Tuesday, January 26, 2016; Scientists Double The Rate At Which Sea Levels Are Rising; West Coast US Shows No Rise In Sea Level; Apple To Report Earnings After Market Closes Today

Active rigs:

	1/26/2016	01/26/2015	01/26/2014	01/26/2013	01/26/2012
Active Rigs	47	156	187	190	203

RBN Energy: master limited partnerships, ongoing challenges.  Episode 3. Previous posts:

In Episode 1 of this series, we provided a refresher on MLPs and their current market.   Recall that these are tax efficient, publically traded partnerships used mostly as investment vehicles for oil and gas midstream infrastructure.   Over 84% of MLPs are involved in energy and natural resource industries.  In theory, MLPs are designed for businesses with secure, stable cash flows – fee based, “toll-road” revenues that should not fluctuate dramatically with commodity prices.

MLPs were integral to the shale midstream infrastructure build out over the past few years.  They sold partnership units to investors that offered the prospect of income from cash distributions as well as growth from increasing unit values - then used those funds to develop billions of dollars in midstream assets. As MLP prospects soared, the widely followed Alerian AMZ Index that tracks MLP returns increased 286% from 189 at the beginning of January 2009 to a high point of 540 in late August 2014.   Then came the crude oil price crash. The AMZ index fell 46% since it’s high in August 2014 to finish 2015 at 290.

In Episode 2 we dived into two MLP issues that have sparked concern about how appropriate these structures are as vehicles for midstream infrastructure build out in an era of falling oil prices. The first is whether the toll-road analogy really protects MLP investors in an industry down cycle such as that being experienced today. The risks of most MLP infrastructure projects like pipelines and terminals are underwritten by shipper “take-or-pay” commitments that guarantee capacity payments required to generate a return on investment – regardless of commodity prices. But if shippers don’t survive the down cycle or can’t meet those take-or-pay commitments - the MLP is left holding the bag. The second issue is the common practice of setting up MLPs so that the controlling General Partner (GP) owns a minority 2% interest in Limited Partner (LP) units but receives an outsize return based on Incentive Distribution Rights (IDR’s). Analysis from Alerian shows that from a list of 54 Midstream GPs with IDRs – 43% or 23 MLPs currently return “High Splits” of 48% to the GP. In many such cases – as industry stalwart Keith Bailey argued in Episode 2 - the resulting uneven distribution of MLP cash to the GP can easily force LP unit holders to take risks not commensurate to the returns they will achieve.

***********************************

Uh-Oh

That Yellen decision to begin raising rates late last year looks more and more ... well, not such a great idea. In today's Wall Street Journal, the chances of a global meltdown.

In retrospect, the Fed’s rate hike last month will likely be viewed as monetary malpractice. The next hike is on hold, and there is already talk of another round of quantitative easing. None of this is likely to forestall turmoil in credit markets. Investors are wise to be worried, but it’s likely that 2016 won’t be a replay of 2008.  

************************************

Good News

The good news: the Fed now has an arrow in its quiver: it can now lower interest rates and provide more quantitative easing. LOL.

**********************************

Mismeasurement Of Snow Accumulation In Real-Time (Feet);
Precise Measurement Of The Rise In Global Sea Levels In The Future (Millimeters)

We talked about this yesterday; Fox News was the first to report it -- that the senior meteorologist said it is difficult to accurately measure snowfall when explaining why Reagan National airport reported 19 inches of snow and everywhere else in the DC area snowfall accumulation was reported at 30 inches.

CNN is the latest to confirm. It turns out the meteorologists at Reagan National use a picnic table to measure the accumulated snow. After a foot or so of snow accumulates, the most junior member bundles up or someone from the housekeeping staff, walks outside, measures the snow, sweeps it all off the table (to avoid compaction error), and then repeats the process. It appears everyone got caught up watching weekend sports, and forgot to tell the intern to go out and measure the snowfall. By the time someone remembered, the snow was so deep the intern was unable to find the table.

So, in one 24-hour period, it appears the meteorologists mismeasured snow accumulation to the tune of a foot or so.

But these same folks, with a straight face, now tell us that sea levels are rising faster than ever. Okay, the linked article below is a difficult, difficult article to follow. First of all, the numbers are all over the chart around the world. Sea levels are NOT rising on the west coast of the United States. Some of the highest sea level rises are in the Philippines. There was no mention of the US East Coast, or even the Maldives.

Now, to the numbers. Remember: the meteorologists appears to be off by a foot or more when it came to measuring snow accumulation in one weekend. A foot.

From The Proceedings of the National Academy of Sciences, as reported in The [London] Guardian:

Until now, researchers have believed the oceans rose between 0.7 to 1 mm per year due to thermal expansion.

But a fresh look at the latest satellite data from 2002 to 2014 shows the seas are expanding about 1.4 mm a year, said the study. 

Yes, you read that correctly. The measurements are in millimeters/year.

“To date, we have underestimated how much the heat-related expansion of the water mass in the oceans contributes to a global rise in sea level,” said co-author Jurgen Kusche, a professor at the University of Bonn.

The overall sea level rise rate is about 2.7 4mm per year, combining both thermal expansion and melting ice.

To put this in perspective, fingernails grow an average of 3 mm/month. That's how much oceans will expand this year.

Enough said. For now.

By the way, I highlighted the operative word in the story above: note, the National Academy of Scientists are using the word "believe" in their conclusions. That's not a word we often see in scientific studies.  A "fresh look." LOL. I can't make this stuff up.

********************************

Reporting Today

Apple, at $3.28 beat forecasts by a nickel, but overall, a negative report; iPhone sales slowing, iPads nosedive
ATT, at 63 cents, meets forecast but revenues fell; shares down after market closes;
Sprint, beats by 5 cents; misses on revenues. Sprint's stock rockets after narrower-than-expected loss; upbeat outlook. Lost 21 cents vs 25 cents forecast.