Hello Paul, thank you for the article. I appreciate solid midstream coverage. This industry strikes me as one of the most undervalued areas of the market with stable cashflows despite the recent run up.
In the article, you assume that WES grows at a 5% rate going forward which does not seem unreasonable to me. However, I curious how you arrived at this number
Well I can't claim precision there as this is not a case where the business model inherently supports growth. They depend on producers adding additional volumes. I see 5% as a common number for that but it is pretty uncertain. The impact on near-term cash flows is not large, although valuation can be another story.
Well-explained, Paul. Thanks. It's been a winner. Do you think there would be much change in the volumes and/or pricing with OXY if they were to buy them out? I don't think so but what are your thoughts?
Doubt it. And this only would apply as contracts roll off. OXY and WES are joined at the hip, business wise. And they both need each other and can ask for reasonable returns. If a certain set of wells can't do that, they should be shut down anyway.
A bigger question is whether OXY would continue to primarily rely on WES. I did cover acreage dedications here, but that is a big part of how midstreams protect their future. OXY can't just decamp. That said, we see everybody add new partners when the geography of resources makes that effective. So if OXY starts going where WES is not as a primary expansion, that could be bad for WES, slowly. We did see that with what was ALTM and APA. Apache changed their goals and the growth case for ALTM was weakened.
Thanks Paul. The future contracts are something to consider. That's one of the benefits of having a financially interested customer. There are benefits to independence but, as you said, there are costs. That's certainly one of them. Given your very good discussion of the topics, I don't think I'd put new money there at this price right now but very happy to be holding at my current cost (as you are, I'm sure). The price action of WES could get very interesting with a buy-out of OXY. Mr. Market often doesn't behave rationally. I may add if they make that move and the price drops. For now.....all good. Thanks for the deep dive. You tell a great story.
Yep. I understand that. ET lives on the fringe. I do own it...bought in from Sept '22 thru mid-year '23. The price was very attractive at the time. Hopefully, they've learned some lessons along the way. They are aggressive. I'm not planning to add to that one either but would like to continue to hold (if they behave) if they don't scare me too much. I look at MPLX from time to time but with EPD, WES, ET, ENB and TRP, I'm not sure that I really need another one. For now, I'll wait and wait for the right opportunity. Of course, I know that you can change my mind on something if you find something and publish a story.
Well, I appreciate that you write and publish to better understand your investments. Your money backs up your work. Not true of some. That said, I make up my own mind and my mistakes are my own. Our portfolios are similar in some respects but far from the same.
Hello Paul, thank you for the article. I appreciate solid midstream coverage. This industry strikes me as one of the most undervalued areas of the market with stable cashflows despite the recent run up.
In the article, you assume that WES grows at a 5% rate going forward which does not seem unreasonable to me. However, I curious how you arrived at this number
Well I can't claim precision there as this is not a case where the business model inherently supports growth. They depend on producers adding additional volumes. I see 5% as a common number for that but it is pretty uncertain. The impact on near-term cash flows is not large, although valuation can be another story.
Well-explained, Paul. Thanks. It's been a winner. Do you think there would be much change in the volumes and/or pricing with OXY if they were to buy them out? I don't think so but what are your thoughts?
Doubt it. And this only would apply as contracts roll off. OXY and WES are joined at the hip, business wise. And they both need each other and can ask for reasonable returns. If a certain set of wells can't do that, they should be shut down anyway.
A bigger question is whether OXY would continue to primarily rely on WES. I did cover acreage dedications here, but that is a big part of how midstreams protect their future. OXY can't just decamp. That said, we see everybody add new partners when the geography of resources makes that effective. So if OXY starts going where WES is not as a primary expansion, that could be bad for WES, slowly. We did see that with what was ALTM and APA. Apache changed their goals and the growth case for ALTM was weakened.
Thanks Paul. The future contracts are something to consider. That's one of the benefits of having a financially interested customer. There are benefits to independence but, as you said, there are costs. That's certainly one of them. Given your very good discussion of the topics, I don't think I'd put new money there at this price right now but very happy to be holding at my current cost (as you are, I'm sure). The price action of WES could get very interesting with a buy-out of OXY. Mr. Market often doesn't behave rationally. I may add if they make that move and the price drops. For now.....all good. Thanks for the deep dive. You tell a great story.
Thanks. I might add if I decided to allocate more capital to MLPs, unless I got over being leery of ET.
Yep. I understand that. ET lives on the fringe. I do own it...bought in from Sept '22 thru mid-year '23. The price was very attractive at the time. Hopefully, they've learned some lessons along the way. They are aggressive. I'm not planning to add to that one either but would like to continue to hold (if they behave) if they don't scare me too much. I look at MPLX from time to time but with EPD, WES, ET, ENB and TRP, I'm not sure that I really need another one. For now, I'll wait and wait for the right opportunity. Of course, I know that you can change my mind on something if you find something and publish a story.
Well at least the stories are also what I'm telling myself, so if I lead you astray I will have misled myself first.
Well, I appreciate that you write and publish to better understand your investments. Your money backs up your work. Not true of some. That said, I make up my own mind and my mistakes are my own. Our portfolios are similar in some respects but far from the same.
*did NOT cover acreage dedications