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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]
    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
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Hi DanH111. I am truly appreciative that you have taken the time to read my articles.

    I generally like Anadarko and Apache in the E&P space, though EOG is far and away my pick for the independent E&P companies.

    Of the energy MLPs, I also have a clear favorite: Energy Transfer Equity (ETE). Seeking Alpha editors have published several articles I've written about them. Please check them out. I "eat my own cooking," so I write almost exclusively about equities I own. ETE is my selection in the energy MLP space.

    Another alternative is Energy Transfer Partners (ETP), the sister asset MLP with higher yield and less capital appreciation potential; I also have long owned units of this company, too. Likewise, you will find some article I've written about that company on Seeking Alpha.

    There are some other good energy MLPs out there. While I have not covered it in as much detail as Energy Transfer, I like SXL. KMI is no longer an MLP, but a standard-bearer in the "toll road" mid-stream and down-stream energy transportation sector.
    Dec 10, 2014. 05:46 PM | Likes Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    BrutalHonesty

    If oil were to remain at $60 for a protracted period of time, the valuation could be changed contingent upon the company and what management had to say about it. The answer is complex. I'm not trying to be difficult.

    Shell would be the most insulated and could even rise upon takeover of weak sisters. The company has significant interests in other energy commodities, so I'd have to listen to management talk about the effect on these businesses in conjunction with a revised valuation.

    Halliburton and EOG are in different places. However, the key would be to listen to what management says. I could not re-forecast stock valuation in a vacuum. I'd have to listen to the management teams, their interpretation of events, responses to the same, and then project a new fair value based upon my view and an appropriate factor of safety.

    As much as any rote math, I'd have to decide if cheap oil was here to stay for many years, and whether the company could weather the storm and how they could respond to it. This is much different than buying commodity futures. Management can response to crisis whereas commodity futures cannot. That's why the statement, "if oil were to remain at $60 for the foreseeable future," is difficult to gauge. How long is foreseeable? And which management teams would do what to manage through it. Good valuation forecasts need good data. Commodity price alone doesn't drive energy companies. It's just one factor.

    This question could be posed for material sector companies, too. Would my valuation for Nucor steel change if I assumed the price per ton of steel was going to go down 40% and not rise for 7 years? Yes. Would I assume that premise in any forward valuation exercise? No...not unless management shared it was their belief that steel prices were going to collapse with no relief in sight.

    Oil is remarkably self-leveling. If the price stays low long enough, supply will dry up. It's about that simple. RDS, HAL and EOG will be some of the last standing. These companies and their management teams have seen this before. I recall a somewhat similar situation in the middle 1980s.

    Hope this helps a little.
    Dec 10, 2014. 04:50 PM | 4 Likes Like |Link to Comment
  • Union Pacific Sees No Growth In Its Crude-By-Rail Volumes [View article]
    Thanks for another fine article, Michael

    Question: do you have the number handy to know the Union Pacific net-net flat tradeoff between lower fuel prices and crude-by-rail/frac sand?

    For instance, if CbR and frac sand was flat in 2015, UNP would simply enjoy the benefit of lower fuel prices. So if fuel prices were fall to say, $2.50 a gallon; how much crude and frac sand could be foregone and still maintain breakeven profit?

    Having followed the company for some time, operating margin (the inverse of operating ratio) is about 37%. Losing $1 M in revenue loses about $370 K in operating profit. What's fuel cost as a function of revenue and/or OP?

    Looking forward to more of your work.
    Dec 10, 2014. 04:31 PM | Likes Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    blasted

    I suggest buying in stages and never all at once. It's almost impossible to time the bottom of cratering markets. Once major damage has been done (like now) one may pick a spot and scale in slowly.

    For instance, I started a small position in EOG quite awhile back at ~$100 a share. Too high. I added to it slowly as prices fell; so my basis is now about $92. I have small limit orders in at $85, and $75.

    I recall when trading commissions were $60 a pop. Now it's $7. No problema.
    Dec 10, 2014. 03:57 PM | 2 Likes Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Davephd

    This is possible. The last time oil cratered for a more protracted period (the mid-1980s) the was a bevy of consolidations, though the MLP structure wasn't widespread.

    It became cheaper to drill for oil on the floor of the NYSE than the field.

    However, then as now, I would not buy any company on takeover/buyout speculation. Buy any stock of a company with sound fundamentals, good management, and a history of winning in the marketplace.
    Dec 10, 2014. 03:49 PM | Likes Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Thanks for checking in, vraykin

    I contend BP has too many overhangs. I don't like the post-Macondo financial situation at all. While some of the metrics listed are comparable to Shell, and some return measures are better, I believe BP has not found their way out of the woods yet. This is the reason for the rumor that Shell may takeover the outfit.

    I believe Shell is a better managed organization with a renewed focus on safety, cash returns, and rewarding investors.

    BP may not be a bad investment. I just think Shell is better.
    Dec 10, 2014. 03:46 PM | 1 Like Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Zic

    I have none to add to the mix, but other readers very well might have some slick picks.

    Will offer one other observation from hanging out in the oil patch for a long time: if ExxonMobil stock sells on a trailing twelve month of 9x or lower.....
    buy it.
    Dec 10, 2014. 03:26 PM | Likes Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Fair enough Jack Reacher

    Indeed, oil is inescapably tied to the USD. It is a significant factor stewed into the price. How long will the dollar stay strong? I cannot say.

    Many moving parts in the equation. My view: it's a fragile balance.
    Dec 10, 2014. 03:24 PM | Likes Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Good point Kolpin

    This was an underlying premise in this article: due to ETFs and index funds, whereby baskets of stocks all trade as one block, individual stocks get tossed into the mix, "throwing the baby out with the bathwater."
    Dec 10, 2014. 03:22 PM | 1 Like Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Good points all.

    However, some government-run entities can adjust production. Indeed, in many cases, while the government owns the oil, they have no reliable means or adequate technology to extract it. Enter U.S. multinationals and the Super Majors. This entire premise of "who controls oil," is discussed in an old book entitled, "The Seven Sisters."

    Recommended reading for anyone seeking the history of oil.
    Dec 10, 2014. 03:20 PM | Likes Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Thanks for commenting Matthew

    It's nearly impossible to time any downdraft (or uplift) exactly. It's better to the approximately right than completely wrong.
    Dec 10, 2014. 03:15 PM | 3 Likes Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    You're welcome, SBF.
    Dec 10, 2014. 12:34 PM | Likes Like |Link to Comment
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