Seeking Alpha

Elliott Gue

View as an RSS Feed
View Elliott Gue's Comments BY TICKER:
Latest  |  Highest rated
  • 4 Recent IPOs To Watch [View article]
    Thanks for the comment. Yes, you're quite right it's Noble Energy (NBL) not Noble Corporation (NE) I was referencing in the article. I just wrote up a piece on deepwater contract drillers so I guess I still had NE in my head.
    Feb 22 08:46 PM | 1 Like Like |Link to Comment
  • Making Sense Of North America's Shale Oil And Gas Future [View article]
    Thanks for all the great comments. A few points:

    1. Yes, I believe that one of the plays on the US unconventional gas (and oil) boom is infrastructure -- the pipelines, processing plants and storage facilities needed to take gas from the field to the burner tip. In many cases, the companies or Master Limited Partnerships (MLPs) building these lines sign up producers as customers long before they begin construction. Fees charged don't depend on commodity prices and part of the fee structure is a capacity reservation charge that must be paid whether the pipe is actually used or not. A very stable, cash generative business that can back up impressive dividends/distributions.

    2. Be careful of the natural gas storage market. If storage facilities are booked under long-term deals and supported by capacity fees, the business can be solid. But demand for gas storage can also be driven by volatility in the natural gas market and the summer/winter price spread. For example, if prices tend to be low in summer and high in winter a company can purchase gas, store is and then sell it in a sort of seasonal arbitrage. Using futures these profits can actually be locked in. The boom in shale gas production has not only pushed prices lower but has also reduced volatility and seasonal variations in gas prices. The market is, in effect, permanently oversupplies. This has really hurt storage levered companies like PNG and NKA.

    3. US consumers aren't being ripped off in my view by the utilities or anyone else. In fact, quite the contrary, it's not widely appreciated just how good shale oil and gas production is for parts of the US economy. I went to the UK late last year and one of the stories dominating the airwaves was the fact that many customers were seeing massive increases in their electricity rates forcing people to take all sorts of measures to conserve power. Rates in some cases were up 30 or more percent over the past year due, in large part, to the soaring cost of natural gas in Europe. Meanwhile, across the Pond in the US electricity prices are actually falling.

    And, look at US-based chemicals companies like Eastman (EMN) and Dow (DOW). These firms are benefiting handsomely from the increased availability of natural gas liquids (NGLS) used in petrochemicals production. US chemical production capacity is being re-started and capacity expansions are underway because it's actually cheaper to produce certain chemicals in the US than it is in the Middle East.
    Feb 18 05:46 PM | 3 Likes Like |Link to Comment
  • Going Deep: Oil Service Providers Should Benefit From Boom In Deepwater Drilling [View article]
    Thanks for the comment. I don't think you'll see dayrates collapse overnight. For the most part these deepwater and ultra-deepwater rigs are contracted for years into the future at more or less fixed rates.
    Feb 18 05:27 PM | Likes Like |Link to Comment
  • Going Deep: Oil Service Providers Should Benefit From Boom In Deepwater Drilling [View article]
    Thanks for the comment. Industry insiders have been looking for deepwater activity to heat up this year but they did seem a bit surprised at how quickly it's happening. Some of these discoveries are quit recent though and may have sparked a change of sentiment.
    Feb 18 05:25 PM | Likes Like |Link to Comment
  • Going Deep: Oil Service Providers Should Benefit From Boom In Deepwater Drilling [View article]
    Thanks for the comment. The rumors aren't at all unfounded in my view. After all Noble just signed a deepwater rig for $610,000 so $625,000 wouldn't be that much of a leap. Moreover, given just how few rigs are available in the deepwater/ultra-deepwater class, there's an obvious scarcity premium.
    Feb 18 05:23 PM | Likes Like |Link to Comment
  • Going Deep: Oil Service Providers Should Benefit From Boom In Deepwater Drilling [View article]
    Thanks for the comment. Yes, clearly deepwater Brazil will be a major area of development over the next few years. One interesting point is that the geology of the finds in the Kwanza Basin offshore Angola is similar to the big Brazilian deepwater finds like Tupi. This is less surprising when you consider that 100's of millions of years ago when the continents fit together as a single landmass, these areas would have been adjacent. This is another reason producers are so excited about Angola's pre-salt potential.

    The big deepwater finds in Norway's Barent's Sea show that producers are moving deeper into the Arctic to find oil and gas.

    Finally, I would note that Statoil and Exxon announced a potential natural gas find in a deepwater block offshore Tanzania just last week.

    Activity is heating up.
    Feb 18 05:21 PM | 1 Like Like |Link to Comment
  • The State Of Agricultural Commodities [View article]
    Thank you both for the interest. The website http://bit.ly/yzGDu8 has links to all my e-letters.

    And, if it helps, I lived in the UK for four years while doing my undergraduate and masters degrees.
    Feb 10 01:20 PM | Likes Like |Link to Comment
  • Merger Madness To Continue In 2012 [View article]
    Absolutely a valid observation. The proposed acquisition of Minefinders (MFN) by Pan American Silver (PAAS) announced on January 23rd is proof that the consolidation you speak of is already underway.
    Feb 7 10:03 AM | Likes Like |Link to Comment
  • The State Of Agricultural Commodities [View article]
    Thank you for all of the kind comments both about this article and Personal Finance.

    Agriculture is truly a fascinating area. I first started researching the space back in 2005 in preparation for my first book The Silk Road to Riches (focused on the rise of the emerging markets). There are some interesting parallels between the Agricultural Revolution of the 18th and 19th centuries and the current period.

    If you look at the Essay on Population first published by Thomas Malthus in 1798 he predicted that the Earth could not support the rising global population and would ultimately face famine and disease. The reason this did not happen is that farmers in places like Britain were able to dramatically increase their yields through measures such as crop rotation, proper fertilization and irrigation. The dramatic increase in yields and efficiency allowed the British population to expand to new highs even as the incidence of famine fell and the quantity of arable land declined. In addition, these improvements freed up more workers for other industries.

    We're now seeing the same trends underway in places like China -- a dramatic rise in population, evolving diets and a decline in arable land is forcing a new Agricultural Revolution. This will involve the adoption of international best-practices on fertilization and the use of more modern equipment like combines. In my view it will also mean ever more widespread adoption of genetically modified seeds. I know GM seeds are controversial but, at the end of the day, this technology can dramatically increase yields per acre and that's what's needed.

    There is a long list of investment implications. Certainly the fertilizer names mentioned in comments above would be on that list as would farm machinery companies like Deere (DE) and GM seed firms like Monsanto (http://bit.ly/xovs3u).

    Disclosure: I am long $MON and $DE
    Feb 7 09:53 AM | 3 Likes Like |Link to Comment
  • GeoResources: One Of The Stronger North American Shale M&A Targets [View article]
    My publisher prohibits me from buying or selling any stocks I recommend in an article for the first time for a certain period before and after the issue is published. This is a relatively new recommendation in the newsletter.
    Feb 5 09:19 AM | 4 Likes Like |Link to Comment
  • 9 Dividend Paying Basic Materials Stocks With Low P/E Ratios [View article]
    Investors should be extremely careful about using earnings and ratios derived from earnings like P/E when evaluating Master Limited Partnerships (MLPs) like APL, ARLP and TNH mentioned in the article.

    MLPs are a unique structure in that they're pass-through vehicles. They do not pay corporate-level taxation but pass through their cash flows to individual unitholders (MLP equivalent of shareholders) in the form of regular (usually quarterly) distributions. In addition to passing through the cash they generate they are also able to pass through certain tax shields to unitholders such as depreciation and depletion allowances.

    Basically, the portion of your income that is covered by these allowances is taxed as a return of capital, meaning that taxes are deferred until you sell the MLP.

    To make a long story short, MLPs try to maximize their depreciation allowances to pass through more tax advantages to unitholders. Since most, like APL, own significant fixed assets like pipelines, gas processing plants, etc.. they have particularly large depreciation charges. That has the impact of artificially reducing earnings.

    Another problem is that if you compare an MLPs distributions to its earnings it will often appear the MLP isn't covering its payout.
    Distributable cash flow--a measure that strips out non-cash accounting charges from earnings--is a more appropriate metric for MLPs than earnings.
    Feb 2 01:07 PM | Likes Like |Link to Comment
  • GeoResources: One Of The Stronger North American Shale M&A Targets [View article]
    Thanks for the comment. I agree that debt is an important consideration in evaluating companies.

    I would also say, however, that investors need to look at more than just the total amount of debt a company has, also examining what type of debt they have and their maturity schedule. For example, a lot of companies got in trouble back in 2008 and early 2009 not because they had too much debt but because they had too much relatively short-term debt in the form of credit lines with banking groups. In some cases the interest rates on this debt was indexed to LIBOR, a huge problem when the interbank market ground to a complete halt and rates spiked to unprecedented levels. If you had a credit line to roll over in late 2008, you were probably in dire straits.

    Other companies had issued long-term bonds during the strong credit market environment of 2004 to early 2007, locking in fixed, low rates and extending their maturities out 10 years or more.

    One example of a company I follow that learned its lesson about shorter term debt during the crisis is Linn Energy $LINE. They have been issuing 10-year debt at really attractive ultra-low rates to fund acquisitions.

    Disclosure: I am long LINE
    Jan 28 01:27 PM | 6 Likes Like |Link to Comment
  • Merger Madness To Continue In 2012 [View article]
    Thanks for the comment. I do think that the oil and gas industry will continue to see significant M&A in the coming year. In particular, I think we'll see more acquisitions of US exploration and production names that own significant, attractive acreage in oil-focused shales like the Bakken and the Eagleford.

    A couple of names I am watching are $OAS and $GEOI, a smaller name I wrote up in another article on SA: http://seekingalpha.co...
    Jan 28 01:14 PM | 3 Likes Like |Link to Comment
  • Solid As Granite: Chesapeake Trust Ramping Up Distributions [View article]
    Thanks for the comment. I think there's some confusion here. The trust's distributions are actually likely to continue rising through 2013 and then flatten out for a bit and then decline after that. As I mentioned in the comment above, this is a function of the fact that Chesapeake Energy (CHK) will be drilling 118 new wells on the area of mutual interest before roughly June 30, 2015.

    The trust will NOT cease to exist in 2015. Rather, these wells will continue to produce and throw off cash flows that underpin further distributions. Yes, as wells mature that production will drop off over time but mature wells can remain economic for years -- there's a long tail of profitability.

    The trust will not cease to exist until 2031 so you have nearly 20 years of distributions followed by a final distribution to reflect the sale of the properties associated with the trust.

    If CHKR simply meets its targets (the first distribution was above-target), then the trust will pay a total of $17.12 in distributions per unit between now and the second quarter of 2017. After that, of course you could expect another nearly 14 years worth of distributions albeit at a declining quarterly rate. With the units currently trading in the $23 to $24 area that looks like a good deal to me.

    Generally speaking, I do tend to like new trusts (those that have recently IPO'd) the most as they have the best potential for near-term distribution growth. Distribution growth attracts investors.
    Jan 23 01:56 AM | Likes Like |Link to Comment
  • Solid As Granite: Chesapeake Trust Ramping Up Distributions [View article]
    Thanks for the comment. A couple of points to make. First, since the market is aware that Chesapeake Granite's (CHKR) distributions are likely to rise over the next couple of years (due to Chesapeake drilling another 118 wells by June 30, 2015) and then fall after that, there's no reason that the price of CHKR's units would plummet. The market would begin to price in production declines long before they actually occur. Also remember that as wells mature, production falls but it's typically at a fairly predictable pace so these wells will continue to be economic for years to come.

    Second, absolutely it's possible that the trust could continue to throw off distributions well in excess of their target levels. This could be due to a number of factors including higher-than-forecast oil and natural gas liquids (NGLs) pricing, better-than-expected production and/or a lower-than-forecast decline rate. In fact, this is already the case as CHKR's target distribution for the two month period from July 1 to August 31 was $0.54 and it actually paid $0.58. (By the way, it's targeted distribution for the fourth quarter is $0.68.)

    Third, it's important to remember that this trust was established with two mechanisms that protect investors from commodity price volatility. First, Chesapeake (http://bit.ly/AeGhcV) contributed hedges that cover roughly half of production through June 30, 2015. After that the trust is not permitted to take on new hedges. In addition, the trust, like many newer trusts, has a subordinated unit structure. What this means is that of distributions fall below a minimum level (roughly 80% of the target), the sponsor (Chesapeake Energy) forgoes a portion of its distributions in order to make public unitholders whole. This structure will end four calendar quarters after Chesapeake finishes drilling those 118 new wells. The point is that starting in 2016, the trust will become more sensitive to commodity prices so if prices rise it will have a more dramatic positive impact on distributions.

    I hope that helps to answer your questions.
    Jan 23 01:42 AM | 1 Like Like |Link to Comment
COMMENTS STATS
149 Comments
294 Likes