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Bill Cunningham  

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  • 3 Good Reasons To Sell BP Prudhoe Bay Royalty Trust [View article]
    From BC to AD: (get it?)

    Technically the distributions are taxable at ordinary income tax rates just like the payments in lieu of dividends. In either case, the income should be offset, in part or in whole, by the depletion which could make the income effectively a tax free return of capital, as you stated, but it depends upon an individual's cost basis/ amount they can take as depletion etc.

    I suspect most tax accountants wouldn't report the payments in lieu on the royalty schedule with BPT, but would probably report it in a general "other income" category. Due to various adjustments, phase outs of deductions etc., the result might be slightly less advantageous to the taxpayer, so if anyone gets these payments, you might want to ask your accountant about reporting them on the royalty schedule. (Not sure if the accountant would agree but as they say in NY "if you don't ask, you don't get.")

    Schwab also grosses up the payment in lieu of dividend, but Interactive Brokers does not. I own one closed end fund at IB which makes a large ye distribution, and a few years ago, some of it was lent out at ye , so I got taxed at the higher rate with NO comp. The last couple of years, I have elected to take the ye distribution in stock and then sold it (paying IB's $1 commission), to get around this issue.

    I assume Ameritrade (or other brokers that normally gross up the payment in lieu..) does NOT gross up the Royalty payment?
    Apr 27, 2015. 04:43 PM | Likes Like |Link to Comment
  • When It Comes To Tesla, Read Between The Lines [View article]

    Explain that to Cecil.
    Apr 25, 2015. 01:31 PM | Likes Like |Link to Comment
  • 3 Good Reasons To Sell BP Prudhoe Bay Royalty Trust [View article]

    One of my accounts is at Interactive Brokers. I believe they have an arrangement where if you have a cash account and agree to lend out shares, the fee is split between Interactive and the individual. If it is in a margin account, they can lend out the shares and not disclose or pay anything. I guess that's why they charge only $1 for trades, and make margin loans for 1 or 2%. They make up for it in other ways, such as this.
    Apr 20, 2015. 08:36 PM | Likes Like |Link to Comment
  • 3 Good Reasons To Sell BP Prudhoe Bay Royalty Trust [View article]

    i believe your understanding is correct; I've been quoted 47-99"%, the highest rates I've ever heard of, so 199% is even more absurd.

    If someone shorted 100 sh today at 65 and the borrow rate is 100% p.a., my understanding is they'd have to pay a stock borrow fee of 6500/yr. or about $600 month. It's a reflection of how overvalued sophisticated investors believe this stock is, some of whom are paying the fee expecting a big enough drop to make up for the fee, while other sophisticated investors are figuring they can lend it out, and make a bunch of money on the fee to make up for their expected smaller drop in the price. Both sides are expecting a price drop; it's just a matter of whether it will be more or less than the borrow fee (plus/minus distribution.)

    In the meantime, some idiot individual investor on yahoo finance is telling people not to lend out stock. They should either sell or lend to make money through the squeeze via the stock borrow fee. This will turn out to be another case of individuals getting screwed, and by not lending shares they are permitting the hedge funds that are lending to earn a higher " hard to borrow" stock lending fee.
    Apr 17, 2015. 05:08 PM | Likes Like |Link to Comment
  • 3 Good Reasons To Sell BP Prudhoe Bay Royalty Trust [View article]
    BPT trading should be interesting on Monday. BPT closed at exactly 65, which is the exercise price for options at 65 that expired today. I assume that means they won't be exercised, but not sure how that works. (if the price were a bit higher and there was short covering next week, I assume that would have had an impact.) I'm also wondering if short covering on the options might have been a reason for the upward price move today despite the drop in both oil and stocks.

    Price action over the next two weeks should be very interesting; options (there were almost 1,000 options at 60, expiring today,representing 100,000 shares), that may be exercised over the weekend could affect things. There may be some short covering in the upcoming week or so, but retail investors will be noticing the pitiful distribution soon, either via check or credit to their brokerage account. We'll see which force wins out. (The 70 calls I wrote expired worthless :))

    I'm not a technical expert, so if anyone has input on this situation, I'd be interested in hearing it. 
    Apr 17, 2015. 04:37 PM | Likes Like |Link to Comment
  • 3 Good Reasons To Sell BP Prudhoe Bay Royalty Trust [View article]

    Yes, I know you do; it was just this one issue where we were talking past each other, and I think I just realized what the issue may be. If the Trust got paid what Alaska oil is actually sold for, you might be right. The raw crude could be shipped to Asia for less than shipping it to the lower 48 and refining it. Since the Trust only gets paid WTI, this is irrelevant and lifting of the restrictions might cause Alaskan oil to sell for more due ot lower shipping costs but it would all go into BP Alaska's pocket, not the Trust's. (Further complicating things, I think there is already a minor exception for exports of Alaskan crude, but I'm not 100% certain.) Was this what you were thinking?
    Apr 12, 2015. 05:05 PM | Likes Like |Link to Comment
  • 3 Good Reasons To Sell BP Prudhoe Bay Royalty Trust [View article]

    I was going to mention the refinery issue and see that Pablomike already has. That's a critical point in the equation. It is almost impossible to get approval for a new refinery in the US, so whoever owns the refineries is in a strong position, particularly, with the restriction on export of crude.

    WTI is the price paid for delivery at Cushing Ok., and my understanding is that oil in N. Dakota is sold for considerably less than WTI due to the transport costs. I believe it is even worse for Canadian tar sands oil. In any case, there is a cost to transport this oil to the coast and then an additional cost to ship it overseas, so even with crude export restrictions lifted, domestic oil at Cushing, but particularly at the well head would sell for less than brent.

    It should also be remembered that although BP Alaska pays the trust WTI, this is NOT the price that BP Alaska actually gets for the oil. My understanding is that typically they can sell it for a bit more than WTI. BPT is an artificial instrument based upon various benchmarks that don't necessarily relate to real world numbers, the most obvious being the Adj. Chargeable Cost which is due to accelerate starting in 2018. This number has absolutely no relationship to the true costs of getting the oil out of the ground, and the acceleration in this number is simply meant to ensure that the Trust terminates rather than going on forever with unpredictable consequences. When the Trust was established (in 1989?) no one was going to pay more for the units if the Trust had an unlimited life rather than one that was likely to terminate in 30-40 years, which is why it is structured the way it is. BP Alaska did not want to deal with this forever if there was no material financial benefit to them of letting it do so. Now, the day of reckoning for the Trust holders is approaching, but many just want to put their heads in the sand.
    Apr 12, 2015. 03:46 PM | Likes Like |Link to Comment
  • 3 Good Reasons To Sell BP Prudhoe Bay Royalty Trust [View article]

    I'm NOT puzzled. The WTI discount makes perfect sense to me based upon the rationale I have provided. Re read my posts and think about it, and I believe you will agree that it is totally logical. (Mr. Spock would think so, I'm sure.)
    Apr 12, 2015. 12:51 PM | Likes Like |Link to Comment
  • 3 Good Reasons To Sell BP Prudhoe Bay Royalty Trust [View article]

    If what you are saying were true, wouldn't WTI be higher than Brent now?? There are currently no restrictions on importing oil, just exporting it. We buy locally produced oil first, then pay a bit more for oil indexed to brent for the remainder of our needs.

    It is also important to remember that we are currently permitted to export refined oil, so our supply is not totally isolated from the world markets. As a result, removing the export ban on crude will not be that big a deal, except for the refiners, who now have a cushy "crack" spread due to the restriction. Overseas refiners have to pay brent for their raw material, so they have to charge more for their refined product just to break even. US refiners have a major cost advantage. If the restriction were lifted, they would no longer have an incentive to export refined product and many analysts believe we would likely be paying less at the pump. Even though there may not be much actually being exported now, the refiners are always able to say to the distributors "if you don't pay at least "x," I'll make more money selling the gasoline overseas", which has kept the cost paid by gas stations up, which they need to pass on to us.
    Apr 12, 2015. 10:59 AM | Likes Like |Link to Comment
  • 3 Good Reasons To Sell BP Prudhoe Bay Royalty Trust [View article]
    Mr. Dubious,

    Not sure if I understand what you're assuming, but if the export restrictions are lifted on unrefined oil, then we'd start exporting it to places that now buy indexed to Brent, (Europe, China etc.). The transport costs to those places from the US would presumably be more than North Sea and Russian oil to W. Europe and Middle East oil to China, so to equalize the price at the point of delivery, the net price received at Cushing Ok. would be less to adjust for the longer distance/higher transport costs.

    There would also be a possibility that Brent would come down a bit as well since there is new supply on the world market.

    P.S. I've been enjoying your succinct comments.
    Apr 12, 2015. 10:14 AM | Likes Like |Link to Comment
  • 3 Good Reasons To Sell BP Prudhoe Bay Royalty Trust [View article]

    "However, they would need something big to push the price down to avoid running the cost up, like an analyst writing a slam story and then a bunch of short-sellers jumping on board to lower the cost..."

    I have NEVER seen such a scenario, have you? It appears to me that you are stretching more and more to try to justify BPT's potential.
    Apr 12, 2015. 08:35 AM | Likes Like |Link to Comment
  • 3 Good Reasons To Sell BP Prudhoe Bay Royalty Trust [View article]
    Brent is only a few dollars more than WTI, so if the restrictions were lifted, the new equilibrium price might be closer to brent, but would still be a bit less due to shipping costs. Since there is considerable less than a $10 difference now anyway, lifting of the restrictions would hardly be a "game changer."

    Acquisition of the Trust by a big player would not increase the payments, BPT would only pay the trust holders what they are due under the agreement. If there were a game changer affecting oil prices, then (as I have previously said) , there would be much more attractive investments than this one. Any E &P company would perform much better under such a scenario.
    Apr 12, 2015. 08:32 AM | Likes Like |Link to Comment
  • 3 Good Reasons To Sell BP Prudhoe Bay Royalty Trust [View article]
    BPT is so overvalued whether the equilibrium price is $55, $65 or even $75, it doesn't matter too much. It's still a "sell."
    Apr 12, 2015. 08:23 AM | Likes Like |Link to Comment
  • 3 Good Reasons To Sell BP Prudhoe Bay Royalty Trust [View article]

    From the 2014 10 K:

    "The Trust’s share of oil production and condensate is computed based on BP Alaska’s ownership interest in the oil rim participating area of 50.68% as of February 28, 1989. Subsequent decreases in BP Alaska’s participation in oil rim ownership do not affect calculation of Royalty Production from the 1989 Working Interests and have not decreased the Trust’s Royalty Interest."

    As you can see, there has already been a sale of some of BP's Prudhoe Bay interests and it did not affect the Trust. This is consistent with my comment earlier that the Royalty interest is basically a weird form of debt; even if the company is sold, the "debt" still needs to be repaid.
    Apr 11, 2015. 02:08 PM | Likes Like |Link to Comment
  • Two Scenarios For Tesla's 2015 Unit Sales - 55K Vs. 39K [View article]

    But if Tesla had a female spokesperson, you'd be cheering how innovative they are. (Tesla can do no wrong, all other car manufacturers can do no right, even the ones that make ev's.)

    Apr 10, 2015. 03:31 PM | 1 Like Like |Link to Comment