Who is set to benefit from the rebound in propaneWho is set to benefit from the rebound in propane prices?
https://seekingalpha.com/article/937371-propane-prices-are-set-to-rebound-sharply-in-2013?source=yahoo
I believe the company that is best positioned to benefit from rebound in propane prices is Equal Energy (EQU). Equal Energy is an oil and gas producer with operations in Canada and the U.S. (Oklahoma), the company is in the process of divesting its Canadian operations and is currently considering the transformation into a Canadian dividend trust similar to Eagle Energy Trust or Argent Energy Trust, or alternatively the transformation into an MLP such as Eagle Rock Energy (EROC), LRR Energy (LRE) or Mid-Con Energy Partners (MCEP) among others.
Equal Energy stands to benefit further from the expected shrinkage in the differential between Conway NGL prices and Mont Belvieu due to the activation of DCP Midstream Partners Southern Hills Pipeline, which, according to the company's investor day conference of October 11th, is running ahead of schedule with the Oklahoma portion ready for activation in Q1/2013.
An increase in propane prices from 95c to 140c would increase a resulting Equal Trust or MLP payable cash dividend from 42c to 85c or 56c to $1.14 inclusive of a 25% DRIP, meaning an Equal Trust unit price would rise from $5.6 to $11.4 at 10% yield. Considering that Equal Energy is currently trading at $3.5 per share, a transformation into a dividend entity combined with a strong rebound in propane prices would prove very beneficial to the valuation of the company.
Alternatively another way to get exposure to rising propane prices is shorting a name such as Petrologistics (PDH), which operates a propane dehydrogenation facility. A substantial rise in the price of the company's propane feedstock could significantly reduce Petroloogistics' operating margins. According to the company's May 2nd 2012 prospectuses, a 10c decline in the propane to propylene spread (from 25c to 15c) would shrink the company's EBITDA from $156.8m to $27.4m.
It is also possible to envisage a pair trade with both of those names; a long position in Equal Energy can be hedged with a long position in Petrologistics should propane prices remain depressed, meanwhile a long position in Petrologistics can be hedged with a long position in Equal Energy should propane prices rise as expected in this article.