IEA doubles forecast for oil price by 2030
IEA doubles forecast for oil price by 2030 - International Herald Tribune.
The International Energy Agency apparently believes the current pull back in energy prices is just a downward blip in the longer term increase of oil prices. Last year the agency forcast a nominal oil price of $108 per barrel by 2030. This year they have increased their projected price to $200.
They forecast global demand to grow by 1% per year from the current 85 million barrels per day to 106 million barrels per day in 2030. Demand for all energy is forecast to grow by 1.6% per year.
Energy costs are very cyclical and have dramatic increases or decreases against small changes in global economic growth. Speculative excesses play a major roll in the dramatic price swings, but this current down turn in energy prices may be short lived.
Aircastle stock value makes no sense
At the risk of repeating myself, I really do not understand why the market values Aircastle Ltd. (AYR: 4.69 -0.68 -12.66%) as low as it does. The aircraft leasing company has great cash flow, pays a nice dividend and has a low debt to value ratio. Let me lay out the facts and remember the current share price as I write this is $5.63 and the market cap of the company is $442 million. Figures are from today’s 3rd quarter earnings release.
- Aircastle’s modern fleet of aircraft has a book value of $4.0 billion. The company debt is $2.5 billion. They have $1.5 billion of equity in their aircraft vs. a market cap of $442 million.
- For the 3rd quarter AYR had free cash flow (net income plus depreciation) of $1.12 per share, or annualized $4.48 per share of free cash flow against a $5.63 share price.
- The annual dividend is $1.00 per share giving the stock a yield of 17.7%. They have 4.5 times coverage of the dividend in free cash flow.
These results are pretty much the same as Aircastle has produced for the last 3 quarters. Their aircraft are 99% leased out and all financing is secure until 2013. Every time the stock gets hammered I wonder what I missed and each quarter the results come out with strong earnings and cash flow. I do not see any reason why this is not a $15 stock. If it was a $15 stock, the board might be tempted to start increasing the dividend, which they could easily do. At the current stock valuation they are just as well off keeping the cash or paying down debt. AYR is a component of this site’s Income Portfolio.
Nordic American Tanker pays off again
Nordic American Tanker (NAT: 29.37 +0.62 +2.16%) has announced their 3rd quarter results and declared a dividend of $1.61 per share payable to shareholders of record on Nov. 21. NAT has now paid a total of $4.89 for the past 4 quarters. The company has now paid a dividend for 45 consecutive quarters.
NAT is the easiest company I know to understand and the hardest to predict results for more that a quarter down the road. Nordic American has a fleet of about a dozen Suezmax oil tankers that they contract on the spot market. The work to keep their per ship expenses very low and pass all free cash flow earnings on as the quarterly dividend. The currently have no debt and 2 tankers on order.
They are unpredictable because revenues and the dividend fluctuate right along with the spot market rate for Suezmax tankers. Over the last few years I have seen the daily rate fluctuate from under $20,000 per day to over to $80,000 per day. NAT’s dividend has ranged from 40¢ to $1.88. For the last 4 years the dividend has averaged $1.17 per quarter.
Since we are almost half way through the 4th quarter I will predict the next dividend will come in at $1.40 to $1.50. I base my assumption on what little information NAT gives out and keeping an eye on the spot rate for Suezmax tankers.
Note: NAT is a component of this site’s Income and Opportunities Portfolios and I hold the stock in my own account.
Atlas siblings offer different profit opportunities
If one starts digging into the interrelated Atlas energy companies, you first get a headache, then you decide there may be some good profit opportunities. So far I have listened to 2 earning calls from the energy company and the pipeline folks. Atlas America (ATLS: 12.02 -1.41 -10.50%), which hold general partner interests and a significant portion of the LP units will report on Friday.
First up was Atlas Energy LLC (ATN: 13.83 -0.65 -4.49%) ATN is the natural gas exploration and production part of the equation. Atlas Energy currently is developing shale properties in Michigan, Tennessee, Indiana and the monstrous Marcellus Shale in Pennsylvania. From the 3rd quarter of 2007 revenues were up 19%, earnings up 21% and distributable cash flow up 17%. The company has had 6 straight quarters of record results since going public at the end of 2006. A dividend of 61¢ was declared giving the stock a current yield of 11%. Distribution coverage for the quarter 1.4 times in distributable cash. ATN sets itself apart from their peers in two ways. First, they generate funds for drilling expansion and additional revenue by selling individual tax-advantaged investor programs. They are not dependent on borrowing to fund drilling expansion. Second, they take a strong, active hedging stance to lock in profits for their natural gas production. Current hedges will ensure growing profits through at least the end of 2009. It is hard to believe the shares of ATN traded as low as $13.37 a month ago, pushing the yield to over 18%.
The conference call for Atlas Pipeline Partners (APL: 6.0699 -0.6001 -9.00%) and affiliated Atlas Pipeline Holdings (AHD: 3.90 -0.24 -5.80%) took a significantly longer than average 1.5 hours. It opened with CEO and Chairman Ed Cohen expressing his “anguish” at the valuation the stock market is putting on his company in comparison to the excellent performance he sees in their results. He came back to the topic several times during the call and I definitely got the message they want the market to value the company higher. Market concerns seem to be with APLs high debt load in the face of a possible slowdown in cash flow due to much lower natural gas prices. Atlas Pipeline currently generates about 82% of EBITDA from the processing of natural gas into other fuels under the collective name of NGLs (natural gas liquids). When asked about the affect of natural gas and oil prices on their margins the answer was that processing margins are affected by:
…NG liquid prices, natural gas prices, oil prices, the covariance between these prices and the influence of the company’s hedges on these prices.
I would find it hard for a stock analyst to get a handle on that well enough to predict the future for APL. The balance of EBITDA come from the fixed fees for the transportation and compression of natural gas.
The market has definitely priced in a distribution cut from the current 96¢ which provide a yield of 20% at the current stock price. If the distribution was cut to 80¢ (my guess as the minimum for 2009 based on comments in the conference call) the stock would still be yielding 16%. If the stock was priced at a more reasonable 12% yield on the hypothetical 80¢ distribution the stock would be 30% higher than it is now at around $26. The stock is way undervalued.
To reignite the stock price APL management is looking at several options to get the market to see more value in the stock. One idea proposed in the conference call was the combination of APL and AHD into a single entity. This would retain more distributable cash into a single stock and reduce the murkiness of the relationship. Currently whenever APL increases the distribution amount it is required to send the same amount of cash to AHD. A single company would be able to increase distributions at a much faster rate. APL is also actively researching selling off some of their pipeline and processing assets and use the cash to pay down debt. One problem some stock analysts have with the company is the amount of debt on the books.
I think both of these Atlas siblings are well managed and actively hedged energy companies that are currently very undervalued. This is from a combination of a general weakness in the stock market, falling natural gas prices, and the inability of the market players to separate the conservative players from the agressive. Atlas Pipline Partners (APL: 6.0699 -0.6001 -9.00%) is a component of this site’s Income Portfolio and Atlas Energy (ATN: 13.83 -0.65 -4.49%) is in the Opportunities Portfolio.
New Energy Finance - NEX - Weekly Review
Each week I recap the results of the WilderHill New Energy Global Innovation Index, symbol NEX, and published by New Energy Finance Ltd. The index consists of approximately 90 stocks from 22 countries. The NEX is the tracking index for the PowerShares Global Clean Energy Portfolio ETF (PBD: 10.52 -0.26 -2.41%).
Last week the NEX broke a string of gut-wrenching weekly drops by posting a 22.9% gain. The index handily out-gained the NASDAQ, up 14.6% and the S&P 500, which gained 13.8%. Conventional energy benchmark AMEX Oil lifted 21.4%. Although the nice gain is encouraging, we must remember the NEX now sits at 187.19, well off its 52 week high of 468.75. Or put another way, the NEX is still 60% below the recent peak.
All of the sectors in the index were in positive territory led by a 40.6% gain in solar energy. A Barack Obama presidency is seen as especially positive for solar power and the top 5 stocks in the index were from this sector. Hydrogen and fuel cells was close on the heels of solar, gaining 38.6%. This sector contains only 3 stocks and all had a nice week.
Biofuels and biomass was the trailing sector, up only 12.8%. Brazil Ecodiesel surged 45% but VeraSun Energy lost 2/3 of its remaining value by declaring Chapter 11 bankruptcy over the weekend.
Here are the top gainers and losers from the index for the week (Note last week had only one positive stock, and this week only 4 negative returns):
NEX top gainers since 28/10/08
Evergreen Solar ESLR + 96.2%
Conergy CGY + 88.2%
Yingli Green Energy Holding YGE + 70.1%
Q-Cells QCE + 62.1%
LDK Solar LDK + 52.6%
NEX top losers since 28/10/08
VeraSun Energy VSE - 66.7%
Zhejiang Yankon Group 600261 - 5.0%
Epistar 2448 - 1.7%
Boralex BLX - 0.4%
Covanta Holding CVA 0.0%
