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James Shell

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  • Western Refining: A Lesson in Corporate Finance [View article]
    Yes, and according to the annual report a lot of this debt has covenants that require them to have certain minimum levels of EBIT and their financial ratios be in line, or the repayment would be accelerated.

    There was a line deep in the annual report to the effect that selling the VA facility was on the table, but at the present time, it is doubtful that they can recover enough of their purchase price.
    Jun 30 09:50 AM | 1 Like Like |Link to Comment
  • Will BP Have to Evacuate 20 Million People? [View article]
    Oh, I remember Ixtoc quite well, and in fact had a tar ball on the carpet of one of our old cars that was tracked in by the kids after a trip to Padre....about five years after the disaster...

    In the Ixtoc case, in 160 feet of water, PEMEX finally completed the relief well after 10 months, and eventually the surrounding area recovered. The spill was estimated to be 150 million gallons, and at the low end of the current "official rate" of 35000 barrels per day will be surpassed by August some time...... provided that is anywhere near correct. Given the fact that we have seen a variety of estimates for the last two months, and none of them have gone down ought to tell you something:

    Here are my favorite two quotes:

    "Even the most sober analysts are quick to say that this is such an unpredictable well that almost anything is possible."

    "There is a lot of fast talk, which has little relation sometimes to reality," Patzek said. "And there is jumping to conclusions by the people who have no right to jump to any conclusions because they don't know."

    I would just suggest that at this point, because of unreliable estimates on the part of everybody, and the unknown nature of exactly what is going on with the well, everything we say is speculation, including the speculation that it will be "no major catastrophe"
    Jun 28 01:20 PM | 3 Likes Like |Link to Comment
  • Will BP Have to Evacuate 20 Million People? [View article]
    Fortunately or unfortunately, there has never been an incident quite like this before. There are plenty of what if-s and we should probably not be dismissing it as alarmist.....

    No one knows how much oily water will be sucked up into a category-3-type hurricane traveling over the surface of a mess like one knows for sure how much oily water there is, anyway, beneath the gulf surface.

    and no one knows how far inland the effects would be....
    and no one knows how toxic the stuff is to human at low levels like this.....

    If you are FEMA, at this point, what kind of warnings do you put out? Do you lay all of this out to the public? If you do, does it not bring out of the woodwork the hypochondriacs and other people that will panic and/or overreact?

    If you are BP what next? A nursing home in Birmingham gets drenched with oily rainwater from a tropical storm, the residents get sick....are you still liable?
    Jun 28 08:55 AM | 2 Likes Like |Link to Comment
  • 7 Actions BP Must Take Immediately [View article]
    Yes, with the situation still going on, no one really knows what is going to happen.
    Jun 28 08:38 AM | Likes Like |Link to Comment
  • BP's Eventual Bankruptcy Is Certain [View article]
    tsk tsk....

    I think 1.8 billion barrels, the estimated size (by some) of the deposit into which the Deepwater Horizon is being drilled, is 10% of the 18 billion barrels of "proved reserves" that BP claims to have on its books.

    We both can look up BP's "production" if you want.
    Jun 27 11:55 AM | 2 Likes Like |Link to Comment
  • BP's Eventual Bankruptcy Is Certain [View article]
    <I can almost give you a 100% guarantee that the taxpayer will be stuck with some costs>

    I have to disagree with you on this one. The costs of this will be borrowed from future generations by either running up the deficit, or even worse, inflating the currency. No politician will come forward and actually ask the current day taxpayer to pay a dime of this. The cost will instead be deferred to people that cannot do anything about it..... the nation's 3-year olds who don't know the difference.
    Jun 27 10:54 AM | 3 Likes Like |Link to Comment
  • 7 Actions BP Must Take Immediately [View article]
    <Hasn't the US done the same?>

    Of course they have. They shoveled, and are continuing to shovel, trillions of dollars into a so-called financial system that is being run by precisely the same people that got them into the mess in the first place, without making any substantial corrections to the system, and without an audit of any of the system so that they know where the money went.

    Does anyone really believe that the "problem" has been fixed?

    I suppose that enough time has gone by without everyone's ATM going down that the majority of the people, including relatively bright people that are investors or traders, assume that the system will right itself and all is well.

    I suppose BP is a metaphor. Suppose they miraculously shut off the leak somehow tomorrow. We would all be thankful, but does anyone really believe all is well?
    Jun 27 08:15 AM | 1 Like Like |Link to Comment
  • 7 Actions BP Must Take Immediately [View article]
    Oh, there are plenty of opportunities for firings. There are many levels. You're generally right, the tool pusher does what he or she is told. A level up from there is a supervisor that made a decision in the middle of the night that he knew was wrong, that he made because he knew he would catch hell from his boss if he opted for safety instead of production...... That guy has a share, but maybe he is a victim of his workplace culture.. The level up from him, the rig or division manager that promoted and trained him, that guy (it usually is a guy) has a clear responsibility to the shareholders to make sure that there are systems in place to keep this stuff from happening, no matter how terrible the production numbers look, and the level up from him, the VP level and above, where your salary is dependent on the share price, those are the most responsible, and in many cases, the least knowledgeable in the chain of command.

    These things are usually quite easily sorted out. The company owes it to the poor people who perished on this rig, or died in the Texas City fire to put a stop to it, and they owe it to the shareholders who want to own a company that they are proud of.
    Jun 25 03:33 PM | 3 Likes Like |Link to Comment
  • BP's Eventual Bankruptcy Is Certain [View article]
    Bankruptcy: ability to pay all of the people they owe money to....

    Leaving aside for the moment the question of how much money they owe to people, which in and of itself will take many decades to determine....

    No one knows what BP is worth at the moment.
    They have about $100B in Plant, Property and Equipment on their balance sheet.... So you want to buy one of BP's non-burning existing oil rigs right now? Good luck with that. How can you be sure you will not need to shut it down immediately, and put a lot of money into it to keep it from blowing up? Same goes for every operation in the company, because of their reputation for corner cutting, safety violations and industrial catastrophes. There is no assurance that you will get anything but the scrap price for any of these operations.

    They claim to have 18 billion barrels of "proved reserves", whatever that means. Maybe 10% of this, 1.8 billion, is involved in the current catastrophe and will never be brought in. How much is in similar deepwater locations, or other places so hostile that you are hard pressed to find a way to get it out, especially with the imminent tightening of regulations? Unless there is a re-audit of this, the continued claim that these guys have X barrels of reserves is really questionable..

    Does the company have value as a generator of earnings? There might be some hope in this case, but not if the infrastructure is in such terrible shape that another disaster is imminent, as some are saying.

    The speculators are speculating that this guy is worth $26 per share or so, but that is, as they say, speculative. No one knows what it is worth.
    Jun 25 02:59 PM | 6 Likes Like |Link to Comment
  • 7 Actions BP Must Take Immediately [View article]
    8. (should be #1) Conduct an immediate audit of 100% of their facilities, and shut down any drilling, refining, pipelines, or anything else that does not conform to industry best practices. No point in doing 1-7 above if there is another disaster right around the corner. Note: Lack of proper documentation of engineering changes or anything else is considered a violation. Operations will remain down until sufficient engineering or procedural changes are implemented.

    9. (Should be #2) Purge from the company any manager found directly responsible for any of the violations found in (1) above summarily, without severance, bonus, or anything else. Marching them out in the street to the tune of "Na Na Na Hey Hey Goodbye" might be in order.

    Why would the British government or any other government spend one penny on this if there is another screwup right around the corner, and if the same cast of characters involved is the one that got them into the mess in the first place?
    Jun 25 01:38 PM | 4 Likes Like |Link to Comment
  • DOE Crude Oil Inventory Update [View article]
    There is a $2 contango on crude oil between now and the expiry of the December contract.. The owner of a tanker of crude oil has a choice to offload it now, or wait.....with the current day rate of $70K per day for a VLCC....

    So in essence, he or she gets 57 days of free storage, on a 2 million barrel tanker.

    So, the decision as to whether or not to unload the extra VLCC can be a bit emotional, depending on what sort of pricing is available.

    With prices in the 80's in April, the average imports from PADD III/Gulf Coast were around 5.9 mbpd. With the prices in the 69-73 range in May, they dropped to 5.4 mbpd, with the exception of the week before Memorial Day when an extra tanker was unloaded....

    Last week with the average WTI price of over 76 the import activity picked up again. 5.9 mbpd for the first time since late April. There is somewhere between a month and six weeks left in the production season, and the buyers on the other end of the transaction have exactly the opposite fear in this market, which is the longer they wait, the more expensive their feedstock will be.

    So the weekly inventory build, if any, which is driven by imports in the first place, is also influenced by the decisions of the tanker owners who at the moment have enough contango to be patient and wait for a good price.
    Jun 25 08:30 AM | 1 Like Like |Link to Comment
  • Tesoro: Outlook 'Up in the Air' [View article]
    Thanks for your good words.

    As we were saying this is a pretty thankless business. Capital intense, dependent a lot on the currently fractured financial system in a lot of cases, 82% commoditized, as the numbers are saying, and you are quite right, no one wants one of these things in their back yard.

    You struggle for 18 months, bleeding money, and then when the refining margins pick up just a little bit, allowing you to get minimally back into reinvestment economics, you get complaints from the public about the oil industry gouging you, there are calls from politicians for a windfall profits tax, and everyone hates you.

    For these companies, the average is something like 80 percent of the outstanding shares owned by insiders and institutional investors, these are the mutual fund managers and that kind of people who hate to have a bad quarter....and you are competing with the AAPL's of the world for investment dollars....

    But, there is an opportunity in here somewhere.
    Jun 24 08:58 AM | 2 Likes Like |Link to Comment
  • Tesoro: Outlook 'Up in the Air' [View article]
    I think if you look at conversion costs, the variable cost to go from crude oil to the finished products, TSO is actually pretty favorable. When WTI gets expensive, and the gap between that and the heavy feedstock is high, these guys do have an advantage. When there is a lot of oil around, like there is right now, maybe not so much of an advantage....

    Plus, if you look at this group, all of the management is bragging about what a good job they are going to do of refining the heavier feedstock once they get their capital improvement plans in plaace... Surely that'll put some price pressure on the lower grades too...

    It is really interesting, like all of these conversion industries, the limiting factor is "time"... You have 24 hours in a day and the winners will be the ones who can most efficiently use that time to put out the most product possible, either by using a lower grade feedstock or by operational efficiency.....Everybody fights for that last little bit of throughput....
    Jun 23 09:23 PM | 3 Likes Like |Link to Comment
  • Corn Ethanol Hangover [View article]
    Re: Brazil:

    Keep in mind that in the US there are about 180 million cars, and 300 million people, under 2 people per motor vehicle.....

    It's hard to get accurate information on Brazil's car fleet. The most serious looking estimate you can find is that the current fleet is somewhere around 30 million vehicles, for a population of 191 million. That's more than 6 people per car.....

    So the reason that the conversion to ethanol in Brazil "works" is that a lot of Brazilians have to walk. This is without even doing the calculation of the "annual vehicle miles driven"....

    We're using 1/4 of our corn crop right now to produce less than 5% of the fuel usage in the US. There is no way to scale it up to the same level as Brazil because we just can't. The numbers don't work, leaving aside, for the moment, the problem that it takes just about as much energy, in either electricity, natural gas or other, as you get out of the Ethanol, and that the whole process requires the Missouri River's worth of water at the scale we are talking about.....

    This whole problem of energy still comes down to one thing: Some Americans are going to have to walk.

    No one is telling you this right now.....
    Jun 21 11:30 AM | 5 Likes Like |Link to Comment
  • Frontier Oil: Does It All Come Down to Maintenance Strategy? [View article]
    Yeah, the term "maintenance" dates me... 20 years ago that was probably the term for the activity of waiting for a piece of equipment to break and scrambling madly to fix it.

    Designing reliability into the equipment and a systematic program of equipment upgrades based on industry practices makes sense from both an economic standpoint and an ethical standpoint.

    A few years ago I found myself at the NACE meeting, and was impressed with the extent to which people in the refining business shared this type of information freely across company boundaries.

    It allows the FTO's of the world to not have to get this experience the hard way.
    Jun 20 11:20 PM | 1 Like Like |Link to Comment