Last week was another post election, much ado about waiting week and our groups fared pretty well through the political noise as the much awaited period of sideways trading starts to curl names higher. We had one core ZLT position (MMR) taken out for > 70% premium and while we don't often gripe about that kind of move the longer term potential of the Ultra Deep play is diluted (for us at least) as we won't be long FCX (just not our bag), leaving us with lower working interest UD partner EXXI and the soon to be formed Jim Bob Royalty Trust (we''ll call it something else when they file the S4 but we do suggest they go with the ticker JBRT). We did add to the MMR position in the previous week as more delays at the Davy Jones 1 wellbore and a really negative set of comments of out JPM's zero dollar joe sent the stock screaming south (see our Zman's Stuff link at lower right to commemorate the event).
Some stuff circled in the table below:
Yield Worry. Sentiment returned to wearing down the yield names as can be seen by the relative under-performance of the AMLP ETF as more fears arise over D.C.'s possible treatment of dividends. While dividend tax rates are set to go up we have not had conversations with any trust or MLP that points to actual legislation moving through the channels that would hurt the names (much the same can be said about passing changes to kill off IDC's as well, it's fear over fantasy at this point).
Natural Gas Prices Holding Their Own. We had been expecting a modest retreat in prices in the prior week and last week. Prior week check, last week not so much. For those keeping score we have temporarily ducked out of record storage levels with this week's slightly bigger than expected 73 Bcf withdrawal. We'll get one last anemic withdrawal next Thursday putting us backing into record territory but after that the withdrawal season will kick off in earnest and as natural gas demand has remained stickier than most expected at today's somewhat rebounded prices for both the industrial and electrical consumption components we expect a re-acceleration of the erosion of the storage overhang relative to five year averages pushing us into deficit territory over the course of the winter.
Drybulk Rates Remain Beyond Thunderdome Volatile. We've been asked why they have been moving higher of late and with the recent modestly improved news out of China its not hard to fathom that higher demand is behind the move. We've avoided the space for several years now, and may do a little work in the future but year to date rates have been crushed and rallies like the recent one for the bigger ships are clearly easily collapsible at a moment's notice (down 24% this week, down 56% on the year? Ugh, no thanks).
Notable stuff in the posts last week watch:
- The full Bakken players update
- A Wattenberg player cheat sheet
- MMR / JBRT valuation thoughts and more
Otherwise, have a good weekend.