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We are removing "short" ROYT and BBEP from our Best Ideas list.

Short ROYT has worked well since we added it to our Best Ideas list on 7/2/13 at $17.99/unit.  We believe that the NAV of the trust is ~$9.00 – 10.00/unit; it’s still overvalued, but not the opportunity that it was when it was trading at $18 before the insiders unloaded units.

There could be a trading opportunity in ROYT in 2Q14, so we may revisit.  ROYT has 2,000 bpd (45% of production) of Brent crude swapped at $115/bbl through March 31, 2014.  After that date, the trust will be 100% exposed to spot pricing (California crudes: Midway-Sunset and Buena Vista).  Thus, depending on those spot prices in April 2014, there could be a steep decline in the monthly distribution in June, as the June distribution will be paid from April production and prices; that distribution will be announced around May 23rd, 2014.  We’ll be watching the California crude prices closely over the coming months.


Short BBEP has not worked since we added it to our Best Ideas list on 7/2/13 at $18.42/unit.  Our negative thesis was built on BBEP’s understated maintenance CapEx, aggressive non-GAAP accounting, aggressive hedging strategies and accounting, weak capital efficiency (F&D), excess leverage, its need to raise dilutive equity capital, poor corporate governance, and valuation.

We don’t believe that we are wrong on the fundamentals here, but they don’t seem to matter at the moment (and that’ll happen).  Long-term, we are still negative.  But we believe that there are better short opportunities in the MLP space, and in the E&P MLP space in particular, than BBEP here and now.  BBEP almost went away in 2008/9; it’s our view that at some point it'll be staring down the barrel of that gun again.  For relative performance-focused investors, we expect BBEP to continue to underperform the broader MLP sector, especially if it weakens, given BBEP’s outsized leverage, serial acquisition business model, and understated maintenance CapEx.

Ping me for any of the old ROYT and/or BBEP notes.

Kevin Kaiser

Managing Director