Transcript BIG GAINS AND HIGH YIELDS FROM THE GREAT AMERICAN ENERGY …

BIG GAINS AND HIGH YIELDS FROM
THE GREAT AMERICAN ENERGY
BOOM
ROGER S CONRAD
CAPITALIST TIMES
DC AAII, JANUARY 2015
OUR ADVISORIES: COMPREHENSIVE
AND CONCISE
CAPITALIST TIMES—GROWTH AND INCOME
ADVICE ACROSS THE INVESTMENT SPECTRUM.
CONRAD’S UTILITY INVESTOR—COVERAGE 212
ESSENTIAL SERVICE COMPANIES, PORTFOLIOS
FOR CONSERVATIVE, AGGRESSIVE, DRIPS
ENERGY AND INCOME ADVISOR—FOCUSED
ADVICE ON ENERGY UPSTREAM, MIDSTREAM
AND DOWNSTREAM, FROM MLPS AND SUPER
OILS TO CANADIAN/AUSTRALIAN ENERGY
WHAT WE’LL COVER
• WHY AMERICA’S ENERGY BOOM ISN’T OVER
• HOW TO LIVE WITH AND PROFIT FROM LOW
ENERGY PRICES NOW
• BEST AND WORST BETS IN UPSTREAM,
MIDSTREAM, UTILITIES AND RENEWABLE
ENERGY
GAS: NO GLOBAL MARKET, YET
THE OTHER ENERGY CRASH
NORTH AMERICAN ENERGY
ECONOMICS 101
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ALL BUSINESS IS LOCAL
PRICE SPREADS DRIVE PROFITS
PRICE DROP STRESSES SECTOR
SUB-$50/BARREL OIL MAY LAST A WHILE
GUIDANCE CALLS INDICATE COMPANIES STILL
BETTING ON $65-$70 OIL
• MUST DIFFERENTIATE UPSTREAM, MIDSTREAM,
DOWNSTREAM
• SCALE IS CRITICAL
• AVERAGE DOESN’T CUT IT: BUY STOCKS
ENERGY: THE LONG RUN
NATURAL GAS: A GROWTH INDUSTRY
AMERICAN ENERGY INDEPENDENCE:
BACK TO THE FUTURE
BASIN ECONOMICS
THE WEAKEST LINKS
2015 OUTLOOK: CYCLE BASICS
SUB $50 OIL: WHO WINS?
WINNERS
• LOW COST PRODUCERS
• INDUSTRY COMES TO US
• PETROCHEMICALS AND
REFINING
• DISTRIBUTORS: PROPANE
• AIRLINES AND TRANSPORT
• REGULATED ELECTRIC AND
NATURAL GAS UTILITIES
• BIG PRODUCERS, BIG
MIDSTREAM
LOSERS
• HIGH COST PRODUCERS
• SMALL AND LEVERAGED
PRODUCERS
• MIDSTREAM DEPENDENT
ON SMALL AND LEVERAGED
PRODUCERS
• MAJOR PROJECTS
DEPENDENT ON $100 OIL
• GOVERNMENTS
DEPENDING ON $100 OIL
ENERGY AND INCOME ADVISOR
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NOT PERMA BULLS ON ENERGY PRICES
LONG AND NEAR-TERM FOCUS
PREPARING FOR PRICE DECLINE SINCE DEC 2013
COVERAGE UNIVERSE 300+ NAMES: UPSTREAM,
MIDSTREAM, DOWNSTREAM
3 MODEL PORTFOLIOS FOR CONSERVATIVE AND
AGGRESSIVE INVESTORS
EACH BI-WEEKLY ISSUE A FULL REPORT
MONTHLY CHATS THAT LAST AS LONG AS THERE ARE
QUESTIONS
ALERTS, WEBINARS AND WEEKLY UPDATES
THEY’RE STOCKS, NOT BONDS
Year
S5TELS
2014
DJUA
BBREIT
ALERIAN MLP
TNX
3.0
30.7
29.1
4.8
-28.2
2013
11.5
12.7
2.4
27.6
72.3
2012
18.3
1.6
18.6
4.4
-6.1
2011
6.6
19.7
8.1
13.9
-43.4
2010
19.0
6.5
29.5
35.6
-14.0
2009
8.9
12.5
29.2
75.7
71.3
2008
-30.5
-27.8
-37.9
-37.1
-44.4
2007
11.9
20.1
-17.9
12.5
-14.3
2006
35.9
16.6
33.9
25.9
7.2
2005
-5.6
25.1
11.6
6.3
4.3
2004
19.8
30.2
32.2
16.7
-1.0
2003
6.8
29.3
36.7
44.5
11.5
2002
-34.1
-23.4
1.4
-3.4
-24.1
EPICENTER OF A BOOM
CANADA’S SHALE PLAYS
PRODUCERS: EASY DOES IT
• DEEP DECLINES BUT 2015 PROJECTIONS STILL
BASED ON $60-$70 OIL AND HIGHER
• MORE DIVIDEND CUTS LIKELY: DANGER
GREATEST WITH PREVIOUS CUTTERS
• TAKE UNDERS MORE LIKELY THAN HIGH
PREMIUM TAKEOVERS
• OPPORTUNITIES FOR COMPANIES WITH
SCALE, BALANCE SHEET STRENGTH
• BE PREPARED FOR DECLINES IF YOU BUY
PRODUCERS: BONDS ARE BETTER
Company
Chesapeake
Energy Corp
(NYSE: CHK)
Energen Corp
(NYSE: EGN)
Best Security
6.5% Senior
Notes of
8/15/2017
4.625% Senior
Notes of
9/1/2021
Legacy Reserves 8% Senior Notes
(NSDQ: LGCY)
of 12/1/2020
6.25% Senior
Linn Energy
Notes of
(NSDQ: LINE)
11/1/2019
Memorial Prod
7.625% Senior
Partners (NSDQ: Notes of
MEMP)
5/1/2021
7.875% Senior
Vanguard Natural Notes of
Res (NYSE: VNR) 4/1/2020
Cusip Number
Price (% of Par)* Yield to Maturity
Vol ($ mil)
Call Provisions
165167BS5
106.000
4.0
make whole at 50
660.4 pt premium
29265NAS7
90.250
6.5
make whole at 30
400.0 pt premium
52471TAB3
85.375
11.5
make whole at 50
300.0 pt premium
536022AJ5
83.750
10.7
make whole at 50
1800.0 pt premium
586049AB4
83.280
11.5
make whole at 50
700.0 pt premium
92205CAA1
89.494
10.5
make whole at 50
550.0 pt premium
WOODSIDE PETROLEUM
LTD (ASX: WPL, OTC:
WOPEY)—STABLE LNG
YIELD = 9.3%
12-MO DIVIDEND GROWTH = 33.7%
PAYOUT RATIO = 77.2%
DEBT ASSETS = 15.8%
LNG CONTRACTS SHIELD FROM OIL
PRICE CRASH
CAPEX MANAGEABLE @$1.4 BIL/YR,
NO OUTSIDE CAPITAL NEEDS
CATALYSTS:
1. AUSTRALIA LNG STARTUPS
2. #2.75 BIL ACQUISITION OF
APACHE STAKES IN WHEATSTONE,
KITIMATT LNG
3. INDIA MOU FOR LNG FACILITIES
MOODY’S AFFIRMS STABLE OUTLOOK
AFTER MAJOR DEALS, SHELVING
OF FLNG PLANS
AUSTRALIAN DOLLAR A HEADWIND
NEXT EARNINGS FEB 18 (CONFIRMED)
MIDSTREAM: TIME TO BUY?
• ALERIAN MLP INFRA: -21.3% SINCE 8/29/14
• LITTLE DIRECT COMMODITY EXPOSURE
• DANGER IS TO VOLUMES, NEW PROJECT
DEVELOPMENT, CONTRACTS
• G&P ESPECIALLY VULNERABLE
• WIDE PRICE DIFFERENTIALS = DEMAND FOR
CAPACITY LONG-TERM STILL THERE
• SIZE, INDISPENSABLE ASSETS, LOW COST BASINS
ETP: MULTIPLE BASINS
ENERGY TRANSFER
PARTNERS (NYSE: ETP)—
STRONG MIDSTREAM
YIELD = 6.6%
12-MO DIST GROWTH = 7.7%
RATE ACCELERATES TO 2 CENTS/QTR IN
AUGUST, MAINTAINS IN NOV
Q3 COVERAGE RATIO = 1.1-TO-1
DEBT/ASSETS = 39.1%
ENT VAL/CASH FLOW 17% DISC AMZI
BUSINESS SEGMENTS: INTRASTATE
TRANSP/STGE (11.1%), INTERSTATE
T&S (23%), MIDSTREAM (12%),
LIQUIDS T&S (12%). SUNOCO (21%),
RETAIL MARKETING (12%)
GROWTH BASINS: EAGLE FORD,
MARCELLUS, BAKKEN, PERMIAN
3-YEAR REVENUE GRTH = 675.4%
ETE DROPDOWNS AND ACQUISITIONS
SPUR GROWTH
NEXT EARNINGS FEB 19 (EXPECTED)
NUSTAR GP HOLDINGS LLC
(NYSE: NSH): GP
RETURNING TO GROWTH
YIELD = 6.9%
LAST DISTRIBUTION INCREASE =
NOVEMBER 2012
REVENUE BASE = 50% PIPELINES, 46%
GLOBAL STORAGE, 4% RELATED
MARKETING, RUN BY NUSTAR ENERGY
OIL PRICE SENSITIVITY = MINIMAL
STORAGE CONTRACTS RENEWING
IDR STRUCTURE = NOW AT MAXIMUM
25% OF NUSTAR ENERGY CASH FLOW
OVER $.60 PER QUARTER
OWNS 12.9% COMMON UNITS OF NS
0% 12-M0 GRTH OUTSTANDING UNITS
LP DEBT/ASSETS = 53.6%
NO NUSTAR ENERGY DEBT MATURITIES
BEFORE APRIL 2018
LP Q3 DISTRIBUTION COVERAGE = 1.032TO-1. TWO QUARTERS CONSECUTIVE
BETTER THAN 1-TO-1.
FITCH AFFIRMS CREDIT OUTLOOK STABLE
TAKEOVER POSSIBILITIES
NEXT EARNINGS JAN 30 (CONFIRMED)
A WELL DIVERSIFIED COMPANY
BEYOND KEYSTONE XL
TRANSCANADA CORP
(NYSE: TRP)—MORE THAN
KEYSTONE XL
YIELD = 3.8%
12-MO DIVIDEND GROWTH = 4.4%
PAYOUT RATIO = 80%
DEBT/ASSETS = 47.8%
ANALYSTS COOL BUT WARMING UP: 8
BUY, 5 HOLD, 3 SELL
INSIDERS NET BUYERS LAST 6 MONTHS
$46 BIL COMMERCIALLY SECURED
PROJECTS UNDERWAY, 100%
CONTRACTED OR COST OF SERVICE
$38 BIL NOT KEYSTONE, $13 BIL SMALL
AND NON-CONTROVERSIAL
$15 BIL 3-YEAR CAPEX
EXPECTED CAGR CASH FLOW 810%/YEAR NEXT THREE YEARS
ACQUISITION OPPORTUNITIES AS
RIVALS WEAKEN
NEXT EARNINGS FEB 20 (EXPECTED)
UTILITIES: LOW RISK, HIGH
VALUATIONS
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CLASS OF 2002: DEBT/RISK AVERSE
WHOLESALE RETREAT: DUK, PPL, NOW AEP
REGULATORY ENVIRONMENT POSITIVE
PLENTY OF OPPORTUNITIES TO INVEST IN
INFRASTRUCTURE
LOW ENERGY PRICES HELP
SOLAR POWER: OPPORTUNITIES TRUMP THREATS
REGULATED CAPEX DRIVES GROWTH
DJUA: P/E HIGHEST SINCE 2000, YIELD 3.2%
CONRAD’S UTILITY INVESTOR
• NOT PERMABULLS: 6 SELLS IN 2014, AVERAGE
PROFIT 50% IN 11 MONTHS
• 212 DIVIDEND-PAYING, ESSENTIAL SERVICE
COMPANIES: ALWAYS SOMETHING TO BUY
• CONSERVATIVE, AGGRESSIVE, DIVIDEND
REINVESTMENT MODEL PORTFOLIOS
• ENDANGERED DIVIDENDS LIST
• 2 BEST BUYS EVERY MONTH
• 29 YEARS EXPERIENCE/KNOWLEDGE OF SECTOR
• UTILITIES: THE LONG PLAY IN SOLAR
COMPARING YIELDS
BBREIT
S&P TEL
Jan-08
Jan-09
Jan-15
ALERIAN
DJUA
0
2
4
6
8
10
12
AES CORP (NYSE: AES)—
UTILITY LAGGARD TO
LEADER
FROM LEADER IN 2013 (37.3%) TO
LAGGARD IN 2O14 (-3.8%): FOREIGN
EXPOSURE
YIELD = 3.1%
12-MO DIVIDEND GROWTH= 100%
PROJECTED 5-YR GROWTH = 10%/YR
Q3 PAYOUT RATIO = 31.2%
DEBT/ASSETS = 52.1%
PRICE/SALES = 0.6
OIL PRICE SENSITIVITY = MINIMAL
CAISSE BUYS 15% OF REGULATED
INDIANA UTILITY TO FUND CAPEX
2015 GUIDANCE = $1.30-$1.40/SH
5-YEAR CASH FLOW GRTH = 10-15%/YR
% EARNINGS: US (23%), ANDES (20%),
BRAZIL (14%), MCAC (21%), EMEA (20%)
NEW PROJECT CAPEX PRIMARY DRIVER
ASSET SALES LARGELY COMPLETED
MOODY’S AFFIRMS STABLE OUTLOOK
TAKEOVER POSSIBILITIES
NEXT EARNINGS FEB 26 (EXPECTED)
WHOLESALE POWER ECONOMICS
• LOW NATURAL GAS PRICES MEAN SOFT
WHOLESALE POWER PRICES IN 2015
• ENERGY EFFICIENCY, DISTRIBUTED
GENERATION REDUCE GRID DEMAND
GROWTH
• CAPACITY RETIREMENTS TIGHTEN SUPPLIES
OVER NEXT 3-5 YEARS
• SIZE, FLEXIBILITY, CONTRACTS ARE CRITICAL
• CONTRACTED RENEWABLES BEST
OIL AND POWER DON’T MIX MUCH
THE DUCK CHART
ABENGOA YIELD (NYSE:
ABY)—GLOBAL HIGH
GROWTH YIELDCO
YIELD = 3.39%
PRICE/BOOK = 1.24
PROJECTED DIV 2015 = $1.60/SH,
YIELD 5.7% AT RECENT PRICE
2016DCF GROWTH 20-25%
NO DEBT MATURITIES UNTIL NOV 2019
CURRENT ASSETS:
1. 710 MW RENEWABLES
2. 1,018 MILES POWER LINES
3. 300 MW CONVENTIONAL PWR
PARENT ABENGOA (SPAIN: NASDAQ:
ABGB) OWNS 51% OF COMPANY AND
IS COMMITTED TO LONG-TERM PLAN
OF DROP DOWNS AS DEVELOPS NEW
EIG GLOBAL VENTURE TO INVEST $9.5
BIL IN POWER PROJECTS
PROJECTS FULLY CONTRACTED,
AVERAGE LIFE 25 YEARS
RAISED 2015 GUIDANCE NOV 14
NEXT EARNINGS JAN 20 (CONFIRMED)
ABENGOA YIELD INITIAL ASSETS
NRG ENERGY (NYSE: NRG):
MISUNDERSTOOD AND
VERY CHEAP AGAIN
YIELD: 2.10%
12-MO DIVIDEND GROWTH: 16.7%
PRICE/BOOK VALUE: 0.91
PRICE/SALES: 0.6
NRG YIELD : 2.8% YIELD, 16.7%
DIVIDEND GROWTH, 1.4 P/BV
Q3 CASH FLOW GROWTH: +1.4%
1. WHOLESALE: -10.4% (59.3%)
2. RETAIL: +8.9% (18.5%)
3. NRG YIELD: +35.9% (13.9%)
4. RENEWABLES: +120% (8.3%)
NRG YIELD SPINOFF GROWTH WITH
ACQUISITIONS/DROP DOWNS
UTILITY AND DISTRIBUTED SOLAR
$1 BIL CO2 CAPTURE PROJECT
52 MW BASELOAD POWER
NATIONWIDE PROTECTS AGAINST
POTENTIAL RENEWABLE ENERGY
BUBBLE
NEXT EARNINGS: FEB 27 (EXPECTED)
CONTACT US
• [email protected]
• CALL SHERRY 1-877-302-0749, 9-5 EST, M-F
• WWW.CAPITALISTTIMES.COM ($79/YEAR)
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• WWW.ENERGYANDINCOMEADVISOR.COM ($649)
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