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Richard Zeits  

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  • BreitBurn Energy Partners: What Are The Possible Alternatives For Resolving The Leverage Challenge? [View article]
    fliper2058,

    I believe that the company is expecting a reduction of the borrowing base but perhaps not below the level of the current borrowing (that, in the absence of some exception by banks, would trigger a need for prompt refinancing).

    It is logical to expect that senior lenders will be supportive (but I can imagine an informal expectation that the company would do its part).
    Mar 7, 2015. 10:20 AM | 3 Likes Like |Link to Comment
  • Crude Oil: EIA Petroleum Stocks - From Full To Fuller [View article]
    Long Oil,

    I agree in general, with one reservation. Refineries, obviously, cannot process more oil than the market needs in terms of end products. So refinery utilization is to a great degree a function of demand, not a reflection of the lack of willingness to increase volumes and collect more profit. The 3-2-1 spread narrows as one moves further out on the curve.

    As a side note, the 3-2-1 spread is a very rough proxy for the refining margin. Please keep in mind that the majority of refineries are complex and often have to use waterborne crude (which the US is still importing 7 million barrels). So I would be careful using the WTI as the sole input. It distorts the picture.
    Mar 6, 2015. 09:24 AM | Likes Like |Link to Comment
  • Crude Oil: EIA Petroleum Stocks - From Full To Fuller [View article]
    RJR Oil,

    Well, apparently, U.S. storage is still filling up briskly, and price is still at around $56 for the OPEC Basket, and the US production is resilient.

    Strong supply, moderate demand growth, and, as it appears, plenty of spare capacity from GCC exporters. I think we may need to wait a little longer before various factors combine together to support the price at a higher level.
    Mar 6, 2015. 08:56 AM | Likes Like |Link to Comment
  • Crude Oil: EIA Petroleum Stocks - From Full To Fuller [View article]
    Fear & Greed Trader,

    The current crude stocks are ~89 million barrels "above the norm" (as per the second graph - please have a look at the left axis). While, obviously, the "norm" is a very approximate concept, it allows to adjust the data (and that's what these graphs attempt to do) in order to extract the "trend."
    Mar 6, 2015. 08:32 AM | Likes Like |Link to Comment
  • Crude Oil: EIA Petroleum Stocks - From Full To Fuller [View article]
    TIH,

    I am not convinced, however, that it would change average pricing through the cycle all that much. The unintended consequence could be less incentive for refiners to expand capacity to accommodate the stream of light sweet crude.

    It is an interesting topic, although it would appear that market-based approaches (as opposed to administrative methods) should be the most efficient.
    Mar 6, 2015. 08:01 AM | Likes Like |Link to Comment
  • Crude Oil: EIA Petroleum Stocks - From Full To Fuller [View article]
    Dr. Z.,

    Thank you for the link. This is exactly right. The cost of storage and carry arbitrage math at Cushing are very efficient (cost of financing and insurance for the biggest players is relatively low, so cost of storage is the largest component now).
    Mar 6, 2015. 07:57 AM | Likes Like |Link to Comment
  • Crude Oil: EIA Petroleum Stocks - From Full To Fuller [View article]
    Dr. Z.,

    It's not all that simple. The incorrect presumption is that the cost of storage is invariant.

    Who controls storage? The biggest transporters and refiners, by most part. They are collecting the windfall on the option that they had paid for long time ago. They can probably rent out their storage, but they will likely arb the rental price to a point of indifference.
    Mar 5, 2015. 03:24 PM | Likes Like |Link to Comment
  • SandRidge Energy: What Happens Once The Cash Pile Runs Out? [View article]
    Jeopardy,

    I am also wondering if there is a stipulation in CHK's JV agreement that might require a minimum number of wells drilled per year (or something of that nature).
    Mar 5, 2015. 10:47 AM | Likes Like |Link to Comment
  • Crude Oil: EIA Petroleum Stocks - From Full To Fuller [View article]
    Blackberryman,

    My view is that SA saw that a wave of global investment in future production was setting stage for a lasting over-supply. Trying to support price in that situation would have only added to the certainty and longevity of the mega downcycle.

    Reining in mega projects could give a chance to a long-term price stability that in turn maximizes SA's revenue.

    It is more interesting whether SA's policy is passive or pro-active.
    Mar 5, 2015. 10:42 AM | 1 Like Like |Link to Comment
  • Crude Oil: EIA Petroleum Stocks - From Full To Fuller [View article]
    Blackberryman,

    This is a terrific question.

    In brief, marketers buy because they can store and resell for more. Refineries buy becaused they need inventory.

    A more interesting question is: why do producers keep selling at $50-$60 per barrel?

    For many market-driven operators (which are relatively small, fragmented price takers), the answer is simple - they continue to make strong margins on existing production. They may slow down spending on new wells, but see no reason to stop producing from those wells that are already flowing.

    Ultimately, it comes down to: why are the biggest suppliers (such as Saudi Arabia) who can set the price are selling? Figuring that out would provide the answer.
    Mar 5, 2015. 10:15 AM | 2 Likes Like |Link to Comment
  • SandRidge Energy: What Happens Once The Cash Pile Runs Out? [View article]
    Jeopardy,

    I did hear that comment. It has some credibility given that CHK, in my recollection, does not have carries in its JV with Sinopec that would subsidize drilling.
    Mar 4, 2015. 07:47 PM | Likes Like |Link to Comment
  • SandRidge Energy: What Happens Once The Cash Pile Runs Out? [View article]
    Hay3,

    I do not think in terms of specific price levels but rather in terms of risks (and upsides).

    With regard to a $0 price, I think it only can occur in the context of a restructuring. SD has plenty of options at this point and therefore to suggest that the price will be at $0 in a foreseeable future (next two years, let's say) is to misunderstand the mechanics of it, in my opinion.

    There is, obviously, a huge distance between $1.82 and $0.
    Mar 4, 2015. 04:03 PM | 1 Like Like |Link to Comment
  • SandRidge Energy: What Happens Once The Cash Pile Runs Out? [View article]
    Pablomike,

    The reconciliation is "debt" versus "net debt." SandRidge has been using the cash balance to fund the shortfall between the spending and operating cash flow. So as cash declined, net debt increase. Debt outstanding was unchanged, however.
    Mar 4, 2015. 12:03 PM | 1 Like Like |Link to Comment
  • SandRidge Energy: What Happens Once The Cash Pile Runs Out? [View article]
    Okoil,

    Thank you for sharing your insight, very helpful and valuable indeed.

    I think the CHK analogy is very interesting. Companies evolve, adapt and sometimes find new valuable assets in the ground. Technology and techniques also do not stand still.

    I agree, SD has a chance for a come back. But the company would need to learn to succeed while living much closer to "within cash flow." And it takes a longer time to come back at $300 million per year than at $1.55 billion per year of spending that was originally planned.
    Mar 4, 2015. 10:47 AM | 1 Like Like |Link to Comment
  • SandRidge Energy: What Happens Once The Cash Pile Runs Out? [View article]
    Richard Lejeune,

    Please let me clarify again. By "running out" I am solely referring to the cash on hand that the company has been using to fund its outspending relative to the internally generated operating cash flow. I estimate that the "cash pile" that a year ago was very large and has been the company's major source of financial flexibility will have been essentially spent by the end of Q1 2015. Nowhere in the article am I suggesting that the company is running out of liquidity - which I view as very different concept from "cash on hand." (Moreover, I highlight the company's liquidity situation at least in four different places in the article).

    The key difference between SD's cash on hand and other sources of liquidity, among which the credit facility is the most important one, is that by drawing, for example, on the credit facility the company would subject itself to multiple terms and conditions under the credit agreement, including maintenance covenants. At the moment, the facility remains undrawn.

    The fact that the cash resource on the balance sheet will be gone very soon, will have major implications for the company's ability to maintain its spending at the initially intended level of $1.55 billion per year. That is the important point that I was tried to convey in my note.

    I hope you will actually take the time to read my article in full and it will address your concerns (you commented above that you have only read the first two lines and did not read the rest of the 3,000+ words in it).
    Mar 4, 2015. 10:31 AM | 4 Likes Like |Link to Comment
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