JotCast | Energy & Income Advisor Live Chat July 2019

Return to

Energy & Income Advisor Live Chat July 2019

Prev Page View Full Chat

Roger Conrad

4:05

Absolutely. And as I've indicated during the chat, that relationship will be the most important factor to look at in the numbers due out later today, as well as from the earnings call tomorrow morning.

Ted

4:05

Thanks for your patience regarding oil price questions, but all things considered, I would like to know you best guesstimate for where WTI will be by end of the current qtr,. and then at end of 2019

Elliott Gue

4:05

Tough to answer that exactly. But I suspect that $55 to $60/bbl is a pretty decent guess as to the average price.

Lee

4:09

Roger, if you don’t mind indulging a utility question...PEGI is trading down almost 6% today. I’ve found no news albeit my brokerage web site is often slow to update. Can you enlighten me on Pattern?

Roger Conrad

4:09

My buy target on this contract power producer has been 20, and the price has been significantly above that for sometime which to me indicates higher expectations than results to date have justified. That's not a unique situation in the power sector but it does leave companies like PEGI open to disappointment. I should also point out, however, that the stock also hit a new 52-week high today, which may have triggered selling. In any case, Pattern won't announce results until August 6.

Roger Conrad

4:11

Continuing on Pattern--that's when we'll have our next real numbers and guidance, as well as the next dividend declaration. I'll be using what I hear to make a judgment on whether or not the shares deserve a higher buy target than 20, though I've mostly been waiting for a return to payout growth for that.

Robert P.

4:11

I would like to respond with a comment. All signs of a slowing economy here and abroad is projecting a downturn in stocks in my opinion. My comment in being a subscriber, currently to two of your advisories, I feel comfortable on my investments in regard to income and safe stocks to endure the direction of any market conditions. Thank you two for all the advisory services you provide and especially your webcast chats and to answer all of our questions, that a broker cannot do without a sales pitch. RP

Elliott Gue

4:11

Thank you for the kind comment regarding the services, we really do appreciate that. Regardless of whether we've seen the market top or have more to go, the truth is that this stage of the cycle (the later stages) can be pretty treacherous for investors. We're definitely making moves in all of the services to navigate this late cycle market and will also recommend ways to try and protect downside in the (inevitable) bear market to come.

Roger Conrad

4:11

Thanks Robert, we certainly appreciate it.

Frank

4:14

Thoughts on DCUE, Thanx

Roger Conrad

4:14

I don't know that one Frank. Could you check that symbol again? Or if you've left the chat just drop us a line at service@capitalisttimes.com

Arnold S

4:14

Hello, I received a proxy vote notice from my broker and not sure how to vote. Any advice? Re: OCCIDENTAL PETROLEUM CORPORATION. YOU MAY REVOKE ANY PREVIOUSLY EXECUTED WRITTEN REQUEST REGARDING THE ICAHN GROUP SOLICITATION FOR THE REQUEST TO FIX A RECORD DATE BY SIGNING, DATING AND DELIVERING THIS WHITE REVOCATION FORM.

Elliott Gue

4:14

I haven't yet received that proxy in the mail or maybe I missed it...I'd have to read it in its entirety to offer my take. The (rather sad) truth is though that it doesn't really matter how we vote as the big funds control enough of the stock to drive the results.

Roger Conrad

4:24

Q. Roger and Elliott: Do you have any idea as to the reason for the sudden volatility (at least to me) of MPLX during the last 5 minutes of trading on July 29. It dropped 5% in value during that 5-minute stretch from 12:55 pm to closing and then post-closing it went up 2%. And today, it’s up again. Thank you.--Barry J.

A. I’ve noticed the same general trading pattern in multiple MLPs the past several days. As I’ve mentioned during this chat, we sent out an Alert on July 26 that highlighted some of the issues affecting midstream companies operating in Appalachia, and their reaction to the strategy change at EQT Resources (NYSE: EQT), which is by far the biggest player in the region. MPLX doesn’t focus there but it has closed its planned merger with Andeavor Logistics, a deal that resulted in a higher credit rating for MPLX but no doubt mandated a fair amount of portfolio balancing by larger funds.

As I’ve also noted, MPLX reports numbers for Q2 along with guidance tomorrow. I liked the within guidance

dividend boost announced last week, which seems to indicate no big surprises in results. But until we get results, the best approach is to sit tight.

Frank

4:26

On DCUE: Quantum Online gives a convoluted description of this mandatory convertible security issued by D. Tough reading/digesting for me.....

Roger Conrad

4:26

Got you. This was a very successful offering from Dominion--was way over subscribed according to management, and does not immediately add to equity either, which is a plus to avoid earnings dilution and to keep the company on track to bring down the payout ratio. I have to say I prefer the common equity for its upside and rising income stream.

Roger Conrad

4:28

It's also a good deal simpler. But Dominion is a very solid credit--and management is focused on reducing debt, which is good for all of its fixed income securities. So long as interest rates stay this low, I don't see a lot of risks, despite the complexity these hybrid securities always carry.

Howard F

4:31

Have you ever covered EcA

Roger Conrad

4:31

We track Encana in our International Coverage Universe, currently as a buy up to 5. The Q2 results announced today were I think quite solid, with cost cutting as the result of focused E&P coming in ahead of expectations and the company seeing good drilling results in multiple regions. They've also bought back $1.25 bil in shares--I'd rather have seen a more generous dividend but this company has turned the corner in my view. It looks very cheap for aggressive investors.

Roger Conrad

4:32

First started covering Encana in my old advisory Canadian Edge in the previous decade--never liked it, management always behind the curve. I think they're doing a lot right now, and eventually investors will notice.

4:38

Q. Gentlemen. Retired, need income. I have an opportunity to buy private producing oil mineral rights with other investors from an entity with long-standing good reputation. In a well-balanced energy portfolio, what if any, is the role for acquiring oil royalties. Love the concept of zero debt, not responsible for drilling/production, monthly checks. If acquired and disposed of properly, depletion can be managed. Thanks--David O.

A. David, we’ve found that with these arrangements, the devil is always in the details. We generally prefer to make energy investments through individual companies because you never have to worry about being able to cash out, or getting sued if something goes wrong. Our strong advice would be to have someone with legal expertise check out whatever contracts you’re asked to sign before you jump in. Note there are also securities traded for companies that specialize in royalty income, some that pay as frequently as monthly, probably a subject for a future EIA issue.

5:10

Q. When do we load up on Antero Midstream (NYSE: AM)?—James T.

A. First off, we now do have some numbers to look at. I still want to see what management says tomorrow morning. But my preliminary read of AM’s second quarter results is actually pretty favorable. For one thing, there was no downward guidance revision, either for the midstream MLP or its chief customer and general partner Antero Resources (NYSE: AR). Second, where EQT Resources (NYSE: EQT) and EQM Midstream Partners (NYSE: EQM) issued only vague statements about more efficient water use cutting costs, the Anteros have stated specific numbers and plans to deploy new water infrastructure that will cut Resources’ drilling costs and offset the projected $25 to $35 million impact of doing so on Midstream’s cash flows.

5:11

As for Q2 numbers, distributable cash flow increased by 9 percent from year ago levels. Low pressure gathering volumes rose 34 percent, compression volumes by 54 percent and high pressure gathering volumes 36 percent. Fresh water delivery volumes were -46 percent lower due to lower Antero Resources demand, but has now been recontracted with a rebound expected in the second half of the year. Volumes at the Clearwater water treatment plant were up 263 percent.

The coverage ratio of 1 times is down from last year’s 1.4 times. Debt to EBITDA was 3.2 times, up from 3.1 times in the first quarter. Those numbers are likely to attract scrutiny in tomorrow’s earnings call, which will be jointly held by both Anteros. There will also certainly be multiple questions on the water recycling plans, which from pre-call comments are already in progress.

Antero Resources in its release talked about achieving “its lowest quarterly capital expenditures to date” due to initiatives undertaken previously to reduce costs. Achieving a plan to cut well costs 10% to 14% per foot by 2020 versus 2019 expenses will be critical to meeting production goals at time of extremely depressed selling prices.

That in turn depends on realizing a reduction in lease operating expenses “by at least 20 percent” in 2020, largely on the back of “enhanced flowback management” and other water savings initiatives. Those include utilizing Antero Midstream’s Clearwater facility more intensively and thereby dramatically reducing the need to contract third party truckers to haul flowback and produced water.

At this point, many investors appear to consider Antero Midstream’s close relationship with and dependence on Antero Resources a liability. That’s understandable, given the adjustments EQM Midstream is likely to be forced to make as the result of the strategy shift at EQT Resources. But in this case, the close relationship appears to be enabling the coordination needed for a plan like this to benefit both parties. Again, I want to see what’s said during the conference call. But at this point, there’s no change in our Antero Midstream advice to buy below 14.

5:14

Q. Hi Roger and Elliott. Just want to drop you a note to say how much I appreciate the current consistent format of each issue of EIA. It's exactly what fits my needs ... you have three tables of the High Yield Energy Target List, Active Portfolio and Endangered Dividends List and your first comments give me great context ... when you lead with "no changes" or "here;s the one change" ... I know right away that what you have seen/learned since the last issue did or did not impact your investment bias. So, it's something simple but in prior years, I was always trying to process information to conclude whether the overall recommendations to readers were changing. I also like the way you take a section and do the Q&A, because it's telling us ... for an area of interest/opportunity ... "these are the most important questions to ask and these are what we think the answers are." it's kind of like the monthly chats, but the questions are the half dozen most important questions in one topical area.

Anyhow, I've always valued your insights over my 5 plus years of being a subscriber, but I think over the years, you've got the EIA monthly issues really dialed in to be a great and easily digestible publication for anyone interested in energy investing ... whether they're a capital appreciation investor, income investor or total return investor. Thanks--Marty L.

A. Thanks Marty! We really appreciate the feedback and well wishes. Please always let us know if there’s something you think we should be doing at EIA, or any of our other advisories for that matter.

Andrew

5:25

Can I ask a follow up on EnLink (ENLC) I read an analyst report that said they're concerned about ENLC's Oklahoma assets (Scoop/Stack?) That ENLC has good Permain assets, but they need better results from the Okla. assets. Does any of that jib with your opinions? Being honest, where their opinions differ from yours (yours = Elliott + Roger) I give little weight to theirs, but I figured I'd ask and see if you have any concerns about ENLC's non-Permain assets.

Roger Conrad

5:25

Sure. I think based on what we know, they're pretty solid in both places and as I indicated, the in line dividend increase announced earlier this month is a pretty good sign there won't be any real negative surprises in the Q2 numbers and guidance update on August 6. I will be looking at what we find out then very carefully. But at this point, it looks like shares are being priced at a very low bar of expectations--certainly not unique in the high yield energy space. One reason might be the possibility that Global Infrastructure Partners merges ENLC with its other midstream assets, which include Hess Infrastructure Partners. But ENLC looks cheap here.

Andrew

5:27

Can you comment on Magellan Midstream (MMP)? I remember I wanted to own this but the price was too high. Then it came down like the rest of the industry and I bought some. But it hasn't seen the rebound of fellow MLP Darling EPD has. Is this due to a lack of growth projects? And if so, are it's best days behind it?

Roger Conrad

5:27

Magellan reports tomorrow--should be a solid quarter though the company has slowed its distribution growth rate reflecting a more conservative strategy launched this year. I don't think that's a bad thing, but it did crimp MMP's valuation a bit to where it now yields pretty much the same as EPD. We view it as a solid, low risk midstream value at its current high 60s price.

Andrew

5:37

One more if I can squeeze it in: Today there was an article in Bloomberg titled something about OXY & the MLPs get struck by lightning - basically it rips WES for claiming lightning strikes caused lower volumes from the Permain (WHile EPD says assets are performing well) but his bigger point was C-corps like OKE have done better then MLPs like EPD. (he doesn't mention C-corps that haven't done so well so it's cherry picking) I know you get this a lot, but do you see a wave of C-corp conversion on the horizon?

Roger Conrad

5:37

We believe there's a high probability we haven't seen the last corporate conversion or "roll-up" merger where general partners fold in the MLPs. But at this point, it looks like most of the GPs that were going that route have already taken action. For one thing, converting/rolling up hasn't always led to a lower cost of equity capital--in fact there's a possibility it will alienate current shareholders and actually lead to a higher cost of capital. There were definitely too many MLPs at the peak in 2014. But the business model has proven itself as resilient in what we forecast back in 2014 as a lower for longer energy price environment.

Roger Conrad

5:37

Well that's all we have in the queue at this time, as well as from emails we received prior to the chat. Once again, Elliott and I would like to thank everyone who participated today. If you believe your question was not completely answered, please feel free to drop us a line at service@capitalisttimes.com. A link to the complete transcript of this chat will be emailed soon after I sign off. Enjoy the "dog days" everyone!

Connecting…

Your current subscriptions

None

E-mail Address	Chat Owner	Status	Remove

Enter your email address to be notified when Sherry Roberts hosts a chat