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Brian McMorris

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  • What Is Happening With Penn West? [View article]
    China Investment Corp already owns 50% of PWE. They are majority owner and they probably want to buy the rest, if Canada would let them. Nothing will happen at the Board without CIC allowing it
    Sep 16 04:22 PM | 2 Likes Like |Link to Comment
  • What Is Happening With Penn West? [View article]
    I don't know about that, Lionel. Maybe you meant that in humor. :-) Because Roberts and George own so many shares, they would not intentionally tank the stock to improve their bonus. Their bonus is a solid dividend. I think they misjudged the public reaction to the news. They found some problems. They wanted to come clean as quick as possible to show integrity and do the "kitchen sink" thing. It blew up on them. Stuff happens.
    Sep 16 04:17 PM | 1 Like Like |Link to Comment
  • What Is Happening With Penn West? [View article]
    As always, Lionel, your knowledge of drilling accounting is superior to the analysts who wish to comment on PWE and get paid for their work. We get yours for free :-)

    Besides the obvious errors by the writer, who appears not to be familiar with the story at PWE, the article at least is balanced. I disagree with any analysis which trys to include the prior management in its work. We cannot look back past May 2013 for any insights to future direction of PWE. The prior team was so far off the mark that their efforts can be dismissed. The only thing they did that must be considered is the Canetic acquisition and how to dispose of those assets and repairing the accounting issues, which should be done shortly.

    As for this analysts Book Value assertion of $9.37, I am not sure the math that generates that number. Double counting the industry discount is one problem. Did they also completely discount goodwill? It seems they must (and that is fine with me). Did they make assumptions about lower oil prices?

    Shareholder's Equity (net of debt and equal to BV?) is $7.562B as of March 31 public filings. On 500 million shares, that is $15 / share.
    Sep 16 09:31 AM | 4 Likes Like |Link to Comment
  • Penn West says reserves not impacted by accounting under review [View news story]
    @Hendrick3...I always enjoy your posts. You and a few others on this blog are informed (Yeo, M Blair) and bring value to the blog. I look forward to the management explanation of how they missed the mis-allocations of operating expenses to capital under the previous management. It seems they would have scrutinized the books given all the problems they inherited. But I presume there are large grey areas in E&P accounting. They may have initially noticed the expense treatment and then later reconsidered its appropriateness. I will look forward to your discussion of this restatement
    Sep 1 09:03 AM | Likes Like |Link to Comment
  • Penn West: The Chickens Have Come Home To Roost [View article]
    October 14 is what PWE management has been negotiating for. This means they are confident they will have their audit and restatements for whatever number of periods done at that time. Otherwise they would have requested a different date.
    Aug 26 05:27 PM | Likes Like |Link to Comment
  • Penn West: The Chickens Have Come Home To Roost [View article]
    Looks like they reconciled matters with the creditors. Both banks and unsecured lenders have now waived their technical default clauses
    Aug 26 02:08 AM | Likes Like |Link to Comment
  • A Market That Defies All Expectations [View article]
    Excellent point, Gtoz...The bond market is the truly smart money. Only institutions and trusts of the wealthy play there. There are no "fast money", momentum chasing speculators in the bond market. Stock equities often have short term distortions based on speculation while bond markets reflect national economic strength and the demand for money ala global currency flows.

    Example: when Chinese companies sell products to America the imported dollars are collected by the Chinese banks and recycled into USD denominated financial instruments like US Treasuries. To maintain the Chinese currency peg, the Chinese government requires holding the USTs. Converting back to the yuan would cause the Chinese currency to strengthen vs the USD and that would blunt Chinese competitiveness.
    Aug 17 12:33 PM | 3 Likes Like |Link to Comment
  • A Market That Defies All Expectations [View article]
    RichJoy...I will reiterate this point. The stock market continues to anticipate an economic recovery that never really happens (at least not to the degree the optimists continue to project, aka 3-4% GDP). The bond market sells off on the anticipation and then deals with reality by rallying. The stock market generally does the opposite, but not to the same degree. The stock market likes both stories: more QE from economic weakness and higher profits on economic strength.

    I would also comment that even though QE has been reduced in growth, it has not been reversed (a huge difference). Come October, there is still an extra $4T stuffed into the debt markets by the Fed since 2007. That excess liquidity in the form of bonds continues to slosh around as supply. The Fed MUST bid on that supply to suppress interest rates. When Fed-owned debt matures, it must be reissued and printed by the Fed or it will amount to a monetary contraction. Average expiration is in around 2018 at which point we will see how brave the Fed is by maintaining its balance sheet or letting it contract. Contraction will cause interest rates to soar
    Aug 17 12:25 PM | 4 Likes Like |Link to Comment
  • Update: Penn West's Internal Review [View article]
    Mr Alfonso really has a problem with PWE and has for several years. I read the same investor update on the company site and there was nothing negative about it. In fact, the update showed substantial progress in dealing with the problems caused by past management and, as pointed out by TueffelH, the current management is doing all the uncovering and discovery. The fact that regulators and banks are cooperating and assisting is encouraging. And even if PAST FFO is affected, it will be a paper correction. Operating Cash Flow is not really the metric for E&Ps, Going forward Free Cash Flow is (it pays the dividends). That will not be impacted other than by potential legal costs.

    No information contained in: "no dead cat bounce". Who was expecting any type of "bounce" until the reports come out?
    Aug 16 08:39 AM | 18 Likes Like |Link to Comment
  • Penn West: The Chickens Have Come Home To Roost [View article]
    Fortunately, I averaged down and my average cost is around $9 so not killing me. Maybe pick up more once we see a bottom, which I agree, won't come until the books are re-opened (or the rumor of the net result leaks out). I can wait. This was always going to be a long term holding for me, until it got back over BV. I can't imagine any set of circumstances that will wipe out positive BV. Even 4 years of cooking the books could not cause that much damage. Even if lawyers make $100M in their class action efforts, the assets support that. Any settlement to the class will come back to current investors as they will be part of the class if having held on through the decline from $10 to $7. I can't imagine that there are any damages for stock price changes prior to July and the information became public. It is not like a stock that gets kited from $10 to $500 on fraudulent books. This stock declined all during the supposed fraud.

    Been here and done this before with other stocks. The key is to buy a company with good assets and new management with a plan and then wait. The rest is already in the price.
    Aug 15 01:25 PM | Likes Like |Link to Comment
  • A Crisis Less Extraordinary [View article]
    MC... once again you and I are sympatico. I love history and have read quite a bit financial history. I had observed this "generational" effect of markets, with 18 bull and 18 bear years in one secular cycle. It does not repeat exactly because there are a lot of external factors that change the dynamic, like World Wars. So we should be midway in a secular Bear. I would consider Central Bank intervention a significant impact on the rhythm of the market cycle, but I also believe while a cycle can be influenced it cannot be changed. WW2 did not really change the Great Depression in most of the world, only in America which was physically untouched. That great war was a completion of the "Night Cycle" as you call it, ending around 1950 and climaxing with the atomic bomb in 1945.

    So what should we look for? I believe we will have a final blowoff that overwhelms the efforts of the central banks. Once that last line of defense is breached, there will be nothing behind that wall and the 2001-???? cycle will march till completion having routed out all optimism in equity markets. I don't agree that the next correction will stop at 1100 on the SP500. I think it could test its ultimate destination in 2009 before getting cut short, which I thought to be around 300-400 (as did Louise Yamana at that time). That would have been similar to the 1929-32 selloff in intensity and depth that would have been retested in America if not for the destruction of WW2 (which took many world equity markets to near zero).
    Aug 15 01:05 AM | 1 Like Like |Link to Comment
  • A Crisis Less Extraordinary [View article]
    I both agree with your conclusions, Eric, and disagree. The 2000-01 crash was much easier for me in that I was not as exposed to the Tech market in 2000 and had a greater exposure to value and commodity stocks (oil and gold) that did very well during and after the crash. The Tech market, though, crashed much harder with the QQQ down 85% and many high beta, small cap tech stocks down 95-99%. Now THAT is a crash.

    On the other hand, the 2007-09 decline was cut short by the Fed and the National Accounting Standards Board (changing mark-to-market to mark-to-model) in an effort to save the banks. This meant the overall market declined by only 50%, which has happened many times in the last 100 years, but it was a crash that took no prisoners with every asset class but Treasuries getting clobbered. This "no where to run and no where to hide" aspect is what made the 2007-09 crash so hard. I did not have much Treasury exposure and had my portfolio take a 60% hit with little cash at the bottom the decline was so ferocious (my near-cash stable value funds were hammered providing no protection). And I had seen this coming. Those who didn't probably were hurt worse, unless they were older and had very conservative portfolios going in.

    I agree that cutting short the decline in 2009, though the humane thing to do, does set us up for a deeper decline in the future. There are still way too many financial optimists that would have been cleaned out by a more massive correction of the 1929-32 variety. A deeper cleansing would have caused a generational change towards risk and caused a renewed emphasis on savings versus debt at all levels of society. It is like the negative consequences of fighting forest fires. By stopping fires from burning out the undergrowth, the fuel gets dryer and deeper so that eventually a fire comes along that cannot be controlled resulting in devastating firestorms with blast furnace heat that literally sterilize the soil for decades to come.
    Aug 15 12:46 AM | 1 Like Like |Link to Comment
  • Penn West: The Chickens Have Come Home To Roost [View article]
    DAR....I did not misunderstand. I did not say it was a complete victory, but Halliburton won a point. The concept of shareholders in a class action suing shareholders, those already damaged, is nonsensical. This is judicial overreach trying to get the big, bad corporation. Go after the management that committed the crime, fine (Nunn and crew, though they are protected in many ways by corporate limited liability and officer insurance). But do not go after the shareholder. Those who buy before the event are already damaged, including employees and their stock ownership plans. Those who buy after the event, maybe years later, had nothing to do with the event (fraud, or whatever). Current owners of GM are in that situation since GM went through bankruptcy that eliminates liability for past acts (but doesn't stop the attorneys from filing lawsuits that must be defended).

    You are wrong about the objective of a class action. It is made under "Fraud-On-The-Market" theory and is to provide a remedy to those who were injured as a class due to misrepresentation affecting the pricing of a stock. In this case, those that are injured include the current management which relied on the books to buy millions of stock. Current managers are the victims not the perps. So where is the justice? That is the point of legal action, right? This type of lawsuit serves to line the pockets of attorneys and that is all.
    Aug 15 12:00 AM | Likes Like |Link to Comment
  • Penn West: The Chickens Have Come Home To Roost [View article]
    Pennwest submitted an update today. From the reading of it, all parties are cooperating, including regulators and lenders. PWE staff requested and received an extension for filing, to October 14:

    "The Company applied for and received an MCTO from the Alberta Securities Commission ("ASC"). The MCTO prohibits the directors and executive officers of the Company from trading in or purchasing securities of the Company".

    The fact the management is willingly and voluntarily seeking arrangements with regulators is a good sign. The company negotiated with its lenders as well and arranged for a waiver on the technical default of covenants due to missing the filing of its financial statements:

    "The Company advised the lenders ("Lenders") under its bank facility ("Bank Facility") and holders ("Noteholders") of its senior unsecured notes ("Notes") of defaults under the Bank Facility and the Notes, subject to applicable cure periods, arising from matters in relation to the decision to restate certain historical financial results and the delay in filing the Company's second quarter filings. Such defaults do not relate to the financial covenants contained in the Bank Facility or the Notes. The Company has obtained a waiver of the defaults under its Bank Facility from its Lenders which, subject to certain conditions, has the effect of extending the cure period under its Bank Facility until October 14, 2014"

    Looks like both the banks and the unsecured lenders are exhibiting patience and understanding, though the unsecured would have a weak hand to do otherwise. The waiver makes a point to note that the technical default is not related to any financial covenant.

    From my perch, the management team is exhibiting exemplary behavior in working with all parties. There is nothing but cooperation and humility. All situations like this should be resolved in such a forthcoming way.
    Aug 14 11:52 PM | 1 Like Like |Link to Comment
  • Penn West: The Chickens Have Come Home To Roost [View article]
    Here is an even better explanation of FFO and FCF and OCF. I normally go first to the Statement of Cash Flows when I look at the financials on a company. Earnings are full of deceit, as there are many non-cash ways they can be manipulated. As an investor, all I care about is Free Cash Flow or FFO when I am in a REIT.
    Aug 14 04:35 PM | Likes Like |Link to Comment