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 • 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 LOSERS • LOW COST PRODUCERS • HIGH COST PRODUCERS • INDUSTRY COMES TO US • SMALL AND LEVERAGED PRODUCERS • PETROCHEMICALS AND • MIDSTREAM DEPENDENT REFINING ON SMALL AND LEVERAGED • DISTRIBUTORS: PROPANE PRODUCERS • AIRLINES AND TRANSPORT • MAJOR PROJECTS • REGULATED ELECTRIC AND DEPENDENT ON $100 OIL NATURAL GAS UTILITIES • GOVERNMENTS • BIG PRODUCERS, BIG DEPENDING ON $100 OIL MIDSTREAM
ENERGY AND INCOME ADVISOR • 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 DJUA BBREIT ALERIAN MLP TNX 2014 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-$70 OIL AND HIGHER • MORE DIVIDEND CUTS LIKELY: DANGER GREATEST WITH PREVIOUS CUTTERS • TAKE UNDERS MORE LIKELY THAN HIGH PREMIUM TAKEOVERS • OPPORTUNITIES FOR COMPANIES WITH SCALE, BALANCE SHEET STRENGTH • BE PREPARED FOR DECLINES IF YOU BUY
PRODUCERS: BONDS ARE BETTER Company Best Security Cusip Number Price (% of Par)* Yield to Maturity Vol ($ mil) Call Provisions Chesapeake 6.5% Senior Energy Corp Notes of make whole at 50 (NYSE: CHK) 8/15/2017 165167BS5 106.000 4.0 660.4 pt premium 4.625% Senior Energen Corp Notes of make whole at 30 (NYSE: EGN) 9/1/2021 29265NAS7 90.250 6.5 400.0 pt premium Legacy Reserves 8% Senior Notes make whole at 50 (NSDQ: LGCY) of 12/1/2020 52471TAB3 85.375 11.5 300.0 pt premium 6.25% Senior Linn Energy Notes of make whole at 50 (NSDQ: LINE) 11/1/2019 536022AJ5 83.750 10.7 1800.0 pt premium Memorial Prod 7.625% Senior Partners (NSDQ: Notes of make whole at 50 MEMP) 5/1/2021 586049AB4 83.280 11.5 700.0 pt premium 7.875% Senior Vanguard Natural Notes of make whole at 50 Res (NYSE: VNR) 4/1/2020 92205CAA1 89.494 10.5 550.0 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 = 1.032- TO-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 8- 10%/YEAR NEXT THREE YEARS ACQUISITION OPPORTUNITIES AS RIVALS WEAKEN NEXT EARNINGS FEB 20 (EXPECTED)
UTILITIES: LOW RISK, HIGH VALUATIONS • 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)
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