BIG GAINS AND HIGH YIELDS FROM THE GREAT AMERICAN ENERGY BOOM ROGER S CONRAD CAPITALIST TIMES DC AAII, JANUARY 2015
Dec 17, 2015
BIG GAINS AND HIGH YIELDS FROM THE GREAT AMERICAN ENERGY BOOM
ROGER S CONRADCAPITALIST 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• 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
• 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
20143.0 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
2001 -12.3 -26.3 12.8 43.7 -1.5
2000 -38.8 51.1 28.8 45.7 -20.6
1999 19.1 -5.8 -4.1 -7.8 38.7
1998 52.4 18.8 -16.1 -3.0 -19.2
1997 41.3 23.2 21.2 26.2 -10.4
1996 1.1 9.1 37.8 16.6 14.9
1995 42.3 32.4 4.6 n/a -28.8
1994 -5.3 -15.5 -4.7 n/a 35.4
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 ProvisionsChesapeake Energy Corp (NYSE: CHK)
6.5% Senior Notes of 8/15/2017 165167BS5 106.000 4.0 660.4
make whole at 50 pt premium
Energen Corp (NYSE: EGN)
4.625% Senior Notes of 9/1/2021 29265NAS7 90.250 6.5 400.0
make whole at 30 pt premium
Legacy Reserves (NSDQ: LGCY)
8% Senior Notes of 12/1/2020 52471TAB3 85.375 11.5 300.0
make whole at 50 pt premium
Linn Energy (NSDQ: LINE)
6.25% Senior Notes of 11/1/2019 536022AJ5 83.750 10.7 1800.0
make whole at 50 pt premium
Memorial Prod Partners (NSDQ: MEMP)
7.625% Senior Notes of 5/1/2021 586049AB4 83.280 11.5 700.0
make whole at 50 pt premium
Vanguard Natural Res (NYSE: VNR)
7.875% Senior Notes of 4/1/2020 92205CAA1 89.494 10.5 550.0
make whole at 50 pt premium
WOODSIDE PETROLEUM LTD (ASX: WPL, OTC: WOPEY)—STABLE LNGYIELD = 9.3%12-MO DIVIDEND GROWTH = 33.7%PAYOUT RATIO = 77.2%DEBT ASSETS = 15.8%LNG CONTRACTS SHIELD FROM OIL PRICE CRASHCAPEX MANAGEABLE @$1.4 BIL/YR, NO OUTSIDE CAPITAL NEEDSCATALYSTS:1. AUSTRALIA LNG STARTUPS2. #2.75 BIL ACQUISITION OF
APACHE STAKES IN WHEATSTONE, KITIMATT LNG
3. INDIA MOU FOR LNG FACILITIESMOODY’S AFFIRMS STABLE OUTLOOK
AFTER MAJOR DEALS, SHELVING OF FLNG PLANS
AUSTRALIAN DOLLAR A HEADWINDNEXT 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 MIDSTREAMYIELD = 6.6%12-MO DIST GROWTH = 7.7%RATE ACCELERATES TO 2 CENTS/QTR IN AUGUST, MAINTAINS IN NOVQ3 COVERAGE RATIO = 1.1-TO-1DEBT/ASSETS = 39.1%ENT VAL/CASH FLOW 17% DISC AMZIBUSINESS 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, PERMIAN3-YEAR REVENUE GRTH = 675.4%ETE DROPDOWNS AND ACQUISITIONS SPUR GROWTHNEXT EARNINGS FEB 19 (EXPECTED)
NUSTAR GP HOLDINGS LLC (NYSE: NSH): GP RETURNING TO GROWTH
YIELD = 6.9%LAST DISTRIBUTION INCREASE = NOVEMBER 2012REVENUE BASE = 50% PIPELINES, 46% GLOBAL STORAGE, 4% RELATED MARKETING, RUN BY NUSTAR ENERGYOIL PRICE SENSITIVITY = MINIMALSTORAGE CONTRACTS RENEWINGIDR STRUCTURE = NOW AT MAXIMUM 25% OF NUSTAR ENERGY CASH FLOW OVER $.60 PER QUARTEROWNS 12.9% COMMON UNITS OF NS0% 12-M0 GRTH OUTSTANDING UNITSLP DEBT/ASSETS = 53.6%NO NUSTAR ENERGY DEBT MATURITIES BEFORE APRIL 2018LP Q3 DISTRIBUTION COVERAGE = 1.032-TO-1. TWO QUARTERS CONSECUTIVE BETTER THAN 1-TO-1.FITCH AFFIRMS CREDIT OUTLOOK STABLETAKEOVER POSSIBILITIESNEXT EARNINGS JAN 30 (CONFIRMED)
A WELL DIVERSIFIED COMPANY
BEYOND KEYSTONE XL
TRANSCANADA CORP (NYSE: TRP)—MORE THAN KEYSTONE XLYIELD = 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 SELLINSIDERS 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 CAPEXEXPECTED CAGR CASH FLOW 8-10%/YEAR NEXT THREE YEARSACQUISITION OPPORTUNITIES AS RIVALS WEAKENNEXT 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
DJUA
ALERIAN
S&P TEL
BBREIT
0 2 4 6 8 10 12
Jan-08Jan-09Jan-15
AES CORP (NYSE: AES)—UTILITY LAGGARD TO LEADERFROM LEADER IN 2013 (37.3%) TO LAGGARD IN 2O14 (-3.8%): FOREIGN EXPOSUREYIELD = 3.1%12-MO DIVIDEND GROWTH= 100%PROJECTED 5-YR GROWTH = 10%/YRQ3 PAYOUT RATIO = 31.2%DEBT/ASSETS = 52.1%PRICE/SALES = 0.6OIL PRICE SENSITIVITY = MINIMALCAISSE BUYS 15% OF REGULATED INDIANA UTILITY TO FUND CAPEX2015 GUIDANCE = $1.30-$1.40/SH5-YEAR CASH FLOW GRTH = 10-15%/YR% EARNINGS: US (23%), ANDES (20%), BRAZIL (14%), MCAC (21%), EMEA (20%) NEW PROJECT CAPEX PRIMARY DRIVERASSET SALES LARGELY COMPLETEDMOODY’S AFFIRMS STABLE OUTLOOKTAKEOVER POSSIBILITIESNEXT 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 YIELDCOYIELD = 3.39%PRICE/BOOK = 1.24PROJECTED DIV 2015 = $1.60/SH, YIELD 5.7% AT RECENT PRICE2016DCF GROWTH 20-25%NO DEBT MATURITIES UNTIL NOV 2019CURRENT ASSETS:1. 710 MW RENEWABLES2. 1,018 MILES POWER LINES3. 300 MW CONVENTIONAL PWRPARENT ABENGOA (SPAIN: NASDAQ: ABGB) OWNS 51% OF COMPANY AND IS COMMITTED TO LONG-TERM PLAN OF DROP DOWNS AS DEVELOPS NEWEIG GLOBAL VENTURE TO INVEST $9.5 BIL IN POWER PROJECTSPROJECTS FULLY CONTRACTED, AVERAGE LIFE 25 YEARSRAISED 2015 GUIDANCE NOV 14NEXT EARNINGS JAN 20 (CONFIRMED)
ABENGOA YIELD INITIAL ASSETS
NRG ENERGY (NYSE: NRG): MISUNDERSTOOD AND VERY CHEAP AGAINYIELD: 2.10%12-MO DIVIDEND GROWTH: 16.7%PRICE/BOOK VALUE: 0.91PRICE/SALES: 0.6NRG YIELD : 2.8% YIELD, 16.7% DIVIDEND GROWTH, 1.4 P/BVQ3 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 DOWNSUTILITY AND DISTRIBUTED SOLAR$1 BIL CO2 CAPTURE PROJECT52 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
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