CNX pumped about midstream
I remember early in my career, post the Pan Canadian / AEC merger in 2002, some investment bankers said “You should let investors choose whether they want oil or gas exposure. You should be a pure play!” (I’m not sure of the exact wording but I know the fees were high for such sage advice). Thus, Encana and Cenovus were born, one ring to rule the gas world and one to rule the oil. Oops. NG prices crashed very shortly after and Encana has been trying to get oilier ever since.
And so upstream beget midstream spin outs. “Unlocking value” by freeing the midstream business to trade at a substantial multiple to EBITDA and lever the heck out of it to juice the returns. Anadarko’s spin-off of Western Gas was great, especially for the employees that got dropped in as placeholders but received options and watched the market go crazy, driving up the value of the business and making MGMT rich in the process. The model was proven and spinning out midstream was all the rage.
But at the core, is it a good strategy to divide the product from the access to the market? No. The sum of the two (any two) together are far superior, but generate less fees for bankers. No fees begets consolidation and so yesterday, CNX brought their midstream back in the fold. It’s about time.
#hottakeoftheday
think you missed something on cnx. investment bankers and management have made a helluva alot of dough ONLY for themselves. look at value destroyed by deiullius and his minions. starting with the first cnx gas spin out from consol energy circa 2005. what did they spin out than their cost of capital. wow, took all of those cmu B school grads to come up with that one. then tell me, how come so much shareholder value was destroyed?
look at the JV’s too like noble, et al. real energy companies picked their pockets.
nick and his sycophants – who have very little real world experience – d. rush a 30 something supply chain flunky now cfo, y. akingube a chief excellence officer. what is that anyway, look at the rest of the management team on their website, griffith and gill, empty political suits.
“it’s about time” hottake? like your work. but give me a break on this one. every move they’ve made has destroyed value for shareholders and employees, except themselves and their bankers.
Appreciate the comment. I am not advocating that they added value. I’m advocating that they integrated the supply chain that includes midstream. Like the Encana example, spinning out was a horrible mistake. Bring the baby birds back is a better business move. The mistakes made in the way there and the value destruction, I’m not a shareholder for those reasons and more. But… it is the right strategic move and as we’ve learned from E&P management teams – they don’t do many and when they do, they are usually the beneficiaries.