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Omar Jama  

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  • Petrobras' recent rally a creation of short sellers, Citi says [View news story]
    the 10 point rally refers to the bond prices. The citibank report was referring to the rally in PBR bonds. Since there is 100bil in debt, which is much bigger than the market cap of the equity, probably wise to keep an eye on bond prices.
    May 4, 2015. 03:45 PM | 1 Like Like |Link to Comment
  • Refracking US Oil And Gas Wells [View article]
    Its true that the incremental production is modest, however it is incremental low cost production requiring minimal capex. it is also a new source of production relative to current expectations and is therefore relevant for the broader oil markets.
    Apr 17, 2015. 05:52 PM | 4 Likes Like |Link to Comment
  • Cheniere Energy, Moving From Concept To Reality [View article]
    Latin america LNG import growth will be minimal in relation to supply growth. Not enough import capacity will be installed before 2020.

    Very little investment to take the gas is being done (even in biggest country Brazil). anyway you cant just import the gas, you have to build a brand new gas fired power plant in order to use the gas.

    Its really all about Europe demand in the Atlantic basin. As you research EU gas demand trends and wind and solar capacity. it should become clear that US exports will languish at low levels of utilization.
    Apr 17, 2015. 08:56 AM | Likes Like |Link to Comment
  • Cheniere Energy, Moving From Concept To Reality [View article]
    Thats fair, there are plenty smarter than me long LNG stock. Many of them are hedge funds who are getting inflows. so they keep adding to their positions, works great on the way up.

    my point though is that once the actual business starts to have to function and execute and deliver results, it may be tough to exit this investment.

    LNG is a "hedge fund hotel"
    Apr 13, 2015. 03:02 PM | Likes Like |Link to Comment
  • Cheniere Energy, Moving From Concept To Reality [View article]
    Europe demand is the only thing that matters for Cheniere.

    They are forcasting a 10bcf/day increase which is the only way that US will be able to ramp up a 8-9 bcf/day export business. At least in my view.

    We have seen this movie before, hockey stick demand growth estimates. It will come up way short. Too soon to short sell though.

    BG selling out is a signal though. If they were bullish probably would not be a seller.
    Apr 13, 2015. 12:45 PM | Likes Like |Link to Comment
  • Cheniere Energy, Moving From Concept To Reality [View article]
    SivartLNG, do you have a view on Europe gas demand?
    Apr 13, 2015. 11:51 AM | Likes Like |Link to Comment
  • Cheniere Energy, Moving From Concept To Reality [View article]
    Cheniere gives CQP level EBITDA guidance as follows :
    Sabine pass 1-4 of $1.785 billion, but that includes $0.290 bil of EBITDA from the old TUA on the regas paid for by SPL (so paying themselves so need to remove that). Also $0.270 bil in EBITDA from CMI (marketing division not guaranteed so need to remove that too). That gets you to $1.2bil of EBITDA from contracts with outside parties.

    There is 12b in debt and 16b in CQP mkt cap on a 2017 fully diluted basis, so it is actually trading at over 20x EBITDA on contracted EBITDA. Obviously mkt thinks EBITDA will be much higher from spot market sales.

    Adding in Corpus christi does not make numbers much better. A common thing analysts have been doing is ignoring the debt, which is 12 billion and rising.
    Apr 13, 2015. 11:42 AM | 1 Like Like |Link to Comment
  • Cheniere Energy, Moving From Concept To Reality [View article]
    Take or pay is not the same as the buyer has the option to buy at HH+15%. I will show why you should not take comfort from Cheniere's "offtake contracts"

    This is a real option analysis for the offtakers:
    Expected Total profit =
    20% x 7.55 (highcase)
    + 20% x $0.0 (basecase)
    + 20% x ($3) (lowcase)
    = $1 profit against $3 fixed fee paid.

    From BG perspective (or any of the offtakers) if you just make a profit 20% of the time (high price LNG = $15) the deal makes sense even if they thought only 80% of the time gas would flow. Even if gas only flowed 50% of the time BG could still break even on the deal.

    high case (strong demand and high price)
    $15.00 LNG sales price
    $3.00 HH price
    $1.45 $1 Shipping cost + 15% of HH
    $10.55 BG marginal profit
    $3.00 BG SPA fee
    $7.55 BG total profit

    low case (no gas flows due to lack of demand and low price)
    $4.50 LNG sales price
    $3.00 HH price + 15%
    $1.45 Shipping cost + 15% of HH
    $0.05 BG marginal profit
    $3.00 BG SPA fee
    ($2.95) BG total profit

    base case (gas flows but price is low)
    $7.50 LNG sales price
    $3.00 HH price + 15%
    $1.45 Shipping cost + 15% of HH
    $3.05 BG marginal profit
    $3.00 BG SPA fee
    $0.05 BG total profit

    So the takeaway is that BG could believe that only 50% of Cheniere's gas would flow and they could still break even. The fact that BG management is selling out of the business should also be seen as a warning sign for the future outlook for their business (LNG).
    Apr 13, 2015. 11:01 AM | 1 Like Like |Link to Comment
  • Cheniere Energy, Moving From Concept To Reality [View article]
    Cheniere is going to be a disaster just like it was in 2009.

    I think the question that has not been addressed by analysts and investors is what does Cheniere (CQP and LNG) EBITDA look like at 50% utilization? Thats a slide i would like to see.

    The buyers of Cheniere's LNG do so at their OPTION at HH+15%, they have already spent the $3 terminal fee (sunk). It probably looked like a good deal for them to have that in their back pocket when LNG prices were at $18-20.

    If there is no demand for incremental gas in Europe then BG, EDP and the rest of the EU buyers will simply not take the gas. Can we agree on that?

    I think its a mistake to think that BG will take their gas no matter what. And if they do not take the gas it means that Cheniere marketing will not be able to sell their gas either, who would they sell it to if nobody else can find a buyer.

    The first mover advantage is also not applicable for this business. Because this is a high fixed cost low variable cost business, new entrants may choose to build plants if they believe then can sell their gas at $7. Of course by building excess capacity they will drive down the price to marginal costs, which are probably HH + $1-2. or $4-5/mcf. This is like the bad old days of the airline business.

    Probably LNG will be fine for a little while longer, but who would want to own shares at these prices on the day you realize that shipment volumes are not flowing.
    Apr 13, 2015. 10:00 AM | Likes Like |Link to Comment
  • Cheniere Energy, Moving From Concept To Reality [View article]
    US LNG exports are a key piece of the puzzle to US natural gas markets. The more i study buyers of US LNG the more it looks to me like Europe will fall far short of demand estimates.

    Interesting today that Citi cut long term US gas price forecast from $4.70 to $3.00. this is based on poor demand growth in power generation and competition from renewables. The same situation is occurring in europe.

    Investors (debt and equity) are hiding out in cheniere because it is perceived to benefit from low US gas prices. This perception of safety will vanish at some point when the volume outlook comes into focus.

    I am usually early with these calls, so its too soon to short LNG. but probably in the next 6 months it will be time to go short.

    Apr 13, 2015. 09:13 AM | 2 Likes Like |Link to Comment
  • Chesapeake Energy's Debt Is Growing Due To Inflexible Legacy Obligations [View article]
    I think CHK liquidity/bonds are fine, the main point of this article is that capex is inflexible and high, therefore free cash flow is negative

    You are absolutely correct on the cash balance. I should have reflected that in the analysis. The value creation from the asset sale was reflected in the $3 billion excess acreage in my valuation as i waited for the closing of the deal.

    Now that the deal has closed this is liquidity available to the company for debt repayment or share buybacks.

    Given the high rate of cash burn and terrible nat gas prices I dont think Icahn can pull off a leveraged recap transaction, but there may be room to start to buy shares under the $1 bil share buyback authorization (as of 10k filing none bought back yet).

    I dont think the company will want to buy back a lot of shares at this price however. Since the shares are pricing in $70 oil and $3.50-$4.00 gas price.
    Mar 29, 2015. 11:09 AM | 1 Like Like |Link to Comment
  • Whiting Petroleum - Balance Sheet Repaired, But Oil Needs To Recover In 2016 [View article]
    I model each play separately as a DCF. Plug in an oil price and add up all the different pieces. Same thing the wall st analysts do, and call an NAV analysis.

    The key driver to how much each play is worth is the individual oil well economics. So the IP rate and decline rate which most companies disclose. WLL has some info on their web presentation. I have haircut their numbers as they are trying to pump a little. Still their wells are competitive.

    The trick here is that they sometimes try to trick analysts into using higher numbers so you have to be careful to look at 1yr culmulative production numbers so they cant fake you out with 24 hr or even 30 day IP rates.
    Mar 28, 2015. 09:12 PM | 2 Likes Like |Link to Comment
  • U.S. LNG Export Outlook To China, Impact On Cheniere Energy [View article]
    Thanks for your comments. taken together these comments improve my understanding of LNG. Given this is such a complex subject this is helpful i think.

    at first i thought it was a simple gas vs oil price arbitrage or gas vs coal (like here in the USA), but it is not. its opening up whole new markets for gas. this is a slower process. like waiting for india to build a whole lot of power plants

    Eventually the gas will flow to europe and asia if the US can produce it at $3-4/mcf (which by the way is the same as mmbtu) in massive scale, but it just seems impossible for the US LNG industry to put out 9 bcf/day within 5 yrs. maybe 3-4 bcf is possible.

    CQP is fine at the current payout in this case, but there wont be much left for LNG shares after that unless you believe the US LNG industry can export 8-9 bcf/day. I am not sure if people get that.

    the offtakers are just creating a call option on gas in the event that the spread between HH and International LNG price widens out again. but these call options were all bought when LNG prices were triple todays level. now they look to be out of the money are at the money, instead of deep in the money as they were in 2014.

    LNG shares are the same type of call option. the good news for LNG shareholders is we wont know for years... so its hard to be disappointed. I think it will be interesting to see how Australian LNG ramp up is absorbed by the market. So far not so good, but there is time.
    Mar 27, 2015. 03:14 PM | Likes Like |Link to Comment
  • Chesapeake Energy's Debt Is Growing Due To Inflexible Legacy Obligations [View article]
    I am not short CHK, in fact last time Icahn came around i bought along side him and made good money. This time Icahn is making a value purchase, not really buying for a reason (as far as i can tell). Last time it was obvious that the CEO had to be fired. this time i see no such rationale.

    what i think is going on here is that CHK aggressively sold midstream and service business by giving excellent terms to the buyer in case of midstream and spin out mgt in the form of drilling contracts, not thinking that oil and gas prices would collapse. but that is what happened so they have to suffer for 3 yrs for midstream and 1 yr for service until these deals run off.

    CHK has very good assets, but so do many others. CHK is as good as or better than most. Probably icahn thinks he can sell the company at $12 if shares collapse to $8. look at TLM, he bought at $12 rode it down to $5 and sold at $8. Nobody is perfect. E&P is a tough business. maybe he should hire me as his analyst?

    Anyway thanks to him they would be screwed now if the old CEO had been allowed to continue his crazy aggressive strategy

    From 10-K: interest expense = 604mm capitalized interest +89mm interest expense + 171mm preferred stock dividends = $864mm real life interest payments

    the guys you should be yelling at should be UBS and Goldman who got everyone in the stock without realizing that they had no flexibility in capex.
    Mar 25, 2015. 09:33 PM | 2 Likes Like |Link to Comment
  • USA LNG Export Outlook, Impact On Cheniere Energy [View article]
    James, i agree with your points on Asia representing an opportunity for US Exports. It is however very hard to anticipate just how much China will grow natural gas demand.

    Here is my best estimate... from 2010 to 2015 demand has grown from 10.4 bcf/d to 15.5 bcf/d and is projected to grow to 21 bcf/day by the EIA. Local production has grown by about 2-3 bcf/day from 2010 to 2015 as prices have risen closer to world prices.

    if we extrapolate the last 5 yrs to the next 5 yrs (ast he EIA has done) LNG demand should be growing by 2-3 bcf/day.

    This compares to supply growth of 100mtpa (13.3bcf/day world wide)

    China will be huge but cannot swallow up all the LNG before 2020, longer term they should shut more coal and switch to gas. Which they have been, driving the rapid growth we see.

    Key to China continuing to kill coal will be price of LNG as coal is still only $6-7/MMBtu in terms of cost to produce a MWhour in China.
    Mar 24, 2015. 01:42 PM | Likes Like |Link to Comment