THE MACAU METRO MONITOR, OCTOBER 3, 2013
MACAU SEPTEMBER GGR DICJ
Macau grossing gaming revenues rose 21.4% YoY in September to MOP 28.963 billion (HKD 28.12 billion, USD 3.63 billion).
GOV'T TO MAINTAIN BAN ON NON-LOCAL CROUPIERS Macau Daily Times
Macau CEO Chui Sai On said that there will be no changes to the regulations concerning croupiers. Chui’s words were corroborated by the Secretary for Economy and Finance, Francis Tam, who even said it was “awkward” that the issue was being raised. The Secretary doubted the accuracy of predictions indicating the need for 10,000 more croupiers. “Do you think that so many will be needed?” he fired back at a journalist.
BELOW-PAR CASINOS DISPUTE SMOKING AREA FINDINGS Macau Business
The government has yet to publish the names of casinos that failed a second round of checks on air quality in their designated smoking zones because some have disputed the findings. Secretary for Social Affairs and Culture Cheong U said, "The reason for the delay is that we have received some appeals.”
NATIONAL DAY VISITOR NUMBERS LOWER THAN IN 2012 Macau Business
Official data show 124,499 visitors arrived on October 1, down 6% YoY. But the Macau Government Tourist Office data show 102,227 of the visitors were mainlanders, +16% YoY. The mainland’s ban on cheap package tours – run by operators that recoup their costs by compelling tourists to shop in shops that pay commission – came into force on October 1. Anecdotal evidence suggests the ban appears to have had some effect on visitor numbers.
This note was originally published at 8am on September 19, 2013 for Hedgeye subscribers.
“Insanity: doing the same thing over and over again, and expecting different results.”
Is it over?
Well, it depends on what you think it is.
Is it the US Constitution? Is it the US Dollar? Is it US Growth?
Back to the Global Macro Grind…
I’ll keep it tight this morning, because if I rant about what I really think about what Ben Bernanke did yesterday, I might lose some clients and have the NSA parked outside of my house.
While it was a great day for those of us who have been US stock market bulls in 2013, it was a very sad day for America.
Basically, Bernanke eviscerated almost my entire bull case for US growth accelerating from here, so it's a good thing he cut his GDP forecast. The best way to slow real (inflation adjusted) economic growth is by burning your currency.
To review the 3 core components of our 2013 bullish thesis for US #GrowthAccelerating:
None of that happened yesterday, because an un-elected central planner decided so. #perfect
Exactly what Jefferson and Franklin had in mind.
I have no doubt that everyone who is in the business of being long every recipient of the US Dollar devaluation had a great day. But that doesn’t do jack for the hard working American who will be taking this one in the pump and/or the conservative American saver who was actually getting something more than 0% for the last few months.
Bernanke should have respected Mr. Market’s long-standing American pro-growth signal of #StrongDollar, #CommodityDeflation, and #RatesRising – and he did not. Period. For that, he should feel shame.
So you tell me, is it over? And over for whom? Who is going to hold Bernanke accountable for:
Is this all part of the class warfare thing Obama likes to talk about? Other than the political class, who, precisely, Mr. President, got paid by Bernanke’s un-objective and un-elected decision yesterday? Or did all those “folks” you’ve been standing up for refi whatever they have left on their house and buy Gold futures with it yesterday?
I clearly don’t get what Bernanke is trying to achieve by banning things like gravity, consumption tax cuts, and the economic cycle. But my gut says no one in America who doesn’t get paid to say they get it gets it either.
Unlike the US Federal Reserve who has been behind the curve using broken forecasting models, my research team will continue to respect both the data and markets as leading indicators. That part of what we do isn’t over this morning. Neither will changing our mind as circumstances do.
Our immediate-term Risk Ranges are now:
UST 10yr Yield 2.58-2.81
Best of luck out there with your centrally planned day,
Keith R. McCullough
Chief Executive Officer
This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.
September GGR up 21% YoY but visitation softer to start October – cheap package tour ban?
Our primary issue with BreitBurn Energy Partners (BBEP) is understated maintenance CapEx - and the Postle acquisition increases our concern. With increased scrutiny now around LINN Energy's (LINE, LNCO) maintenance CapEx policy, as evidenced by the stark changes in disclosure in its latest S-4/A, investors should strongly consider whether or not BBEP's maintenance CapEx level is appropriate, or light. We believe that it is very light. While this SEC review did not address BBEP's maintenance CapEx, it would not surprise us if one in the future does.
Postle Field Economics - Where's the Maintenance CapEx?
Comments from BBEP’s management team, as well as its forward guidance, suggests to us that is materially understating the amount of CapEx that it is needed to keep production flat (maintenance CapEx) on the Postle Field assets that it acquired in June 2013 and closed on in July 2013. After adjusting for appropriate maintenance CapEx, we do not believe that the acquisition is accretive to BBEP's DCF/unit.
From BBEP's 8/6/2013 2Q13 Earnings Conference Call (our emphasis):
Analyst: Thanks. Mark, question just circling back on maintenance capital, can you talk about whether or not the addition of the Postle asset will have much of an impact on the overall corporate decline curve and the intensity of trying to – of what you need to spend for maintenance capital?
COO Mark Pease: Jeff, we've looked at that and it is shallow decline, which is a good thing for us. Overall, it doesn't have much impact. I mean, it's pretty consistent with the maintenance capital that we see across the portfolio. So, while we have some areas that, as you look at them individually, they're higher than others. From a whole portfolio standpoint, Postle is right in there with the rest of our assets.
Analyst: Can you share what the cash flow just from that asset might be versus the capital that would be needed to keep it flat?
COO Mark L. Pease: Jim, I don't know what we've disclosed on that, on that the deal.
CFO James Jackson: Hey Jeff, it's Jim. We just haven't – we've not given that level of detail on Postle to date.
BBEP filed pro forma financial data for Postle in its 8/30/2013 8-K, so now we have that level of detail. Below are the key stats:
Production in April 2013 was 7,400 boe/d, down 9% from 2012 average. Total CapEx in 1H13 was $44MM, or ~$87MM annualized. This implies that this level of spend is insufficient to stem the production decline on this asset. This is consistent with the production and spending trends at Postle over the last three years. Production in April 2013 was down 20% from the 2010 average.
After the acquisition, BBEP guided 2H13 maintenance CapEx to $55MM (see the 6/24/13 investor presentation), with Postle expected to close on August 1st (5 full month contribution in 2013). 2Q13 maintenance CapEx was $19.5MM without Postle, as stated by management on the 2Q13 conference call, so this acquisition resulted in an ~$8MM/quarter increase in Maintenance CapEx. BBEP's guidance suggests that maintenance CapEx on Postle will be ~$32MM/year; this is difficult to reconcile with the facts that annualized CapEx at Postle since 2011 was ~$84MM, and production was in decline. Maintenance CapEx is supposed to be the capital required to keep production flat...
Total CapEx on Postle was 54% of EBITDA in 1H13, and production is in decline. BBEP’s maintenance CapEx in 2Q13 was only 23% of EBITDA. Yet, management states that the Postle Field maintenance CapEx, “From a whole portfolio standpoint, Postle is right in there with the rest of our assets.” In our view, the data does not support this assertion.
And while management stated on the deal call that the acquisition was “right around, maybe even a little less than 6X expected forward EBITDA,” the stand-alone Postle assets (excluding derivative assets/liabilities) were acquired for 11x 1H13 annualized free cash flow, and the asset is in decline. EBITDA can be a misleading measure for a CO2 flood due to capitalized CO2.
The total Postle purchase price (ex. derivative assets and liabilities) was ~$815MM, 0.83x the YE12 standardized measure of $985MM.
If BBEP finances this acquisition with 50% equity and 50% debt, we do not believe that it will be accretive to DCF/unit. The asset requires significantly more capital to keep production flat than BBEP is letting on, as the actual data from 2010 - 1H13 shows.
BBEP Makes Public Correspondences with the SEC
BBEP made its 2013 correspondences with the SEC public late last week. The SEC first sent a letter to CFO James Jackson on March 27, 2013 with comments related to BBEP’s 2012 10-K. BBEP and the SEC traded a series of letters and phone conversations between May 2013 and August 2013. On August 28, 2013, the SEC completed its review.
What were the SEC’s major concerns?
What were the outcomes?
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