higher for longer: how to profit from sustained high energy prices
DESCRIPTION
Higher for Longer: How to Profit from Sustained High Energy Prices. AAII DC Metro Chapter May 2012. Elliott H. Gue. The Big Picture. Credit Spreads. Seasonal Distortions. A Few Additional Uncertainties. US and French elections. Fiscal Cliff - PowerPoint PPT PresentationTRANSCRIPT
![Page 1: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/1.jpg)
Higher for Longer: How to Profit from Sustained
High Energy Prices
AAII DC Metro ChapterMay 2012
Elliott H. Gue
![Page 2: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/2.jpg)
The Big Picture
![Page 3: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/3.jpg)
Credit Spreads
![Page 4: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/4.jpg)
Seasonal Distortions
![Page 5: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/5.jpg)
A Few Additional Uncertainties• US and French elections.• Fiscal Cliff• Statistical distortions caused by autumn 2008
collapse in data.• Oil prices remain elevated, natural gas prices
outside the US still high.• US housing market is bottoming but not booming
and more foreclosures ahead.• Europe far from healed.
![Page 6: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/6.jpg)
US and ICE Natural Gas Prices
![Page 7: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/7.jpg)
Supply is Too Healthy
![Page 8: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/8.jpg)
Less Gas Drilling Won’t Help
![Page 9: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/9.jpg)
More Efficient
![Page 10: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/10.jpg)
Energy: Oil, LNG over US Gas
![Page 11: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/11.jpg)
Teekay LNG Partners (NYSE: TGP); 7% Yield
• Teekay LNG owns: 20 liquefied natural gas (LNG) carriers, 5 liquefied petroleum gas (LPG) carriers and 11 oil tankers.
• Long-Term Charters with an average remaining duration of 16 for LNG, 15 for LPG and 10 for tankers.
• With charters fixed, TGP grows by increasing the size of its fleet.
• Day-rates for LNG carriers at near record highs.
• Surging international natural gas prices, growing demand from Asia and Europe
![Page 12: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/12.jpg)
Cheapest Gas is in Marcellus
![Page 13: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/13.jpg)
Inergy Midstream (NRGM); 7.5% Yield
• 42 bcf of natural gas storage
• 1.5 million barrels of natural gas liquids (NGLs) storage
• 90% of storage booked under LT agreements
• 2.1 mbbl new NGLs storage capacity due June ‘12
• MARC I Pipeline due July ‘12
![Page 14: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/14.jpg)
Linn Energy (NSDQ: LINE)• Linn is an LLC, similar advantages to an
MLP but no General Partner or IDRs.
• Most important regions are Mid-Continent (KS, TX, OK; 65% of reserves), and Permian Basin (TX, NM; 18% of total reserves)
• About 50% oil and NGLs, 50% natgas
• Significant drilling upside in Granite Wash, Permian and Bakken
• Growth via Acquisitions, benefit from low cost of capital.
• Hedges covering 100% of natural gas production through 2015, 100% of oil through 2013.
![Page 15: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/15.jpg)
US Royalty Trusts: SandRidge Permian Basin Trust (PER)
• Royalty Interest in 16,800 gross acres in Permian Basin of TX.
• 87% oil and 9% NGLs.• 509 producing wells, 888
development wells before March 31, 2016
• 80% proceeds from existing wells, 70% from new wells.
• Hedges and subordination structure insulate from commodity prices.
• 12-Month forward yield: 12.5% to 14%
• Buy Under $26.
![Page 16: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/16.jpg)
Other Royalty Trusts• SandRidge Miss. II (NYSE: SDR) owns wells in OK and KS
Anadarko Basin 85% of expected revenues from oil. • 80% of proceeds 67 existing wells, 70% from 206 development
wells.• 10.5% yield in 2012, 15% in 2013.• Pacific Coast Oil Trust (ROYT) 80% of proceeds from developed
properties, 25% from remaining properties, 7.5% from Orcutt properties.
• Plans to develop wells is shallow, porous Diatomite (fossilized algae) formation using cyclic steam injection.
• Whiting USA Trust II (WHZ) 90% of net proceeds from 1,300 gross wells
• Terminates 12/31/2021 or after 11.79 million bbl oil produced.• 72% crude oil.
![Page 17: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/17.jpg)
Deepwater Boom• Cobalt Energy (NYSE: CIE) announced
Cameia – 1 Discovery in Angola, opens up new pre-salt field
• Gulf of Mexico deepwater drilling coming back sooner than expected.
• Brazil’s Petrobras ramping up deepwater BZ spending
• Shortage of ultra-deep rigs developing, sending rates >$600,000/day
• Rig signed at $648,000 per day in 2013• 3 rigs due off contract in 2013• Yields around 8 to 9 percent• Possible MLP listing to offer even more yield
potential.• Pacific Drilling (PACD) – 4 drillships under
long-term contract, 2 new drillships for delivery in 2013.
![Page 18: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/18.jpg)
Pacific Drilling (PACD)
![Page 19: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/19.jpg)
The Bakken Shale
![Page 20: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/20.jpg)
A Few Shale Recommendations
• EOG Resources (EOG) – Well-diversified producer with exposure to the Bakken Shale, EagleFord Shale, Barnett Combo and Niobrara
• Oasis Petroleum (OAS) – 300,00 net acres in the Bakken Shale, produces about 11,500 bbl/day and will spend as much as $850 m drilling in 2012
![Page 21: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/21.jpg)
US Silica (SLCA)
![Page 22: Higher for Longer: How to Profit from Sustained High Energy Prices](https://reader035.vdocuments.us/reader035/viewer/2022062811/56815f94550346895dce97a8/html5/thumbnails/22.jpg)
Value in Services and Coal• US thermal coal prices to remain
pressured by weak gas prices.• Met coal market more promising.• Peabody Energy (BTU) strong met
and Australian exposure an advantage.
• Long-term value in PRB.• Avoid US-focused services
companies like HAL and BHI. • International business showing
signs of picking up.• Benefits Schlumberger (SLB) and
Weatherford (WFT).