I spent most of the day Tuesday listening to the presentations at the Wells Fargo 2014 Energy Symposium. The individual company presentations quickly show up on investor relations web pages, which allowed me to listen and watch the presentations from a significant number of the presenting companies.
Of most interest to me where what the upstream MLP management teams had to say. This group, which includes two of our portfolio recommendations, has been beaten down by the market with unit prices off 30% to 40%. One C-level manager noted that the market has priced these units like a distribution cut was a foregone conclusion. Yet all four upstream MLP presentations that I listened to expressed confidence that at the current price of crude or even lower, current distribution levels are secure until at least sometime in 2016. All of the management teams discussed the strategies they could use to increase net free cash flow in the event oil prices stayed low for an extended period of time. Across the presentations, upstream and midstream, there was a high level of skepticism that oil could stay this low for a period measured in years.
An important point was raised by The Dividend Hunter portfolio company Legacy Reserves LP (Nasdaq: LGCY) covering the last time the price of crude collapsed. In the chart below, the green line is the WTI price of crude. Note that in 2008, crude dropped from $140 per barrel to $40 in less than a year. The blue bars shows the Legacy Reserves distribution rate paid to investors. As you can see, the company maintained its distribution in what can safely be called a much worse disruption in the energy markets six years ago. I have become more convinced that there is great value in the upstream MLPs with their current 15% to 17% yields.
