Teucrium Commodity Trust has filed a preliminary Form S-1 with the US SEC for a new agriculture ETF to be called the Teucrium Agricultural Fund, which would be listed on the NYSE under the symbol ‘TAGS’. The new fund’s objective is to track the daily changes in the net asset values of four Teucrium-sponsored ag funds, including the Teucrium Corn Fund (NYSE: CORN). The proposed fund, really a fund-of-funds, would also include changes to three funds that Teucrium has not yet launched: the Teucrium Wheat Fund; the Teucrium Soybean Fund; and the Teucrium Sugar Fund. Proposed symbols for the three are ‘WEAT’, ‘SOYB’, and ‘CANE’, respectively.

The proposed fund would be rebalanced as often as every day, and unlike many other commodity ETFs that include mostly next-to-expire contracts, the fund will follow a different scheme. Teucrium’s corn fund has no exposure to spot month contracts and neither will any of the other three single commodity funds.

The new single commodity funds would follow the example of the corn fund, holding 35% of second-to-expire contracts, 30% of third-to-expire contracts, and 35% of the following December contracts. Thus, an April investor would own June, July, and December futures. The intent of the scheme is to smooth but the effects of either backwardation or contango on investor returns.

Unlike the PowerShares DB Agriculture Fund (NYSE: DBA), the proposed fund is far more targeted, eliminating exposure to cattle, cocoa, coffee, cotton, and other commodities. The new Teucrium fund would also be the first ETF to give investors exposure to commodities through a fund-of-funds, or ETF-of-ETFs, structure.

No launch dates for the three commodity-specific funds or the new ag fund have been announced.

A contributing factor to high US oil prices has been the absence of a crude oil pipeline to move crude from the storage/pricing hub at Cushing, Oklahoma, to the US Gulf coast, where so much of US refining capacity exists. Two major pipeline companies, Enterprise Products Partners, L.P. (NYSE: EPD) and Energy Transfer Partners, L.P. (NYSE: ETP) have announced plans to build a 400,000 barrel/day piple from Cushing to Houston.

Such a pipeline is also a key part of the Keystone XL pipeline proposed by TransCanada Corp. (NYSE: TRP) and currently awaiting approval from the US State Department. ConocoPhillips Corp. (NYSE: COP) owns the Seaway pipeline which transport crude from the Gulf coast to Cushing, but has rejected the idea of reversing the pipeline’s flow.

The ability to move crude by pipeline to the Gulf coast will send lower cost WTI crude to US refineries now paying Brent crude prices for the mostly seaborne crude now being refined. This should help re-balance the current $10-$15/barrel spread now favoring Brent crude.

TransCanada’s current Keystone pipeline transports about 1 million barrels/day of Canadian crude to Cushing, so even if both pipelines were built, there is enough crude to make both commercially successful.

Finally today, rare earths miner Avalon Rare Metals, Inc. (AMEX: AVL) has filed a $500 million shelf registration with the US SEC. Avalon trails Molycorp, Inc. (NYSE: MCP) in both expected time to production and market cap. Rare Element Resources Ltd. (NYSE: REE) is even further behind, but if there is room for another producer outside China, it’s probably got a chance.

Avalon’s plan could take five years before it makes any sales, and its development costs could top $1 billion. The only question about this $500 million registration is whether or not it will be enough to do the job.

Paul Ausick

Another deposit off to the northeast was known as the Haynesville shale, most of which is located in northwestern Louisiana with related deposits into southwestern Arkansas and east Texas. As exploration developed in the Haynesville shale, the estimated size of the resource was calculated at more than 250 trillion cubic feet of natural gas. That’s more than enough to supply the entire US consumption of natural gas for 10 years at current rates. The Haynesville shale is believed to be the largest natural gas reservoir in North America.

Drilling began in the Haynesville shale in about 2008 and the area is now dotted with wells drilled by more than two dozen companies. The following list names the 15 largest publicly traded companies by their net acreage holdings in the Haynesville shale as reported on their 2009 annual reports. Net acreage is equal to wholly-owned leases plus participation shares in jointly held leases.

Chesapeake Energy Corp. (NYSE: CHK) – 514,425 net acres
EnCana Corp. (NYSE: ECA) – 429,000 net acres
EOG Resources, Inc. (NYSE: EOG) – approximately 370,000 net acres
Petrohawk Energy Corp. (NYSE: HK) – 360,000 net acres
Forest Oil Corp. (NYSE: FST) – 250,098 net acres
Exxon Mobil Corp. (NYSE: XOM) – 166,000 net acres
EXCO Resources Inc. (NYSE: XCO) – 155,945 net acres
Plains Exploration & Production Co. (NYSE: PXP) – 111,000 net acres
Goodrich Petroleum Corp. (NYSE: GDP) – 84,859 net acres
Comstock Resources Inc. (NYSE: CRK) – 72,638 net acres
St. Mary Land & Exploration Co. (NYSE: SM) – approximately 41,000 acres
El Paso Corp. (NYSE: EP) – approximately 40,000 net acres
Continental Resources Inc. (NYSE: CLR) – 24,200 net acres
Cabot Oil & Gas Corp. (NYSE: COG) – 5,852 net acres

Plains also owns 20% of Chesapeake’s interest in the Haynesville shale. Exxon got its share of the play with its purchase last year of XTO Energy.

Three pipeline companies also have extensive operations in the Haynesville play. Kinder Morgan Energy Partners, L.P. (NYSE: KMP) owns a 50% share of a joint venture with PetroHawk, which owns and operates a pipeline and gathering system that will handle more than 800 million cubic feet/day by the end of 2010. Energy Transfer Partners L.P. (NYSE: ETP) is completing the Tiger Pipeline, a 175-mile, 42-inch interstate pipeline that will interconnect with other interstate pipelines to haul the gas to the east and northeast US. DCP Midstream Partners LP (NYSE: DPM) owns and operates some 4,660 miles of gathering and transport pipeline in the Haynesville play.

Oil field services companies also participate by providing the high pressure pumping systems and fluids that break up the shales and allow the gas to flow to the surface. Halliburton Co. (NYSE: HAL), Schlumberger Ltd. (NYSE: SLB), and Baker Hughes Inc. (NYSE: BHI) are among the players here.

The fracturing techniques and the fluids used to force the cracking have come under some scrutiny. The services companies have long held that their fluid formulas are proprietary, and they have refused to give up the exact formulas for the fluids. Some localities and environmental groups are trying to force the companies to release the formulas in order to determine if the chemicals are making their way into local drinking water supplies.

General Electric Co. (NYSE: GE) has recently introduced a new mobile fracking solution in what appears to be a giant opportunity in what the company called “energy efficient, fully transportable, cost effective and that it will enable onsite frac water recycling.”

Haynesville and other natural gas regions have been highlighted in many documentaries and many articles of late.  Some are favorable, some are very critical.  T. Boone Pickens and others are also touting natural gas as the bridge fuel that can get America off of foreign energy dependence.  This is work in progress with an unfinished outcome.  There are billions upon billions of dollars at stake.

Paul Ausick

Morningstar’s Paul Larson gave several sector picks today in the MLP sector, most of which are true MLPs.  Larson outlined Energy Transfer Equity, L.P. (NYSE: ETE).  It owns the general partner of two other MLPs, Energy Transfer Partners (NYSE: ETP) and Regency Energy Partners (NASDAQ: RGNC) in natural gas transportation businesses and ETP also owns a propane distribution business.

Enterprise GP Holdings L.P. (NYSE: EPE) was also given a positive outlook from Larson, and this is involved in a stock merger with Enterprise Products Partners L.P. (NYSE: EPD) that is still a deal pending unitholder approval.

Larson also likes TransCanada Corp. (NYSE: TRP), although this is a pipeline company in Canada that is not structured as a MLP and its dividend yield of 4.1% is more straightforward without many of the traditional tax headaches associated with an MLP.  Larson called it undervalued with a fair value estimate of $43.00 versus $37+ today.  Another of his alternative picks is Kinder Morgan Management LLC (NYSE: KMR) as being basically a different share class of one of the largest MLPs, Kinder Morgan Energy Partners.  Full Larson/Morningstar presentation

There are a couple of other means of investing in MLPs in a diversified manner that other pickers rarely make note of.  Kayne Anderson MLP Investment Company (NYSE: KYN) and JPMorgan Alerian MLP Index ETN (NYSE: AMJ) offer diversification with a return of capital component that still replicates income for investors.

Kayne Anderson MLP Investment Company (NYSE: KYN) is a closed-end equity mutual fund launched and managed by KA Fund Advisors, LLC that invests in the public MLP sector.  Its dividend can fluctuate and a recently announced payout of $0.48 per share for the last quarter is anticipated that a significant portion of the distribution will be treated as a return of capital for tax purposes.  That $0.48 rate has been paid for seven quarters (down from $0.50 before) and it has sold more shares and the current implied yield (again, not exact because return of capital) and its $26.10 share price compares to a 52-week trading range of $20.03 to $27.54.

JPMorgan Alerian MLP Index ETN (NYSE: AMJ) is an exchange-traded note that has a spotty dividend history since its 2009 launch.  If you smooth out the dividend it would have an implied yield of close to 5.2%.  At $33.95, the 52-week trading range is $24.26 to $34.15.

Before you chase these yields just as routine dividends, you will need to learn the tax structure, as well as the limitations and implications in investing in this asset class.

JON C. OGG

Alas, the companies have announced that the deal is dead. OGE’s chairman, CEO, and president said that “conditions in the financial markets are such that any partnership completed in the near term would not likely be economically beneficial to OGE.” ETP’s chairman and CEO echoed that sentiment, “We regret that the capital markets have prevented us from accomplishing our plans to combine these businesses in a strategic joint venture.”

If two major energy companies can’t line up the financing they need to form a regulated return business, this is not good news for any company.

Paul Ausick

The offering price was listed as $34.05 per common unit.This was less of a discount than many other offerings we haveseen when you consider that shares are down almost 5% and are tradingat $33.41 today. 

Joint book-runners in the deal are Credit Suisse, Citi,Morgan Stanley, UBS, and Wachovia Capital Markets.  Barclays Capital,Deutsche Bank Securities, Raymond James, and RBC Capital Markets areall listed as co-managers of the deal. The underwriters were given anoverallotment option to purchase up to 900,000 additional common unitsover the next 30-day period.

Jon C. Ogg
January 22, 2009

The net proceeds from this sale will be used to repay debt from its revolving credit facility, and the company expects to use some of the funds to finance capital expenditures and other growth projects.

Joint book-runners in the deal are listed as Credit Suisse, Citi,Morgan Stanley, UBS, and Wachovia Capital Markets.  Barclays Capital,Deutsche Bank Securities, Raymond James, and RBC Capital Markets areall listed as co-managers of the deal.  The underwriters were given an option to purchase up to an additional 750,000 common units.

Energy Transfer Partners L.P. closed up 0.6% at $35.11 today, butshares are down almost $1.00 in after-hours trading on worries about the addeddilution.  This would represent about $175million in capital raised, and the company’s market cap is roughly $5.3 billion.

Jon C. Ogg
January 21, 2009

The ten-year note Energy Transfer issued in May had a coupon of 6.7%,compared with 9.7% for the new ten-year note. That’s a pretty big jump.

Another pipeline partnership, Kinder Morgan Energy Partners L.P.(NYSE:KMP), today revealed that it has issued $500 million in ten-yearsenior debt at 9%. Kinder Morgan also issued 3.9 million additionalcommon units to raise another $177 million. The company also raisedanother $194 million by reversing fixed to floating interest rateswaps. Kinder Morgan didn’t say what it was planning to do with thenearly $900 million in cash.

Energy Transfer’s total debt-to-market-cap ratio is nearly 1; KinderMorgan’s is less than 0.7. Energy Transfer’s share price is up about 1%this morning; Kinder Morgan’s is down about 1%.

Paul Ausick
December 19, 2008

A subsidiary of Southwestern Energy (NYSE:SWN) has signed up for 1.2billion cubic feet/day for 10 years and a subsidiary of Chesapeake(NYSE:CHK) has signed on for 375 million cubic feet/day with an optionfor another 125 million cubic feet/day. FEP will start a binding openseason next week to determine if there is enough demand for shipping towarrant an increase to the planned pipeline.

Southwestern Energy was the first company to apply the horizontaldrilling techniques developed in the Barnett Shale play to theFayetteville Shale. The company holds leases on more than a 900,000 netacres of the play, of which only about 150,000 have been developed. Inits last annual report, Southwestern estimated its proved reserves inthe Fayettville play at 716 billion cubic feet equivalent, of which 43%is developed. That leaves a lot of room for growth.

Chesapeake has been shedding assets, including a25% stake in its Fayetteville Shale holdings to BP plc (NYSE:BP). Thecompany noted in its 2007 annual report that it planned to sell offabout $3 billion in assets through 2009 in order to avoid having to goto the public markets for cash to fund capex. That may still prove tobe a sound plan, given the fear gripping the credit markets today.

As usual, though, the pipeline companies have probably hit on anotherwinner here. Some estimates of the total Fayetteville Shale resourceare as high as 20 trillion cubic feet of natural gas. It will take morethan 20 years to pump it all out, and both Kinder Morgan and EnergyTransfer will nick off just a little bit of every cubic foot. That’s agood business model.

Paul Ausick
October 1, 2008

As a result, the new JV will own more than 2,300 miles of Enogex’sintrastate pipeline system and about 23 billion cubic feet ofgas storage facilities. Enogex also owns all or part of seven natural gas processing plants with a capacity of nearly 750 million cubicfeet/day that are included in the deal. Energy Transfer contributes its2,400 mile Transwestern Pipeline system, 1,800 miles of the Canyongathering system in Colorado and Utah, and its 50% interest in the500-mile Midcontinent Express Pipeline.

This is not going to be a small potatoes company. Under the agreement,once the transaction is closed the companies will issue an IPO, as amaster limited partnership. Because the new company does not includeany production assets, it will not be subject to the wild price swingsin the natural gas market. Instead, it will generate that nice, steadytransportation cash near and dear to the hearts of pipeline MLPinvestors.

This JV shows all the signs of being a success. The gathering systemsare well-placed in productive, and growing fields, and the interstatepipelines are pointed at the right markets. Early trading today ismixed. OGE is up about 1.5% and Energy Transfer is down about the sameamount.

Paul Ausick
September 23, 2008

Jon C. Ogg
June 6, 2007