In a recent presentation at VALUEx Vail 2014, Thomas A. “Tomas” Stone from Newstone Investments discussed the investment potential of QR Energy (QRE), an upstream MLP (Master Limited Partnership). QRE offers an attractive 11% current distribution yield with a tax advantage, making it an appealing investment option for income-seeking investors. With a production profile heavily weighted towards oil and a strong sponsor in Quantum Energy, QRE benefits from a history of value creation led by CoB Don Wolf.
Despite the positive aspects, there are some concerns to consider. As with any MLP, there are inherent risks, as evidenced by the natural production decline that leads to dilution and potential acquisition risks. Additionally, the buyout of the general partner comes at a cost of 11.6 million partnership units over the next four years, which could lead to future dilution. The distribution coverage ratio of 1.0x raises questions about sustainability, especially given the lack of distribution growth over the past eight quarters. Furthermore, QRE’s hedging strategy limits its ability to fully participate in any near-term commodity price upside.
Presentation summary generated by ChatGPT