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5/30/24 Capitalist Times Live Chat

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Elliott Gue

3:50

The vast majority of those contracts are indexed to either Title Transfer Facility (TTF) or Japan Korea Market (JKM). TTF is the EU benchmark and currently is priced around $11/MMBtu while JKM is priced at $12.20/MMBtu right now. In comparison, the average price of gas for delivery to Henry Hub in Louisiana over the next 12 months is $3.08/MMBtu. There are some costs associated with liquefaction, transport and regasification; however, the price differentials are huge.

Hans

3:52

Roger, With all those chip companies doing so well, what is happening to INTC. Thanks

Roger Conrad

3:52

Hi Hans. The main reason Intel is underperforming is it increasingly appears to be in the crosshairs of US/China bickering on trade, technology, investment and national security. The Biden Administration has revoked export licenses for Intel, Qualcomm and others to sell to Huawei, supposedly in an attempt to slow China's AI development. That's overshadowed some strong developments at Intel, including a pending $11 bil partnership with Apollo in Ireland. Also, Intel is not an AI-only chip company and Q2 guidance came in somewhat weaker than many had expected, as non-AI product sales are expected to lag.

Jason

4:01

Can you comment on some of the recently pending takeovers, as far as buying them when they are trading lower than the takeover price. The ALE takeover is reportedly at $67 cash, and ALE is presently trading at $62 and change. The stock for stock deal of HES => CVX : HES is trading about 7 points below CVX, but in a takeover HES shareholders will get about 1.02 shares of CVX per HES share.

Roger Conrad

4:01

Hi Jason. How to bet on the various deals in progress will certainly be a big part of the June Conrad's Utility Investor feature article--which I expect to post June 10. Generally speaking, the reason for the discounts in these stocks to takeover prices is a combination of perceived risk these deals won't close and the time expected needed to get them done. In Allete's case, the regulatory risk and delays are all regulatory. Mainly, Wisconsin should be open and shut but Minnesota could be contentious--and so could the federal level. For Hess/Chevron, odds of the FTC challenging in court appear low. But the arbitration case with ExxonMobil is a major unknown. I would expect Allete's discount to be mostly closed by the end of Q3. Hess' will continue until the close, unless CVX and XOM reach a deal.

Jon B

4:14

Thanks in advance for your responses. Can you comment on companies that might be most likely to benefit (or be harmed) by the opening of Canada's transmountain pipeline? And specifically, do you see any catalysts or headwinds for Pembina or Enbridge as shipments move in new directions?

Roger Conrad

4:14

Pembina PIpeline does not own of operate long haul pipelines at this time but rather feeds them and offtakes from them. And the company is very well positioned for the opening of TC Energy's Coastal GasLink this year, as it builds out export infrastructure for LNG and NGLs with partners like the Haisla First Nations. I think the Trans Mountain expansion opening will be a big plus for its oil business, by unlocking more oil and oil sands from Alberta that Pembina's infrastructure serves closer to the wellhead.

Last year, there was some worry that the added capacity of Trans Mountain could drive down throughput and tariffs for oil pipelines owned by Enbridge and TC Energy, which is actually spinning off its liquids pipelines this year. So far that hasn't happened. And at this point, it looks like the new capacity will be soaked up by increased exports--while the historic discounts of Canadian oil prices to US prices are shrinking.

Guest

4:25

Hi Roger: Is the AY acquisition a taxable event for us shareholders the way the MMP by OKE purchase was? Also, what is the background of the buyer and are these people who are buying AY experienced in running renewable companies? Thanks.

Roger Conrad

4:25

The takeover offer for Atlantica is in cash. So there will be a capital gains or loss, depending on your initial entry point. But unlike Magellan, Atlantica is a C-Corp rather than an MLP. So there's no adjustment for return of capital dividends etc., as there was for long-term holders of Magellan from the ONEOK deal.

Atlantica's principal buyer would be Energy Capital Partners, a privately held company with expertise running power plants and other infrastructure. They have the means to ramp up Atlantica's investment plans and I would expect them to do so, with an emphasis on US solar and storage projects the company already has a presence in. Atlantica's corporate level debt has a change of control provision that will require either consent of bondholders or for ECP to make an offer to buy them out. I don't expect this to be a major hurdle to a Q4 close of this deal.

Norman H

4:34

Last week an analyst issued a sell rating on Next Era Energy Partners (NEP) units, saying that there was no way to repay debt coming due in 2026 except by selling assets or issuing lots of new units, in either case diluting current holders and killing the current dividend. Your opinion?

Roger Conrad

4:34

Hi Norman. Currently 7 research houses tracked by Bloomberg Intelligence rate NextEra Energy Partners buy, versus 9 holds and 2 sells. The most recent sell was the JP Morgan analyst earlier this month, though what's happened to the stock since has more resembled a short squeeze.

As I've said answering a couple questions in this chat, NEP's situation is basically this: If it can again be a viable funding vehicle for parent NextEra Energy by absorbing drop downs, then there's little stopping it from pushing to new all-time highs. And as I've also said, when the stock was at $89 the dividend was 30% less. Being able to get there means the parent NEE is going to have to be unwavering in its support, as it was in 2015-16. And refinancing NEP's convertible debt maturing in 2027 and beyond on less than ruinous terms is essential. My view is NEE has the means and every incentive to support and will succeed--even if interest rates don't fall between now and 2027.

Guest

4:49

Roger: Sorry but I cannot find your prior answer to this question from a year ago. I have lots of warrants from OXY. They are called OXY+. Never recalled having bought them because I do not even know what they are. Can you tell us what they are and when we have to exercise them? If we do not, do they just lapse? Appreciate your efforts to help educate all of us readers/subscribers!!!

Roger Conrad

4:49

The Occidental Petroleum warrants you're asking about are basically rights to buy a share of OXY at a price of $22. They expire on August 3, 2027. You can calculate their conversion value at any time by subtracting $22 from OXY's current share price, which as of today's close was $61.21. The current value of $39.21 is roughly equal to the warrants' current price of $39.24, meaning there's almost no time value in the price. Of course, what you don't get with the warrants is OXY dividends, which at this point equate to a yield of about 1.44%. Our view is you get plenty of leverage in this stock with the common shares--though they currently trade above our highest recommended entry point of 55. My understanding is these warrants will automatically convert to OXY shares at expiration. They're up from $8 and change when they were distributed at the time of the dividend cut and Anadarko merger--so anyone receiving them then will have a capital gain from selling but not converting.

Guest

4:55

Hi Roger: I saw your comment in EIA that you believe that MPLX will increase their dividend by close to 10% in the next year. Is that something that was promised by the company in their guidance or a presentation recently? Where could we find this comment or "promise/expectation" by them? If so, isn't that really impressive? - a 10% bump in a dividend seems incredible to me. I remember they did that last year I believe - from $3.10 to $3.40? Thank you.

Roger Conrad

4:55

They're also buying back stock at a pretty good clip--which actually reduces the needed cash outlay for the dividend and it increases per share cash available for distribution as well. Maintaining the pace of almost 10% annual distribution growth has been alluded to by management, There can be no guarantee market conditions or company performance will allow it. But they certainly have the means with 1.6X Q1 distribution coverage (1.6X a year ago before the dividend increase), net debt to EBITDA of just 3.2X (was 3.5X a year ago) and 8% higher DCF in Q1.

Hans

5:00

Elliott, What does it take for TRP to keep up with stocks that are in the same business. Thanks

Roger Conrad

5:00

Three reasons TC Energy has underperformed other midstream stocks are (1) uncertainty about the spinoff of the liquids pipeline business and (2) higher than industry average debt leverage caused by aggressive investment of recent years including the delayed and over budget Coastal GasLink pipeline and (3) Canadian dollar weakness. I think they're putting these challenges behind them and we will see them close the gap. I also think there's very little value given to the liquids business now--despite the likelihood of a takeover as a bet the Keystone XL oil pipeline finally gets built.

Ron

5:05

The shares of HESM have declined today. Is that because of the secondary stock offering? Is HESM a buy at its present price?

Roger Conrad

5:05

Hi Ron. As noted earlier in the chat as well as in the EIA issue posted this week, midstream stocks have taken a pause the past couple months from what's been a pretty substantial surge the past four years or so. Hess Midstream was down more than most today and one reason might be new supply coming on the market--as Global Infrastructure Partners further reduces its stake in the company. But it's also been trading above our highest recommended entry point for a while, so we're not surprised to see it back below 35. The important thing is the company is operating on all cylinders. And we may see a takeover offer from Chevron if the Hess Corp merger closes. It's still the same value proposition.

Alex M

5:08

Hi Roger. Now that UGI has completed its strategic review, what's discouraging you from recommending it as a 'buy'? I'm just curious about your thought process now that the dividend seems secure. Thanks.

Roger Conrad

5:08

HI Alex. The main reason is I just believe there are better buys in the utility space right now. UGI's yield is high at 6% and it will hold, provided recovery plans for Amerigas Propane pan out. But they're also not going to grow the dividend for a while until debt is brought lower. I think UGI is a solid hold though.

Hans

5:10

Roger. Since adding ES to the portfolio, any update as to its outlook. Thanks

Roger Conrad

5:10

I thought EverSource had great Q1 results and guidance--as I noted in the May issue of CUI. They've since had a successful bond offering, which is encouraging. I think investors are waiting on them to execute the sales of the offshore wind facility ownership stakes and then use the proceeds to cut debt. And the sale of the water operations also looks key to that effort. But at this point, I think the bottom is in and recovery is on track with earnings due out at the end of July likely to show progress on all fronts.

Mark Z

5:14

What do you think the chances are that the Chevron/Hess merger will close? If it doesn't close what would be the likely future for Hess?

Roger Conrad

5:14

Hi Mark. As I noted answering a question earlier on in the chat, I think it's very tough to handicap the results of the arbitration case involving ExxonMobil's claim to the right of first refusal for Hess' 30% of the Guyana field. My feeling is they will reach some sort of agreement that allows the deal to go through. But if Exxon prevails on its claim, this deal will not happen. And Chevron will get its $1.7 bil and walk away. I think at that point, XOM becomes a suitor for Hess. But ultimately, there's going to be a lot of bad blood if that's the outcome to make a deal tough to strike. In any case, Hess has the asset and the value of the Guyana field continues to grow. So I don't see a lot of risk just sticking with Hess Corp and Hess Midstream--which as I've said becomes a target the day Chevron absorbs Hess.

Herm

5:16

What is your assessment of the merger of MRO and COP. Is either stock a buy as a result of the merger?

Roger Conrad

5:16

Hi Herm. We think these deals pretty much always create stronger companies. We have a hold right now on ConocoPhillips in our EIA E&P and Services coverage universe. We may reassess that at some point. But for now, we see better buys in E&P.

billgraf@ameritech.net

5:24

Hi Roger: I'm totally dumbfounded at the price of VST. Anything you can add to make me understand what is going on with VST?

Roger Conrad

5:24

Hi Bill. Vistra Energy has been a great one for us this year. Results have been strong this year as in the past several--as the company's free cash flow backs simultaneous dividend growth and debt reduction. But what's made people really excited is the nuclear power exposure with Energy Harbor, the Texas generating capacity push (2 GW dispatchable power) and lately the AI theme--as investors wake up to the value of generating capacity in a power starved world.

Of course, these things were all true of Vistra when we were recommending the stock in the teens and many of these same analysts were advising avoid because of debt and coal power exposure. What's changed is simply momentum--and just like Constellation and NRG, Vistra now has a Big Tech magnitude tailwind behind it. I can still make a much better value case for VST and even CEG than I could NVDA, for example. But sooner or later I am going to pull the trigger and lock in the profit--with the intent to buy back when Big MO inevitably moves the other way

John P

5:28

Good afternoon gents. You guys run a wonderful business and it helps a lot of people. Thank you! I am thinking about adding to my positions in BSM and CAPL because of the higher yield. I already own larger positions in ET and PAGP and HESM. This is for a long term income position. Your thoughts on risk and if other holdings in the High Yield portfolio would be better. Thanks John

Roger Conrad

5:28

Thank you John. We appreciate it. I think those are all good higher yielding stocks. MPLX--discussed several times this chat--is another midstream to consider as is EPD, which is the lowest risk 7% plus yielder I know of.

As a general thought on risk, owning more recommended stocks is I think preferable to holding fewer. I will probably add something to the High Yield Energy List in the next month or so, especially if this selloff picks up a little steam. But the important thing with all the portfolio stocks is they're solid on the inside. That includes Black Stone--which cut its dividend in the face of lower natural gas prices in April but with management's promise to restore the rate by applying saved capital to lift production and cash flow even if energy prices remain weak. It also has no debt.

Guest

5:34

Hi Roger: Tell us your thoughts about PAA being acquired or merging with another company. I prefer to invest in your "conservative" designated MLP's like EPD and MPLX. But I remember reading a couple of times that you think PAA could be a target for someone else's acquisition. Could you tell us more about that idea? Thanks.

Roger Conrad

5:34

Plains All-American Pipeline (NYSE: PAA) has a market cap less than $12 billion--so it's smaller bite than Magellan Midstream was for ONEOK Inc last year. Buying it would require buying Plains GP Holdings and its 33.1% common shares and GP interest. It would convey extremely valuable Permian Basin pipelines, as well as assets in other parts of the country that could either be kept or sold. I think Energy Transfer LP is one candidate for a bid, though Williams Companies could gain a valuable foothold in oil with an offer. In any case, Plains is a stock I don't mind owning if no deal ever emerges and I think both the price and dividend are headed a lot higher as this energy bull market unfolds if it stays independent.

Mike C

5:40

Hi Roger and Elliott - Apologies if you've already answered this...curious about your current view on metals and related firms (AA, BHP, not FCX?) given what seems like a commodity supercycle in that space.

Roger Conrad

5:40

Hi Mike. I appreciate your interest in our metals outlook. We are in the process of researching another report for our Capitalist Time/Deep Dive Investing service. At this point, we see tremendous value for even the most conservative investors in BHP, which as I said we expect the ADRs to trade north of $100 in the next couple years. Freeport is another perpetual favorite, though the stock has risen sharply with copper prices and we think there will be better entry points. And Newmont is now not only the world's leading gold miner but a big player in copper as well--it too should make an assault on $100 a share as it absorbs the Newcrest assets and gold prices move up.

Our macro view is materials and metals still face a near term headwind from monetary policy. But the long term outlook is very bullish for reasons of higher inflation/lack of current investment and demand growth. And this is a good time to add positions in strong individual stocks. Many ETFs are still at risk to liquidations,

Mike C

5:41

As always, thanks for bringing sanity to investing!

Roger Conrad

5:41

Thanks Mike! That's high praise.

Mack

5:45

Hi Guys and thanks for holding these chats. [1] Your latest thinking on CQP. I own a small position but am thinking of selling out of it. [2] Anything new re the fate of HESM? Or is it going to be stuck in limbo until the Hess deal is resolved one way or another. Thanks...

Roger Conrad

5:45

Hi Mack. I think Cheniere has probably sustained about as much selling as it's going to for reducing its dividend. And the strategy to save cash to fund accelerated development of new LNG export capacity--while the Biden Administration is basically delaying any competition--is a very sound one. We're still rating it buy at 55 or lower.

My view on Hess Midstream is we're in good shape whether it and Hess Corp remain independent or Chevron is able to complete that merger. The HESM assets are tied to Hess' capital spending plans in the Bakken, which are long-term and locked in. And that means cash flow and dividend growth off a nearly 8% yield are locked in. The HES/CVX merger is pivotal and I think will lead to an HESM buyout as well, as Chevron did that with Noble recently. But we have good value holding whether that happens or not.

Guest

5:53

So, Roger, thanks for the answer on MPLX. Did they previously state they wanted to continue the 10% dividend bump or are presuming that based on their good numbers? Best, Barry. Thanks again also for the clarification on the OXY+ warrants!

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