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Energy & Income Advisor Live Chat April 2019
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AvatarElliott Gue
2:05
Good afternoon everyone and welcome to the April live web chat for Energy & Income Advisor. It's been quite a busy morning for the energy space with Occidental making an unsolicited offer for APC at a significant premium to what CVX offered earlier this month...we sent out a flash alert with our take and advice regarding the deal so if you haven't seen that you will find it posted to the website. I am now ready to take your questions. In addition, some of you have received a new lifetime subscription offer for Energy & Income Advisor -- the cost is $1,947 and you will continue to receive the service for life without additional annual maintenance fees or subscription renewals. This is a new offer for us and, if you have any interest, give Sherry a call at 1-877-302-0749 and she can answer any questions you may have.
AvatarRoger Conrad
2:07
Hi everyone. Looking forward to fielding your questions today.
Howard F
2:08
I am up 48% on ETR what should be my next move on the stock
2:09
if oxy does not get this bid who do you think is a good take over for them
AvatarElliott Gue
2:09
There aren't many remaining deals of that size in the Permian -- you have some names like PXD, CXO and PE out there with significant scale though and they'd be an easier mouthful for OXY in terms of financing. They also might look at one of the smaller players -- like a WPX. I do think that CXO sees itself as an independent and a consolidator (they're a buyer not a seller) and the small players would likely be a question of how well their acreage fits with OXY (i.e. how easy would it be for them to use the new acreage to "block up" and drill big pad wells).
nolan01@verizon.net
2:11
Did you by any chance mean "without" any additional main or subscription fees
AvatarElliott Gue
2:11
Sorry...That should have read no additional "maintenance" or subscription renewal fees.
AvatarRoger Conrad
2:11
Sorry to post the question before the answer Howard. That's a nice move for shares of a stable company but I don't see a lot of reason to come out of Entergy Corp at this time. They have successfully transformed their business the past few years and in the process reduced operating risk, boosted the balance sheet and set the stage for accelerated dividend growth. I wouldn't pay more than my buy target of 90 and if we did see a move well north of $100 I might consider advising taking a partial profit.
Martin
2:11
When does the chat begin?
AvatarRoger Conrad
2:11
We're underway now Martin and will be here so long as there are questions.
AvatarElliott Gue
2:12
Basically, some publishers offer lifetime subscriptions to their longstanding subs but, if you read the fine print, they still charge a recurring "maintenance" fee or "processing" fee every year.  That kind of gimmickry really annoys me to be honest so we do NOT do that.
Howard F
2:13
Hold or sell DKL
AvatarElliott Gue
2:13
Watching DKL can be like watching paint dry...However we still have it as a buy (though only on dips) and a 9.7% yield isn't bad even if the stock marches in place.
AvatarRoger Conrad
2:20
Q. MPLX seems stuck in a low range and can't breakout of it. Second Question – I've seen this statement more than once lately "we see some indications that shale production could be significantly less than expected, in part because of the way that new wells, drilled close to existing wells, start to cannibalize production"… Your thoughts.—Jerry J.

A. I don’t think MPLX is unique in that regard for midstream energy MLPs. The Alerian MLP Index has been basically flat since the first couple weeks of January, despite a big move in oil. I think that’s the result of a lot of people giving up on even the higher quality MLPs after all we’ve seen the past few years. But MPLX is still executing on its growth plans. Distribution coverage is rising, which means more self-funding of CAPEX. And leverage is dropping with targets. I also notice insiders picking up purchases. I admit it’s taken a lot of patience to stick with these MLPs but the combination of strengthening fundamentals and gloomy sentiment almost always ends
well for investors.

As for your other question, I think the issue here is whether or not clustering wells will cut into profitability of production. We’re no where close to seeing Permian production of oil actually peak, and the new natural gas pipelines constructed by Kinder Morgan—one set to come on in October—promise to really pick up the pace with associated natural gas output. Some basins aren’t prospering as much, which is why we advise being selective with midstream names.
Frank
2:21
Thoughts on AXAS & Lone, Pls
AvatarElliott Gue
2:21
AXAS -- Basically a mix of some conventional assets and some Bakken unconventional (shale). It's not among our favorites as it is small, has too much debt and I just don't see a near-term path to free cash flow.
LONE -- I don't know this company as well but I believe they've got a lot of acreage in the Eagleford, which can be an inconsistent play depending on where your acreage is there. I'd rather buy a name like MRO, which is a high-quality producer with diversified exposure to major US shale fields (including Bakken and E'ford).
AvatarRoger Conrad
2:27
Q. Hi Roger. The value on April 10 of combined new CPLP and DSSI was increased by 28% about 2 weeks after the split and is increased 30% as of last night close. This pretty well confirms that the pending split severely reduced the stock, which most attributed somewhat to confusion. It will probably be sometime before the price settles out, but I assume CPLP will report in early May and hopefully DSSI also at which time there may be a statement about dividend.—Bud E.

A. Thanks for sharing this information Bud. Basically, the two pieces of this split/merger are in better condition to weather very tough conditions in the dry bulk and liquids tanker markets, which appear likely to last at least a couple more years. The problem is older tankers continue to be refurbished as new ones come on line, which means oversupply. But the size of both of these companies coupled with the lowered distribution is a plus for weathering the cycle.
As you know, we don’t currently hold CPLP or Diamond S Shipping (NYSE: DSSI) in Energy and Income Advisor portfolios. We do continue to look at these names and it does appear from the price action that they were worth more separately for investors than together. But at this point, our view is both are holds for patient investors only.
Howard F
2:28
Is there any hope for nblx that you see in the future
AvatarElliott Gue
2:28
The stock has recovered nicely off its lows from late last year...we recommended using the strength to exit this name. It's a little bit difficult to gauge the impact of Colorado's new Energy laws on the industry. One aspect of the law is to give local government more control over drilling -- in some areas that's probably not a problem because many of the wells are located in places like Weld country where the population is overwhelmingly in favor of drilling. I was looking at a precinct by precinct map of CO the other day -- to put it into context some of these places voted 80%+ to defeat last year's setback referendum (that would have been very, very onerous for the region). At the same time, Colorado's increasingly contentious relationship with energy companies doesn't exactly make it an attractive plac to invest for companies with alternatives. I think NBLX will probably come through OK in the end and it does have some assets outside CO in places like the Permian. But, we see this as the sort of "dark clo
Hans
2:32
With the offer for APC by OXY how does this affect WES
AvatarElliott Gue
2:32
I think CVX is probably seen as a better partner/sponsor for WES than OXY. That said, I believe that CVX will ultimately prevail here as this is just too big of a deal for OXY. And OXY's CEO sounded pretty bullish on the Niobrara in this morning's call...of course she was trying to avoid telling us exactly which assets OXY plans to sell should it be successful in buying APC but she indicated they aren't concerned about regulatory overhang in Colorado. I'd say this: an OXY-APC tie up is probably neutral for WES while APC-CVX is maybe a slight positive.
AvatarRoger Conrad
2:38
Q. A quick question on W.P. Carey (NYSE: WPC). You’ve recommended this REIT over the years, owned for long, long time. Do you have a “ consider taking some profits” number on this one?—Ray S.

A. I certainly like the recent price action, which has taken the share price well above my buy target of 70. I also like how this REIT has consistently stuck to strategy and continues to find new investments, with $188 million announced earlier this month in the core businesses of built-to-suit, corporate sale/leasebacks and single tenant net leases. Dividend policy has never been too aggressive either, which has kept balance sheet and dividend coverage at healthy levels throughout the cycle.
I do believe that REITs as a sector are now a bit frothy, as capital has flowed to them I believe as the result of the Federal Reserve backing off interest rate increases. I think the economy should favor higher rents this year as well. But high valuation mean high expectations, and that means more room for disappointment. I’ve seen W.P. Carey as one of the less expensive high quality REIT names and still do. But I would be inclined to take partial profits from big positions on a move to the 85-90 range. From this price, you’re still getting a dividend north of 5 percent that’s growing at a low single digit rate.
2:39
One more point on WPC, it's the kind of name I look at for the Income Portfolio in Deep Dive Investing. I had intended to add earlier but the price got away from me in February. I would consider adding it on a dip to 70 or lower.
herm
2:44
I've sold my APC stock and want to reinvest in another E&P stock. I'm looking at OXY, MRO or WPX. Do you have a recommended preference  at this time for any of these shares?
AvatarElliott Gue
2:44
We actually like all three of those names. OXY has fallen over the past few weeks because I think a lot of investors are worried about them swallowing APC and were hoping they wouldn't counter CVX. However, as I said in the flash alert, I think CVX wins this one and OXY probably would have to settle for a much smaller easier to close deal or it could just continue to execute on its own acreage. With oil up 50%+ this year, it's ludicrous in my view that OXY is only a few bucks over its Christmas Eve lows.
MRO -- Just a consistent company with solid execution. I think the energy space has bottomed and is in the early stages of a major bull move -- the smart money is likely to gravitate to high quality names that can generate free cash flow at $50/bbl oil (or thereabouts) and MRO is one of those.
WPX -- The riskiest of the 3 names you mentioned. They're a quality operator with great acreage but they're smaller, which makes it more difficult for them to get to the point where they're generating free cash flow.
Marty
2:47
should we go ahead with moving from APU to SPH?
Thanks for the help
AvatarRoger Conrad
2:48
It's possible that UGI will sweeten its bid for Amerigas before the deal closes, which is still expected by the end of September. It's also possible UGI shares will rise a bit more, which will also increase deal value. On the other hand, it's also possible UGI dips between now and the close, which would take the takeover value lower. Then getting a better cash out value than now will require holding on for a UGI recovery, and in the meantime you'll be receiving less than 20 cents per dollar of distributions you're getting now. Suburban is up a bit since I recommended making this swap. But more important, swapping now is pretty much an even trade with APU for income. And it's still out there for a potential takeover as the biggest remaining US pure play with with a market cap of just $1.4 bil. FYQ2 earnings are due out May 9, which will provide a full picture of how the partnership weathered the winter. But my view is it's already the better play.
Phil B.
2:48
I'd be interested to hear your comments on Noble Energy, in light of the recent change in Colorado state legislation on drilling permits versus the competition between Chevron & Occidental for Andarko, a company with considerable acreage in Colorado like Noble.
AvatarRoger Conrad
2:51
Phil I won't repeat what Elliott has said about Noble. But we are pretty concerned about the new legislation in Colorado, and more importantly what could follow it. We also think that Chevron is a lot more interested in the other aspects of Anadarko (Permian exposure, LNG) than in what it has going in Colorado, which it can absorb losses from easily even if the state winds up banning most drilling. We think Noble's presence in the Permian is positive as well but why not buy something without the Colorado risk?
Howard F
3:00
What is the future of SVN
AvatarElliott Gue
3:00
Synovus reported solid numbers yesterday and reiterated their guidance. That's important because this is the first full quarter of operating following the takeover of FCB Financial. Meanwhile, SNV trades at a price to tangible book value of under 1.5 and at 9.1 times 2019 earnings estimates compared to around 1.82 times TBV and 12+ times earnings for the KBW Regional Banking Index....That discount is unwarranted especially when you consider SNV's solid managerial track record. My thesis remains that SNV continues to successfully integrate FCB and the market will get over its absolute hatred for bank deals and re-rate SNV higher. Will also help if we get a bit of a tailwind from rising yields (which I think likely as the US economy firms up into the second half of the year).
Hans
3:02
In your opinion is there any possibility we get something out of Jones as was the case with Lynn energy, is it worthwhile to hold on to
AvatarElliott Gue
3:02
I seriously doubt equity holders receive anything. JONE has too much debt and, regardless of the quality of their acreage, they just couldn't raise enough capital to fund CAPEX.
AvatarRoger Conrad
3:03
Q. Roger, Do you think the proposed merger between Williams Companies (NYSE: WMB) and Energy Transfer LP (NYSE: ET) is now dead, and if so is this a good or bad thing? The market seams to think it is a good thing. Also because of this crazy deal/no deal do you still think ET is a HOLD or is it best to sell and go on to one of your better picks? I’ve also been following Targa Resources Corp (NYSE: TRGP) and like the dividend. Do you follow this company? Thanks--Len L.

A. There’s no negotiation I’m aware of for the newly consolidated Energy Transfer to buy Williams, though I’d be a little surprised if Williams wasn’t still on ET Chairman Kelcy Warren’s radar screen. The two are basically evenly matched in terms of market capitalization, so it would have to be a merger of equals. But there are a lot of potential synergies between these companies’ pipeline holdings, and clearly this is a time when building new pipes has become very difficult.
We believe the merger of the former ETP and ETE has created a much stronger company that’s now making a real dent in what’s still a pretty big debt load ($42.6 bil). We’d be surprised if there were a distribution increase this year as the company focuses on debt reduction and self-funding more capital spending. But sooner or later, the financial recovery is going to fuel a share price recovery for ET. And in the meantime, you get a yield of nearly 8 percent. We rate ET a buy on dips to 15 or lower.

We have picked up coverage of Targa in our midstream coverage universe of Energy and Income Advisor. We still see the company operating in a tough business with more volatile margins than MLPs like Energy Transfer LP, as well as a much weaker coverage ratio of around 1 times. Targa is a hold.
3:10
Q. Roger, what’s your opinion on Energen Corp 4.62% notes due 9/1/2021? I bought them @ 99 and they’re selling now @ 101.66. If I hold them to maturity will make a little over 5%, with distributions. I have a choice to hold or take my 2.6% + gains and sell. There are safe. Regards.

A. The Energen bonds are now the obligations of Diamondback Energy (NSDQ: FANG), after the merger that closed on November 30, 2018. That event was credit positive, as FANG is rated BBB- by Fitch with a stable outlook and so has helped the price of the bonds. The yield to maturity is currently 3.692%, which is the annualized return for buying them now and holding on to payoff in a little less than two and a half years. That’s not huge but it is a decent return for such a short-term investment with little credit risk. If these bonds got up to 105, I might be tempted to cash out. But at this price, I think the best course is just to hold on.
Herm
3:11
Oil has had a really nice run to date. Some events such as end of sanction waivers, rise in crude inventories and now forecasts of a million barrels of oil coming on the market resulting from  new pipelines coming on line are confusing. Where do you see the price of oil in the next 3 to 6 months? Also with gas prices rising do see any merit in MPC
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