Monday, December 8, 2014

Swapped MCEP for ROYT

This morning, first thing, I swapped out Mid-Con Energy Partners (MCEP) for Pacific Coast Oil Trust (ROYT). My reasoning is as follows: Since its acquisition in West Texas, Mid-Con no longer has a comprehensive hedging policy. Mid-Con only hedges out a couple quarters, and only slightly more than half of all oil production is hedged. I was not happy with the West Texas acquisition. It was done at the wrong time and left unitholders totally exposed to a decline in oil prices. There's no way that acquisition is going to be accretive. At least, not in the short term.

So, I swapped it out for Pacific Coast Oil Trust, which has similar waterflood acreage but is out in California. ROYT is a royalty trust, which means it does not hedge at all. But I'm OK with that because ROYT also has no debt to worry about and has an incredibly low cost base. MCEP, on the other hand, has moved into the Hugoton Basin and Gulf Coast Texas, both of which are higher-cost waterflood areas. That's not what I signed up for.

Felt a sense of relief wash over me when I did the trade. Sounds a bit silly but it's true. Now, all my upstream MLP exposure is in Linn Energy (LINE) and Memorial Production Partners (MEMP), both of which hedge appropriately. I am still comfortable with these two and hope to never sell either one. Also have a small amount of BreitBurn Energy Partners, but not much.

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