Author Topic: Energy Sector  (Read 5380 times)


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Re: Energy Sector
« Reply #30 on: February 03, 2020, 04:25:47 PM »
Tempted to buy some MMP. I unwittingly made a spectacular stock pick when I suggested my parents buy this in 2010 or so. The pitch was “these MLP thing seem cool. , sell side says this one is high quality”. I sold it in 2013 at a sub 4% (maybe even sub 3% yield) and a huge gain and a huge tax bill. After going nowhere stock wise for 7 years but raising distro’s It’s almost at a 7% yield with 1.25x coverage , very low cost and long term debt.

No IDR’s, pretty much self funded through its history, some long term secular concerns (refined products pipeline), not at a discount to space or relatively cheap though.

I bought a dumb money starter position in XOM to start my “i kind of don’t want to have 0% energy” allocation, may buy similar dumb money starters in DMLP and BSM as my “ooo cool royalties down a lot but no idea how to value this” allocation


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Re: Energy Sector
« Reply #31 on: February 03, 2020, 07:01:40 PM »
I bought some PSX today. My rationale is that this is really a diversified midstream, basics chemical , marketing and refining company that is trading for a refining business multiple. The glut in NG and crude supplies is a headwind rather than a tailwind for them. Strong FCF supports a rising dividend and share buybacks. since the spinoff from COP, they reduced sharecount from ~630M shares to 445M shares now, so it is a cannibal as well.

They had a weak quarter and missed earnings due to more refinery turnarounds and weaker chemical business earnings. I think next quarter will be stronger at least for refining earnings.
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Re: Energy Sector
« Reply #32 on: February 04, 2020, 09:15:50 PM »
I own some WMB, which I consider undervalued, despite the noise around bankruptcies impacting their G&P operations. I like EPD, but I don’t like dealing with MLP, unless I absolutely have to and I am willing to make a larger and long term commitment. For me PSX is the most interesting as their midstream and chemical business becomes a larger part of their cash stream, yet it still is largely valued as a refiner. it has the Buffet seal of approval (despite the fact that he exited) and their share buybacks truly identify it as a cannibal. In the CC, they mentioned that thy have ~900M annual EBITDA thwt could be dropped down into their MLP. Do this at 10x EBITDA while the stock trades at 7x and we are talking about serious value accreditation.
Why don't you like MLPs? Is it just the tax implications or are there other issues?

I prefer c-Corp over MLP mostly due to ease of dealing with them (no K-1). Energy and even midstream is cyclical and volatile, so one can benefit from buying and selling at the “right time “. MLP are a pain in the butt when dealing with partial sales, distribution recapture etc. Also, 60% + of my assets are in tax deferred accounts, which are no-go for MLP (UBTI concern).
I would consider an MLP (and indeed own one) for a long term holding only, preferably something I never intend to sell. I think only EPD is really of high enough quality and even there are rumbling about converting to a c-Corp.

I know you were focused on midstream and not the royalty sector but since you are talking MLPs, I wanted to point out that DMLP has structured its business so that it can be owned by a non-taxable account such as an IRA. DMLP is a partnership but its income is not considered UBTI (it is UBTI that causes a problem for non-taxable investors). It avoids UBTI because (i) it has no debt and (ii) it has structured its mineral interests as royalties so that it is not considered to be actively operating a business. DMLP commits to continue to avoid UBTI.


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Re: Energy Sector
« Reply #33 on: February 11, 2020, 01:04:18 AM »
Energy vs Tech could be the monster mean reversion of a lifetime

Energy Stocks Might Finally Have Hit Bottom. It’s Time for Investors to Get In.
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Re: Energy Sector
« Reply #34 on: February 11, 2020, 04:56:48 AM »
My gut is telling me the turning point will be when there are more bankruptcies, reorganizations, and re-consolidation in the E&P space.  I don't we're at the inflection point yet.  Maybe we are.


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Re: Energy Sector
« Reply #35 on: February 11, 2020, 06:44:21 AM »
My gut is telling me the turning point will be when there are more bankruptcies, reorganizations, and re-consolidation in the E&P space.  I don't we're at the inflection point yet.  Maybe we are.

I think the mean reversion argument based on charts is flawed. I agree that there will be few BKs in E&P but it will be localized to mostly small E&P. My position is that energy will start turning around in 2021 or so. My rationale is that many of the CAPEX programs are funded through 2020-2021 and debt markets are basically off limits/very expensive for anything energy. This will force major E&P, mid-stream, etc. to focus on internal funding. As this happens, stocks will rerate. KMI is an example of what the playbook will look like. The trick is to discern quality players (e.g., WMB, MPLX, etc. vs. SMLP) vs. those that are too constrained by debt. You do get paid decent (largely sustainable) dividends/distributions while waiting.

I'm a bit overweight (compared to the rest of my holdings) in energy and (very) slowly adding.


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Re: Energy Sector
« Reply #36 on: February 18, 2020, 09:10:15 AM »
What do people think about GPOR 2023-2026 bonds? Trading at ~22% YTM ($65 on 2023s).

Cashflows for GPOR don't seem to be horrible although they are spending most of CF to acquire additional properties. A big question is whether they are forced to acquire or are doing it opportunistically. Is the company really as distressed as bonds seem to imply?

Edit: it's pretty clear that the panic is due to natgas pricing falling to floor and expectations that it will be given away for free in foreseeable future. GPOR production is almost purely natgas, so there's that.

Any other ideas for energy sector bonds?
« Last Edit: February 18, 2020, 09:40:39 AM by Jurgis »
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