund sends investors a 1099 that details how its taxes should be filed at the end of the year. And there's information on the Blackrock website that can be accessed under the fund name.
 
 
Q. Hello. In Roger’ Feb 10 article “There’s Still Time to Buy Loaded Laggards,” he mentions:
So far this year, however, more money has been going into market favorites than turnaround stories. And the result is 15 Conrad’s Utility Investor portfolio stocks sell above my highest recommended entry points, with three meriting taking profits. Conversely, 10 sell for less than Dream Buy prices. However these are not links..can you
point me to three meriting taking profits and 10 sell for less than dream buy prices. I looked and could not find easily. Thanks--John
 
A. Hi John
 
I was referring to the 15 stocks in the February update of the table "Portfolio Holdings Trading Above Target." This is a regular feature in every issue of Conrad's Utility Investor. You'll always find it in the "Portfolio Strategy" section. 
 
The table basically lists all the companies with stocks that sell for more than the highest prices I recommend paying. The table's columns are always the same. From left to right: Company (Exchange: Ticker), Price (at issue date), Buy Target (highest recommended entry price), 12-Month Return (as of issue date), Dividends to Make Up for Retreat to Target Price (difference between current price and highest price I'd pay divided by the quarterly dividend) and Consider Taking Profits--the price where I'd recommend everyone consider selling some.
 
 
In the current issue, I also discuss in the text my advice for the three stocks trading at prices higher than the "Consider Taking Profits." As for then, they were Atmos Energy, Constellation Energy and Entergy Corp. The advice is not to sell all holdings of them. But all three at the time had come a long way in a hurry. And when that happens, I've found it a good idea to take some money off the table.
 
This table provides a handy reference in between issues. But remember that stock prices can change quickly, particularly for stocks that are bid up high. And in fact, Constellation Energy is again selling well below the $300 price point where I'd advised selling--so it's no longer at a profit taking point.
 
As for the 10 stocks selling below Dream Buy prices as of the issue date, all 10 are highlighted in the Portfolio Strategy article as well. The "Chasing a Dream" table (also in the Portfolio Strategy article of every issue) highlights Dream Buy prices for all Portfolio stocks.
1:45
I've also added a column in the revised Utility Report Card with a Dream Buy price for every company in the Conrad's Utility Investor coverage universe--and I have a Taking Profits price as well.
 
 
Q. Hi Roger
 
You have AES in your Aggressive Income Portfolio but it's not in your Utility Report Card, where I can better understand and get a deeper understanding of your opinion of AES. 
 
You seem to feel that they are, finally, on the right track but AES appears to continue to drift lower. Is this a good buying opportunity?—Mr G.
 
A. Hi Michael
 
Yes the version of Utility Report Card on the website is in chaos right now—as we’re reconstructing the CUI site. The version to look at is the pdf link we sent earlier with the issue.
 
Regarding AES, they release Q4 results and update guidance on the 28th. So I think at this point it’s worth waiting to hear what they have to say before doing anything.
But I do want to see what they report.
 
 
Q. Very happy you added the "Dream Buy" and "Consider Taking Profits" columns for all stocks but dismayed you dropped the "Dividend Payment Date". It is hard to guess from the ex-dividend date if the stock pays later that same month or the next month. I live off dividends and try to spread them out so there aren't any months that don't have enough income to cover expenses. I could look up each one on the company web site but that is very slow and cumbersome. Please think about adding back that one column.
 
Second suggestion: include the Quality Grade only once. There are mismatches every month and I used to email you. You were very good about responding with the correct one but next month the text still wouldn't have been changed. The first three this month are Allete, American States Water, and Blackrock Utilities. Didn't have to go too far down the alphabet to find them. If I send you the rest would you fix them in the newsletter? I have subscribed to your
1:46
your publications since 1993, Utility Forecaster and Canadian Edge and now CUI and really rely on your judgement. I want you to have enough happy subscribers so you can go on forecasting as long as I go on investing!—Teresa P.
 
 
A. Thanks for those suggestions Teresa. Simple is better for sure. CUI will have a new look in the very near future.
 
 
Q. Hello Roger: Have not seen NXT mentioned in any recent Chats.
Is this one you follow and/or have a opinion on? Just promoted
on Fidelity web site as a good prospect. Thanks—Bill G.
 
A. Hi Bill
 
Thanks for your note on Nextracker. I have not covered it to this point. But it does have actual earnings and could be something I add in the ares of "Utility Technology" at some point. Solar (64% of global generation additions in Q3) along with natural gas is definitely what utilities and power producers are deploying these days and they appear well positioned in that regard, even with some of the disruption from tariffs/trade barriers and energy politics in the
current environment. I thought FYQ3 2025 results were pretty solid as well. 
 
 
Q. Roger. Long a time follower, my father started following you decades ago when you had the Utility forecaster and he bought drip recommendations because at that time going through a broker was so expensive. 
 
I bought Vistra (inside my IRA) in 2021 at $20.08 (as you recommended) and last year I sold half when you said to take some profits.(was about to tell another half at $198 before the big decline on 1/27).  
 
I placed the Vistra sell money into three dream price stocks one of which was AGL Energy Ltd ADR at $7.02. I'm in the US and getting hit with a 30% foreign tax on my dividends. Given the 30% tax is this still worth holding?
So appreciate you and all you have done for my family!—Tim W.
 
 
A. Hi Tim
 
Thanks for those kind words.
 
You should only be taxed 15% on dividends from Australian stocks. And you should also be able to recover what is withheld when you file your US taxes as a credit. Of course, if you hold AGLXY in the IRA as you did the VST, recovery may be more difficult. And it may be better to look to a US stock, of which there are several with equivalent yields.
 
I do like AGL Energy as a long-term play on Australia, as it is the country's leading electricity generator and energy retailer. I think the dividend declared next month will be meaningfully higher than it was a year ago, as the power market remains strong and the company continues to invest in cash generating assets, particularly energy storage. And I think the Australian dollar is very likely hitting a multi-year low here at less than 63
1:47
US cents--which would have a direct positive impact on the USD value of the share price and the dividends paid.
 
 
Q. Hello Roger,
 
And I do love the new format for the spreadsheet.
Can you please post the Excel Spreadsheet as well? I do have the software the convert it, but it’s time consuming and a bit of a nuisance.
I do like to sort and analyze selected data for different criteria, so this feature is important to me. You have always had it in the past. Can you please continue? Thanks—Hilary N.
 
 
A. Thanks for the feedback Hilary. 
 
As you know, the Conrad’s Utility Investor website is still under construction—so Utility Report Card is just the PDF right now. But we will have all of these features back up and running in the near future. I’m glad you find it useful.
And the new CUI website will be up and running in the very near future.
 
 
Q. Hi Roger. I sent you this on Fluence. After the big drop is this now something to buy or it it too broken.  Glad I haven't touched it yet. Regards--Don
 
A. Hi Don
 
The Q4 earnings report from Fluence was pretty bad, particularly following the very strong Q3 results. That unnerved the analysts who downgraded FLNC all at once this week—a sure formula for a stampede.
 
I thought management pretty well explained the revenue shortfall—which had a cascading effect on margins, operating profit, EBITDA and earnings since it erased the scale advantages that showed up in Q3. And the delay signing the three Australian projects does demonstrate the lumpiness of this business. You really can’t count on one quarter to flow through to the next.
 
 
That said, FLNC isn’t going anywhere with $5.1 billion in backlog. And the Australian contracts appear to be a matter of when not whether. Competition and tariffs will be a challenge this year. But demand is massive. And at this price, it looks like will triple the next 12 months if the numbers improve as they should. Not for anyone who can’t live with it going to zero though.
 
 
Q. Dear Roger, 
Your effort to 'tweak' the Report Card, along with other modifications you undertake for the various services, is appreciated. 
 
My question relates to the payout point and your sentence: "That's in many cases free cash flow, rather than earnings per share. And it's not information you'll find scanning most databases."
 
A quick glance at the Report Card for this month did not seem to differentiate when the payout was based on earnings versus free cash flow. It may be referenced in your summary analysis? But, I was wondering if some kind asterisk or another indication could convey when the payout is based on
1:48
earnings versus free cash flow? As you mention, FCF payout percentages are not typically included in most databases. Thanks for your reply when time permits and your effort to include it when appropriate. 
With respect--Susan P.
 
A. Thank you for that feedback Susan—it’s very helpful. I promise to have all of this sorted out in the near future.
 
As a rule of thumb, I’m going to use the payout metric that’s most conservative—which except for regulated utilities is very often free cash flow.
 
 
Q. SOBO is missing from the "Report Card".--A
 
A. Thanks for writing. I will be adding SOBO to the table when the CUI website changes are completed. Thanks for your comments.
 
 
Q. Hi Roger,
PNW, Shell are rated A in the Grade column, but marked a B in the comment section; have these stocks become more risky?—Brian O.
 
A. Hi Brian
My mistake—both Pinnacle West and Shell should be rated A as indicated in the Quality Grade column of the table.
 
Q. What is your rating on SOBO?—Jeff B.
 
A. The Quality Grade is B—strong revenue reliability from capacity based contracts, generally favorable regulation, strong balance sheet and a track record of solid asset performance—tempered by some concerns about US tariffs (nothing ruinous but some uncertainty) and a very recent dividend paying history.
 
 
Q. I thought the next issue of CUI was going to talk about water utilities. Was I mistaken, or are you still planning to write about them? Thanks--Dennis H.
 
A. Hi Dennis
 
That will be for the March issue of Conrad’s Utility Investor. My favorite water utility is still Essential Utilities (NYSE: WTRG),
which looks set to accelerate customer growth with municipal utility acquisitions under Pennsylvania’s recent regulatory decisions.
 
 
Q. Hi Roger. Do you have any thoughts on BCE Inc (TSX: BCE, NYSE: BCE) earnings? Q4 looked good, but market not happy.—Ben F.
 
 
A. Hi Ben. I thought the Q4 numbers were actually better than management had been indicating. And guidance for 2025 was also supportive of investment, the balance sheet and plans to hold the dividend level with 2024.
 
What I think provoked a slightly negative reaction in the stock was a statement from management to the effect it might consider trimming the dividend to cut debt faster. It was vague. And the price of the stock already reflects a cut. But it did raise the possibility.
 
My view is the biggest headwind to BCE stock is regulatory dysfunction in Canada. And management also addressed this in the call, noting regulators’ decision to force the company to open its fiber network to TELUS and others on discounted terms. They’ve instead decide
1:49
to boost fiber investment in the US after closing the Ziply merger. 
 
I think there’s a good chance this will change. And at this point, I intend to stay with BCE.
 
 
Q. Roger, In the recent EIA chat, I asked you about taking profits on Alliance Resource Partners (NSDQ: ARLP), and you said you were thinking about it.  
 
Although the company kept its distribution for the next quarter at 70 cents, its distribution coverage for the latest quarter slipped to 0.65, and the overall coverage for the past year seems a bit slim at 1.10. Forward guidance seemed hopeful but the company seemed to say there were going to be similar challenges in 2025, except for lower expenses.
 
Have these results in any way changed your thinking? The stock is rebounding from its post-earnings sell-off.
Also, Edison International (NYSE: EIX) seems REALLY cheap -- way below your dream price. Or have you lowered your dream price?—Jeffrey H.
 
A. Hi Jeffrey
 
I think I've said before that no one should view Alliance Resource Partners as a growth investment. The appeal is the big yield, which management has been dedicated to maintaining. But the -5.6% drop in revenue on -2.3% reduced coal volumes is not an anomaly. And while I don't think Trump's China tariffs will have all that much impact on sales, it's also a pretty clear sign the world's biggest importer by far sees reduction of fossil fuel imports as a key priority--for national defense more than air quality if you ask me.
 
The key for Alliance is going to be cutting costs to maintain margins and cash flow. I do think robust electricity demand growth will likely keep sales from dropping too quickly, which should help management hold the dividend. But I also think some investors are too optimistic about the Trump Administration's ability to reverse what's
1:50
now a 20 year trend of declining demand in the US and Europe, which will move on to Asia as those countries work to reduce imports and improve air quality. So while I do agree with management that natural gas prices are likely to help coal prices and demand this year--which will help hold the dividend--I would definitely consider selling ARLP on any move to 30 or higher.
 
By the way, we've made some changes to the coverage universe tables on the EIA site I think you'll find interesting. All three tables--MLPs and MIdstream, Canada and Australia, E&P and Services--all list a Dream Buy price for every company we track, not just Portfolio names.
Portfolio names. We also have a suggested price listed for taking profits and other information--including buy price, risk level, payout ratio and debt/capital. Please check it out. I'd be interested in your take.
 
I do agree Edison International looks very cheap. Still waiting on those earnings and guidance.
 
Q. Hi Roger
 
I'm a lifetime subscriber of EIA, CUI, & CUI+ but the constant activity in my inbox is for conversations for Substack, which is trying to get me to subscribe,
 
I've known you and Elliot since you both worked at Personal Finance and have been one of your original subscribers since you both left, and I was the one who alerted you when they continued to use your names.
 
Now, I'm getting more correspondence from Substack than the stuff I subscribed to, again asking me to subscribe. I thought I was covered with EIA, CUI, and CUI+, but now I'm concerned that you might have developed a new, constantly updated version of the information I was already getting, leaving the older product(s) behin
1:51
Both you and Elliot have exceptional knowledge and insight, but, I feel that maybe I'm being left behind, as I bought lifetime subscriptions, which now don't bring in any $$$.
 
Your talks are very, very, insightful but, has the written stuff maybe moved on from what I subscribed to?—Michael G.
 
 
A. Hi Michael. Thank you for those comments. I’m not certain what you’re receiving on Substack. But I can say anything we’re selling there is already being sold through Capitalist Times.
 
My paid advisory on Substack Dividends Premium, for example, is CUI Plus (which you receive) packaged with The REIT Sheet (which you say you don’t). It’s the same recommendations, advice etc.—just fulfilled through Substack instead of directly from CT.
 
 
The only other thing I do on Substack is the weekly column, which is free to anyone who gives us their email. Elliott does the same thing with a couple of his CT products. 
 
Bottom line: We’re running a business and remaining viable means we have to seek new readers. We see Substack as a channel to get our existing CT products in front of more qualified people, without having to rent lists. We’re still finding our way. But we like it precisely because it allows us to leverage what we’re already doing to increase sales—and without diluting our analysis by having to create new products.
 
Anyway, I hope I’ve made myself clear. No one is being left behind. We’re just trying to get more qualified readers such as yourself aware of what we do—and hopefully interested enough to give us a chance.
 
 
Q. Hi Roger 
Last year you had suggested to sell Algonquin Power & Utilities (TSX: AQN, NYSE: AQN) to counter some of the profits from sale of other stock. At this point do you recommend to repurchase AQN or there are
other stocks that are better option to buy instead? Thank you—Mari K.
 
A. Hi Mari
 
I think Algonquin has turned the corner as a business. We’ll get an update March 7, as well as first guidance under the new CEO—a former Entergy executive. And that will include significant progress on debt reduction (it should be pretty dramatic), rate cases in several states and CAPEX plans. 
 
The big question is when the improvement will show up in the stock. And that may require some patience on the part of investors. I still rate the stock a buy—but only for those willing to wait. So as far as buying it back versus
1:52
something else, that’s really the main consideration.
 
 
Q. Hi Roger:
1.   What’s your opinion on DKL, WES and GEL?
2.   Other than the notes about them that you have listed in EIA, can you explain your recommendations to sell GEL and to hold DKL? I am trying to diversify my MLP holdings beyond ET, BEP, MPLX, PAA, EPD, BSM, ARLP, CAPL, and CQP.
3.   I have only 60 shares of WES and do not know enough about its merits/drawbacks because I cannot find anything currently written on it by you. Thanks—Barry J.
 
A. Hi Barry
 
Thanks for your questions. Genesis in our view is a classic over-diversified company that lacks sufficient scale in any of its businesses to really withstand a shock. Distribution coverage is routinely very tight as a result. Delek is also on the small side but is also considerably more focused--which makes a takeover considerably more likely. We're not rating it a buy either at this time. But it is a hold. Western we rate a buy at 35 or less and we would wait for a dip to that level before
considering a new position. The company's business is heavily dependent on Occidental's development plans, which have not been aggressive as it reduces debt. We think that will hold back growth.
 
Since you expressed interest in looking for stocks outside the portfolio, I think you'll be interested in our revamp of the coverage universe tables on the EIA website--Canada/Australia, MLPs/Midstream (your key area of interest) and E&Ps Services. They now include Dream Buy and Profit Taking prices for each stock we cover, as well as payout ratios, debt/capital ratios and risk rating to help you make decisions. I hope you find it useful.
1:53
That's it for pre-chat questions. Now let's get to some live ones.
Dudley
2:02
Hi Guys. Always appreciate these sessions. Your thoughts on NI,PPL and NI. Also looks like AMT and WPC are back on track. What potential upside do you see? Thanks
AvatarRoger Conrad
2:02
Hi Dudley. PPl had a solid Q4 as I noted in the Feb 14 Alert "Top Q4 Takeaways: Investment's On Track and Bullish for 2025." Highlights included extending earnings growth guidance (6-8% annually) through 2028 and boosting the 4-year CAPEX plan by 40%--a lot of system investment opportunities here and relaxed regulation on coal the next four years will help with costs--though the plan is still to replace with solar and gas. Stock is a bit above highest recommended entry point of 34, but OK for a DRIP.

NiSource is well above rec entry point--though also a very sound Q4 result and utility is raising guidance for 2025, slight raise in long-term CAPEX. All systems go here and a takeover target. But a little expensive just now for new purchases.

A nice reaction to American Tower earnings and stock is now slightly above highest rec point of 200. It's clear the global data center/fiber/5G infrastructure expansion is in a sweet spot. Our timing was good adding this to REIT Sheet Rec List.

As for Carey,
AvatarRoger Conrad
2:04
It's still in the buy zone after a solid Q4. The catalyst was higher year over year FFO (first time since office spinoff) along with 2025 guidance for FFO growth. That surprised some apparently. The investment target is conservative and prudent given economic uncertainty and higher for longer interest rates. But it looks very achievable and could easily be increased. Still like Carey up to 70 for those who don't already own it--definitely headed there and higher eventually.
Kerry T.
2:13
Hi Elliott:

In the 2/4/2025 EIA you explained that the natural gas futures go up in late 2026/early 2027 in anticipation of new LNG facilities coming on-line. Why do they drop from near $5.00 back down to $3.25 after that?

regards
AvatarElliott Gue
2:13
Two reasons:

  1. Seasonality -- natural gas prices are usually highest in Dec-February due to heating demand, then fall into the spring and early summer months as heating demand recedes and ahead of summer cooling season.
  2. Once you go out beyond early 2027 there isn't a great deal of volume or open interest in those futures contracts, so the exact level of pricing doesn't carry as much meaning. Very few producers are hedging for 2027 right now -- the only one I can think of off the top of my head is CNX.
Jack A.
2:21
Hi Elliott:

I'm wondering how much upward potential our natural gas focused MLPs offer in this era of natural gas... To what degree are their revenues constrained by their contracts? And if constrained, generally, how long do these contracts last? I'm just wondering how much leverage these MLPs offer to the rising price of natural gas and LNG compared to the natural gas producers themselves...

Thanks
AvatarElliott Gue
2:21
Midstream companies -- owning assets like pipelines, gathering lines, processing plants, compression, etc. -- generally have little or no direct exposure to commodity prices. Back in the "old days" of 2010-2012 or so, some MLPs had significant exposure to processing spreads, but they've mainly eliminated that.

Midstream companies are mainly exposed to volumetric risk -- i.e. they are hurt by a decline in volumes of gas moving through their assets, and benefit from rising volumes.

Of course volumes and price can be related -- i.e. when the price of gas rises you're likely to see producers seek to boost volumes to take advantage of higher prices. However, it's an indirect benefit and the correlation between commodity prices and produced volumes isn't stable over time.

The bullish thesis here is that rising demand for US gas -- either for domestic consumption to, for example, boost electricity generation or for export as LNG -- will mean more volumes flowing through the US pipeline network.
AvatarElliott Gue
2:21
There's also clearly demand for new midstream capacity to enhance regional takeaway. Recent examples include new pipeline capacity to move gas out of the western Permian to Katy, TX and the Mountain Valley Pipeline now (majority) owned and operated by EQT. Since it's tough to build new lines in some areas, that makes existing systems more valuable assets as well.
Connecting…