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.
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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.
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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.
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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.
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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.
