JotCast | Energy & Income Advisor Live Chat March 2020

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Energy & Income Advisor Live Chat March 2020

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Roger Conrad

5:47

I think they're both quite solid outfits going forward that will benefit from increased adoption of renewable energy. AES' fate is more in its own hands, as Atlantica is tied to its largest shareholder and business partner Algonquin Power & Utilities--not a bad thing. AES also still looks headed for investment grade credit ratings later this year, as it continues to slash debt and operating risk while bringing new projects on line on time and budget. But both rely on a mix of contracts and in AES' case regulated utilities from which revenue should hold up in the COVID-19 crisis. And both stocks look cheap at these prices, especially AES at 9.5 times expected 2020 earnings.

Ed V.

5:54

Do you have an opinion on HUSKF?

Roger Conrad

5:54

I think one can make the same comment about any number of these Canada-based oil and gas producer. In Husky's case, you again have a solid company that's run into a buzz saw of plunging energy prices that's made running any semblance of a normal business impossible--and forced management into survival mode. The mid-March guidance update included a CAD900 mil cut in CAPEX as management delayed projects. But it still has great projects and the elevated but not distressed yield to maturity of 8.8% of bonds of Sept 2037 are a pretty good sign it will survive. This is one we should probably pick up for the Canada Australia coverage universe.

DAS

5:56

I believe insiders own approx 14% of ET shares - wouldn't a "buy in" require an additional 36% + to vote in favor of such a transaction? If so, this might be a significant hurdle if the offered price is only attractive to new buyers (bought in the downturn) while longer term holders would have both capital loss and possibly tax recapture.

Roger Conrad

5:56

Yes I agree they'd have to make a pretty attractive offer. And as I pointed out answering a questions earlier on, Energy Transfer also has a lot of us retail investors--they can't just lobby a few big shareholders to get a deal done. And in fact, that's one reason we still like ET at this price.

Ken in Phx

6:01

No one has asked about PBA. It popped 12% today. Any reason?

Roger Conrad

6:01

Nothing to do with business health anyway--and benchmark oil prices actually wound up pretty flat. We did see pretty much the same action, however, in a number of midstreams, which is interesting.

I've mentioned forced liquidation a couple times in this chat. We saw the havoc it wreaked in the bond market before the Fed stepped in with all of that liquidity to calm the waters. I think we're still seeing the effects of it in the midstream/MLP space--as portfolios have been dumped en masse, often just because cash needed to be raised. That means the strong were thrown out with the weak--often getting hit even harder. What I think may be happening now is bargain hunters are now looking at the Pembinas, ONEOKs, etc and coming back to them. But the key is going to be these companies continuing to prove their resilience. If they can, they're going a lot higher.

James

6:03

Thoughts on VET?

Roger Conrad

6:03

I gave a pretty extensive answer on Vermilion a bit earlier in the chat. Bottom line is this is another example of a well managed company coming up against forces (plunging oil and gas prices) that have forced it to take dramatic action. I think it will survive. But I don't see a lot of reason for optimism on the stock until oil has bottomed.

DAS

6:06

By the bye - ET declared same distribution and is up 7+% after hours...

Roger Conrad

6:06

I like their statement that "this cash distribution is supported by the company's underlying long-term stable cash flows." That pretty much reflects our analysis of everything we know about Energy Transfer. It's not as good as getting full-on positive guidance. And of course a lot can change in this crisis. But it does bode well for what we might hear May 11 in the Q1 call--and I see it's trading around $5 in the after market.

Ed V.

6:07

I asked a while ago if you had an opinion on HUSKF. Don't know if it got through. Thanks.

Roger Conrad

6:07

Yes I just answered it. It's not one we currently cover. But I do intend to pick it up in future for our Canada Australia coverage universe. I think it's a solid company that will survive. But at this point, I'd rate it hold, at least until oil prices bottom.

richard

6:12

There is a lot of discussion on the majors and their strengths---my question is how do you rate BP please

Roger Conrad

6:12

It's probably the major I like least. The main reason is they've basically had a lost decade following the Gulf oil spill in 2010. It's a testament to the resilience of super majors that BP was able to manage that catastrophe and emerge from it in solid shape. And management must be credited with pulling the company through. But with so much capital outlay to repair past mistakes, I think it's lost a step on other super majors--possibly to the extent they may have to cut their dividend that they just increased back in February--if the oil price situation becomes grave enough. We have rated the shares buy off and on the past few years. But in the super majors, we prefer XOM, CVX and TOT.

Ken in Phx

6:13

Boy, you guys really have stamina. A profound thank you from all of us who participate regularly.

Roger Conrad

6:13

Thanks Ken. It's our pleasure, and as I've said before, we really do get a lot out of this as well. Stay healthy.

Sandtrapfinder/Howard

6:19

I realize you guys are not tax consultants, but you may be able to answer this question. I have maintained a small position in both ENBL and ENLC to remind myself to be a little more cautious in the future. Am I at risk for Cancellation of Debt Income tax obligations if these MLPs go under. I remember this being a potential problem for some of drillers in the past (Linn Energy comes to mind).

Roger Conrad

6:19

At this point, we're a little more worried about EnLink than Enable on that score--which has the benefit of two very well heeled regulated utilities as its primary owners. As I noted, EnLink's bonds of June 2025 trade at an elevated yield to maturity of 20.7%, which indicates some worries about solvency in the bond market. Concerns about Enable are somewhat less, with June 2044 bonds yielding an elevated 14.57%--which again makes sense given the utility backing.

As you've pointed out, we're not tax professionals. And the situation with MLP bankruptcies is murky enough to merit avoid anything that looks like a possibility. But the real reason to avoid MLPs headed for Chapter 11 is the same as it is for every company. That is your equity investment gets wiped out. With so much else cheap out there with less risk, why not avoid that risk?

Frank

6:21

Roger and Elliott - as always, thanks for hosting these calls. Hope you and your families are safe and well.

Thanks Frank. I hope we've answered your questions today. If not, please write us at service@capitalisttimes.com

Roger Conrad

6:22

Well that's all we have in the queue today and also apparently from the emails we received. If for some reason you're question wasn't answered to your satisfaction, please write us at service@capitalisttimes.com

6:24

We want to thank everyone for tuning in today. We do appreciate your time and your business. There will be a published transcript of all questions and answers available for subscribers and posted to the website shortly after I close.

RBB

6:24

Thanks for the chat. Take care.

Roger Conrad

6:24

Thank you for tuning in

Roger Conrad

6:25

Stay well everyone. We look forward to chatting with you in better times to come.

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