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Ray Merola

 
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  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    NOTE TO READERS: This has been a most active comment board. I've highlighted a few "Author's Picks." It was most difficult to do with so many good comments, but it may help some folks get their arms around all the content shared here.
    Dec 11, 2014. 09:04 PM | 2 Likes Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Always good advice, Jack

    Crude passed the $60 marker today. If it fails to stay above $60, I'd look for capitulation soon.

    Scale into any position systematically over time. Don't chase.
    Dec 11, 2014. 06:00 PM | 1 Like Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    James

    The thinking is reasonable. However, I recommend scaling in or out since it's difficult to gauge the bottom for companies in the same sector, but various industries.

    At $63, Shell yields 6%. Another process is to buy on incremental yields.
    Dec 11, 2014. 05:53 PM | 1 Like Like |Link to Comment
  • Union Pacific Sees No Growth In Its Crude-By-Rail Volumes [View article]
    Recommend staying with operating profit versus net profit, since net includes interest and taxes which can skew results, since we're talking all operating inputs and margins.

    The average spent on fuel in the first 3 quarters of this year has been $3.17 per gallon, or ~$900 million per quarter.

    $2.50 fuel knocks fuel costs down 20% from 9 mo avg or 17% from 3Q
    $2.75 fuel knocks fuel costs down 13% from 9 mo avg or 8% from 3Q
    $3.00 fuel knocks fuel costs down 5% from 9 mo avg or 0% from 3Q

    $2.50 fuel reduces fuel expense by $146 million versus $860 million 3Q
    $2.75 fuel reduces fuel expense by $112 million versus $860 million 3Q
    $3.00 fuel reduces fuel expense by $0 versus $860 million 3Q

    If $279 million revenues on crude/frac sand in the 3Q, then OP on those sales should yield ~$106.

    Losing 1/4 of those sales nets operating profit of $80 million
    Losing 1/3 of those sales nets operating profit of $71 million
    Losing 1/2 of those sales nets operating profit of $53 million

    Fuel expense appears to have a much larger bearing on operating profits than loss of crude/frac sand volumes; assuming the inputs are correct.

    Looking for any thoughts/additional input/corrections in methodology.


    Dec 11, 2014. 05:14 PM | Likes Like |Link to Comment
  • Union Pacific Sees No Growth In Its Crude-By-Rail Volumes [View article]
    Michael

    I suggest the numbers need some refining. I believe it's unlikely that UP will lose all its crude/frac sand business. Plus the 3Q delta fuel savings of $45 million will surely go up. The wholesale price for diesel is now ~$2.50 a gallon, not $3.

    The rough math looks like this:

    Say, UP loses a third of its crude/frac sand business, taking quarterly revenues down from $279 million to $188 million. Applying the 0.62 operating ratio subtracts $117 million, leaving net operating income of $71 million. At $279 million, the net OP for this business was $106 million.

    Therefore, the loss of a third of the crude/frac sand business would reduce operating profit by $35 million.

    If the corresponding price of diesel fell from $3.15 (average price per gallon through 9 months of 2014) to $2.50 per gallon, the 4Q savings would be about 20% per gallon. UP has consumed ~285 million gallons of fuel per quarter thus far in 2014.

    Therefore, assuming similar 4Q consumption rate, fuel savings could total $150 million to $185 million depending if you use 2014 average fuel price or versus 3Q fuel price only.

    In any event, this scenario reveals the fuel savings blows out the loss of crude/frac sand operating profit.

    Now one can play with the assumptions, assuming more or less loss of business; and/or more or less savings on fuel.

    What say you?

    Dec 11, 2014. 03:08 PM | 1 Like Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Fair enough, gabby1945

    I'd buttress those views with scaling into any position. Never "in" or "out" all at once. This gives one the chance to accumulate or distribute on an average price. Discount brokerage commissions are so low now that there's no longer an good reason not to do so.
    Dec 11, 2014. 12:27 PM | 1 Like Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Thanks for reading, Michael

    I agree the Super Majors stocks are all looking pretty good now. I prefer Shell to Total due to apparent forward growth prospects and better management.
    Dec 11, 2014. 11:41 AM | 1 Like Like |Link to Comment
  • Halliburton's Position On The Front Lines Offers Firsthand Insights, Indicators [View article]
    Fine article, Jennifer. Thank you.
    Dec 11, 2014. 08:58 AM | Likes Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    goose56

    Hedging is simply a financial mechanism to lock in sales at a given price, for a given period. It's like any other trade, someone has to be on each side of it. When settled, someone wins and someone loses.

    Hedging production is generally positive for producers. It provides some certainty around forward revenues because crude sales prices are "locked." If the spot price closes lower than the hedge, the mechanism bridges the difference.

    However, if prices were to rise above the hedge, then the producer loses the upside.

    The value of the hedging is a combo of what future price was set, and what was paid for it. Whether it's good or bad will not be known until its closer to the hedge winding down.

    It appears LINE is heavily hedged in 2015. If the hedge prices are say, in the $80 range or better, then it certainly looks like a good thing now, assuming these were bought on the cheap and set when spot prices were much higher.

    I would not worry too much about LINE hedges. I believe management has historically believed in hedging a large majority of the company's production.
    Dec 11, 2014. 08:48 AM | 2 Likes Like |Link to Comment
  • Exelon's Risk Profile Has Changed - What You Need To Know [View article]
    What a curious post, BruceLee1984

    Since the time of this article, about 2 years have past. When this was written, EXC shares traded around $31 each which is when many folks sold out. I did. The common goes for ~$36 this morning, or a 16% increase over that period, sans dividends.

    In the meantime and over the same period, these shares have not kept up with the XLU: the ETF Utility Stock Index.

    However, if you timed the bottom perfectly and bested the averages, then kudos to you. Extra credit given for taking the time and effort to reply back to such an old post, my friend.

    Good luck with all your investments.


    Dec 11, 2014. 08:34 AM | 2 Likes Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    gabby1945

    I can second your comments about Shell, having worked there over 30 years. The corporate approach to safety runs throughout the organization. Ethics are paramount: near zero tolerance for nonsense, even in countries where nonsense is tolerated or even expected.

    I concur that there is well more downside once the analyst estimates (and company management forecasts) roll in. However, it's also possible that Mr. Market is in panic mode and has already over-baked the reality.

    For instance, this could be the case for HAL (let's set aside the BHI deal for a moment): if the 2015 P/E multiple is compressed to 15x, the current share price of $36.50 would spell 2015 EPS of $2.43. With a quarter to go, the 2014 EPS is $4. That's an implied 40% decline in EPS next year.

    Note: the 15-year average normalized P/E for HAL is 17x.

    This kind of YoY EPS fall is comparable to what happened in 2008. However, at that time spot oil prices went from $135 to $40/bbl. A comparable event (on a ratio basis) equates to $30 oil in 2015.

    Possible? Yes. Probable, for any length of time? Not so much. Pretty dire outlook by Mr. Market sans any hard data. If one wants to figure $36.50 is rich for the shares, then it seems he/she has to premise 2015 EPS down even further from a the assumed 40% plunge, or compress the multiple even more.
    Dec 10, 2014. 11:28 PM | Likes Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Thanks for reading Veritas1010

    Sounds like you have a solid plan and strategy. That's half the battle. During times of financial stress within any sector/industry, the balance sheet is the first place to run all the traps. In RDS and XOM you've got 2 of the very best.

    Fortress balance sheets.
    Dec 10, 2014. 11:10 PM | Likes Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    I agree contract drillers have big problems today. That's why I would stay out of that industry group. Oil service has problems, too, but sticking with HAL or SLB can mitigate it for a long play. E&P companies must be sorted out individually; it is not a homogenous group at all. The strong will survive and the weak may fold. Safest are the Super Majors. In addition to vertical integration and diversified energy businesses, these company have tremendous financial might and yield support.
    Dec 10, 2014. 11:06 PM | 3 Likes Like |Link to Comment
  • Union Pacific Sees No Growth In Its Crude-By-Rail Volumes [View article]
    Many thanks Michael, for taking the time to offer some financial data in the reply. UNP is a core position for me. However, I trimmed back on the run up over the past several months. I'd like to see it "come in" and repurchase the shares.
    Dec 10, 2014. 10:59 PM | 1 Like Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Thanks for keeping me straight, gabby1945

    I knew that Kinder Morgan consolidated itself into a C-corp, but wasn't sure of the alphabet soup of ticker entries.

    Kinder Morgan is the standard-bearer within its previous MLP space. It's hard to dispute anyone wishing to own these shares.

    However, I would keep an eye on ETE. It's a different beast, with unprecedented span and scope. Of late, cash distributions have been raised every quarter. Similar to Kinder Morgan, it's not tied very closely to commodity risks. It more of a toll gate for various forms of hydrocarbons.
    Dec 10, 2014. 07:57 PM | Likes Like |Link to Comment
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