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Elliott Gue

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  • Solid As Granite: Chesapeake Trust Ramping Up Distributions [View article]
    CHKR provides distribution projections for the trust through its termination date. To calculate fair value I typically calculate the net present value (NPV) of all future cash flows. I tend to look at a conservative case (lower distribution projections, higher discount rate) a base case (moderate distribution projections and a slightly lower discount rate) and an aggressive case (higher cash flow projections and a lower discount rate). To give you an idea of how this works, I offer a free article showing how I value Whiting USA Trust II here ($WHZ):

    As for $CHKR my base case valuation is about $25. I actually recommended selling some to readers of Energy Strategist when it was trading in the $27 to $30 area earlier this year as to get to that valuation, one had to make some heroic assumptions in terms of commodity prices or accept a discount rate of well under 5 percent annualized. At current prices I do think it's a buy.

    And, yes, I am also talking my own book.

    Disclosure: Long $CHKR
    Apr 23 05:13 PM | Likes Like |Link to Comment
  • Solid As Granite: Chesapeake Trust Ramping Up Distributions [View article]
    Thanks for the kind comments about my articles. The April 18th Reuters article about Aubrey McClendon's loans doesn't change my opinion on $CHKR (or $CHK for that matter) in the least. I really don't think this was much of a revelation; we've known about the CEO's deal to acquire a piece of $CHK's wells for years and his contract doesn't prevent him from taking out loans based on his personal holdings. I really don't see how this represents a conflict of interest or anything scandalous or improper.

    The article that sparked all of this appears to be just dredging up old news. McClendon has always been a controversial CEO--people seem to love him or hate him--so this article is just playing into those sentiments.

    I don not currently recommend Chesapeake common stock in my newsletter, the Energy Strategist, due mainly to the fact that I don't like their exposure to natgas prices. That said, I do think they're executing well on their plans to dispose of assets and raise capital to help fund their development plans. I do recommend Chesapeake's preferred shares in the newsletter and am happy holding onto those.

    I don't think this has any impact on $CHKR. In fact, I have recommended $CHKR as a buy only on dips under $25; I recommended taking profits back in late February/early March when its valuations ran out of control. So, yesterday marked the first time since late January where I considered $CHKR a buy candidate. I see this as a buying opportunity.

    Disclosure: Long CHKR and CHK Preferred D
    Apr 19 04:01 PM | Likes Like |Link to Comment
  • Growth In Deepwater Drilling: Ensco [View article]
    Thanks for all of the great comments on this article. While I agree with some of the comments about Transocean (RIG) being a decent value here, the fact is that the company has been a laggard compared to names like Ensco ( and Seadrill (

    Some of this underperformance is due to a "Macondo" discount but RIG has also had its share of operational issues including the cancellation of a contract in Malaysia due to rig issues and generally higher-than-expected rig downtime over the past few quarters. The company also recently suspended its dividend; RIG had paid out $0.79 per quarter over the past four quarters.

    I think RIG will perform reasonably well as the offshore contract drilling market tightens, particularly for deepwater rigs but I just prefer other names. My favourites are Seadrill (, a high-yield name I have written about repeatedly on Seeking Alpha over the past few years, Ensco ( as highlighted above and Pacific Drilling (, a relatively new IPO. As one reader commented above, PACD has a couple of new drillships due to enter the market that I think will garner impressive dayrates.

    Disclosure: Long SDRL
    Mar 19 07:01 PM | 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
  • The State Of Agricultural Commodities [View article]
    Thank you both for the interest. The website 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
  • 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
  • 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
  • 7 Stocks On My Watchlist [View article]
    Thanks for the comment. I see no reason the stock couldn't retest its spring 2011 highs up close to $16.

    Even at that price, WWWW would only be trading at about 11 times 2012 earnings estimates.
    Jan 15 05:38 PM | Likes Like |Link to Comment
  • Energy Investing In 2012: How To Come Out On Top In Volatile Markets [View article]
    DO has a fleet of older rigs and a number of less capable midwater floaters. These rigs earn lower day-rates than deepwater and ultra-deepwater rigs. In addition, producers are showing a marked preference for newer rigs equipped with the newest, largest blow-out preventers and other equipment in the wake of the 2010 Macondo oil spill.

    My favorite name in the group is Seadrill (NYSE: SDRL), a stock that has one of the newest fleets in the industry and has contracted most of its rigs at attractive rates for years into the future. It also pays a significant 8.7 percent dividend supported by its significant backlog of rig contracts. I've written about it in more depth a few times on Seeking Alpha.

    Disclosure: Long SDRL
    Jan 12 03:53 PM | Likes Like |Link to Comment
  • The Dirty Truth About Clean Energy [View article]
    Thanks for the comments. I agree that Bill Gates is a brilliant man but I would be careful about basing buy/sell decisions solely on his actions. Some readers may remember a few years ago when he invested in a company called Pacific Ethanol (produced ethanol), firm that ultimately went bankrupt. To be fair, I believe he may have reduced that stake before they went Chapter 11 but I doubt it was a winner overall.

    It's important to remember that someone with as much cash as Bill Gates can take a few more speculative positions in the context of a larger portfolio. That doesn't mean they're sure winners.
    Dec 26 11:59 AM | Likes Like |Link to Comment
  • Occidental Petroleum Corp: Unprecedented Discoveries And Expertise Keys For Growth [View article]
    I can certainly see DNR getting acquired. They are leveraged to oil and that's good leverage to have in this environment. I think a lot of these oil-levered producers are getting dragged down by the macro concerns and "risk-off" trade rather than their underlying fundamentals.

    We are seeing a pick up in M&A interest in the energy patch. I' also note that the US corporate bond market is wide open for business despite what's going on in Europe so access to capital isn't relly an issue.
    Nov 23 02:41 PM | Likes Like |Link to Comment
  • Assessing Market Risk [View article]
    Thanks for the comment. I am somewhat puzzled by all the IBM haters that have emerged over the past few days. Warren may be a bit late to the proverbial party but it's one of the best-performing large-cap stocks this year and corporate spending on IT has been a bright spot in this recovery. Corporates that IBM sells to also have cash and borrowing power unlike governments or consumers -- it's nice to have solvent customers.

    Long IBM
    Nov 15 05:24 PM | Likes Like |Link to Comment