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  • Plenty of Natural Gas: Exploration and Production Companies Keep Increasing Oversupply [View article]
    Well done article but I have a question for you and the 2 previous commenters.

    As I understand it, NG demand has fallen significantly primarily due to a drop in industrial demand and utility demand. Supply has increased as new unconventional plays have gone into production. So producers, who cannot just shut off wells like a light switch, have started to store gas in hopes of higher prices down the road. Storage is becoming full. Once full wells may be forced to shut down. Pressure in the system will fall so even pipelines won't be making revenue as no gas will be moving. Voila, end of the world. Do I have this correct?

    But wait, if you want to sell your gas at say $4.50 rather than $2.73 all you would have to do is sell a futures contract for Dec delivery. That is 3.5 months away! There must be plenty of producers that have sold their production forward for winter delivery and intend of delivering. And, if you want $5 all you have to do is sell for June '10. What am I missing here?? I would appreciate some help.

    Also, the economy seems to be turning around a bit. That should start to increase industrial and utility demand. How do you see that playing out??

    Lastly, how do you see the Pickens theory play out with conversion to NG use away from Petroleum. I suspect that is a ways off but some government car fleets are now being converted?

    Thanks to all for your help
    Sep 11 10:31 AM | 2 Likes Like |Link to Comment
  • Tiber Oilfield Spells Major Upside for Prices [View article]
    Interesting and well done article. A couple of points:

    1. Reserves do NOT represent the total amount of estimated oil in a given resource as "proven" by geologic assessments and initial drilling. In fact, the reserves of a given well or resource can change year to year on a company's balance sheet, regardless of new finds or depletion. This is caused by the fact the reserves are a function of the amount ECONOMICALLY recoverable oil. So, with low oil prices, it may not be economic for a company to lift the last bit of oil out of the ground. However, if oil prices rise, it would be economic to make extra investment in the well such as injection and recover the last bit of oil. In this case, the company's reserves would increase even though no new oil was found in that well. I recently learned this distinction in talking to a domestic E&P company.

    2. Another point about Peak Oil, not only does the rate of production decline after reaching Peak, the cost of recovery goes up. To get the final bit of oil from a well requires injection and other techniques, which add to the cost of recovery. Another point is that most of the easy oil finds and recoveries have been made. New oil discoveries are being made in areas where recovery is difficult and expensive.
    Sep 8 02:52 PM | 2 Likes Like |Link to Comment
  • A Simple Valuation Model for Large Cap Stocks [View article]
    I sure would not call this simple! Doubt you will get many readers on this site.

    Very informative article. I have intuitively been suspicious about complex FCF discount models given their sensitivity to small changes. However they sure give you better insight into a company's IV that just a multiple. I have tried to translate what a multiple might mean in terms of ROIC and growth and then look to see if that is a reasonable assumption for the company.

    You are a bit vague on how to get SEPS and the CRA. I will check out your website.

    Good article. Thanks
    Jun 1 09:43 AM | 2 Likes Like |Link to Comment
  • Klarman, Witmer & Einhorn: Examining 2009 Q1 13F Filings [View article]
    Thanks for doing the work.
    May 19 10:48 AM | Likes Like |Link to Comment
  • Dividends: A Company's Leading Indicator [View article]
    Well done article. I have a few points to add:
    1. Stock buy-backs - these are a tax efficient equivalent of dividends. Many companies that have extra free cash flow will buy back stock instead of paying more dividends. Management wants to show steady increases in dividends and they never want to cut them as they know many widows and orphans depend on the income. So they buy back their own stock. In my opinion this is an invention of the devil. Managements are notoriously over optimistic about the value of their own stock. They will buy back stock to offset the increase in shares from stock options, which hides how much regular shareholders are being diluted. Tech companies like Yahoo horde cash for future growth and acquisitions. That hasn't always been a successful strategy. It's my money, dammit. I'd prefer to pay the taxes and reinvest the money myself.
    2. Neither the economy nor companies growth at a steady pace. Therefore how can dividends grow at a steady pace? I think the desire to produce a long track record of steady dividend growth has caused management to underpay dividends. Also there will be periods where companies have great opportunities to make attractive investments and compound capital much faster than an individual can do on his own. In a perfect world it would make sense for a company to reduce or even suspend its dividend rather than pay an investment banker to raise more capital, if it was available. I know this variable dividend policy is unlikely to be enacted by any company but it makes economic sense.
    May 18 01:36 PM | 1 Like Like |Link to Comment
  • Is There Enough Natural Gas? [View article]
    Buddy, you seem a bit short on facts yourself. Rather than waste space and reader time with your less than clever retorts, why don't you start writing intelligent, well reasoned articles. Like the good republican I am sure you are, you spend all of your time condemning people without offering alternatives. I suggest that you spend a few days writing an article supported with facts (maybe even include a cite from a professor or two) about why we should continue to remain dependent upon foreign oil, burn more coal, and increase CO2 emissions. Your comments are unhelpful, not intelligent and written only to improve your opinion about yourself.


    On Apr 30 03:20 PM ArtfulDodger wrote:

    > My Dear Fitzy:
    >
    > You wrote: “one thing we both can agree on is that i wouldn't get
    > far convincing you.”
    >
    > You are looking at me through your own eyes. Take a break; don’t
    > be so defeatist. It makes me think you could be mentally lazy. For
    > you can certainly convince me—that is, if you present a proper argument
    > with well-presented facts in a well-written and well-reasoned paper.
    >
    >
    > But you don’t have to convince me. You have to convince literate
    > people who’re used to taking advice from people who know how to present
    > it properly. Although, as I noted, this most recent article is far
    > above your previous ones, you’ve still not presented a proper argument
    > for all your positions.
    >
    > Whoever edited this article for you, get them to continue helping
    > you. If you did it yourself, keep working on your writing, and perhaps
    > before we run out of oil, you’ll be an argumentative writer of the
    > highest import.
    >
    > You see Fitzy I like people who are passionate about what they're
    > doing and also honest. And on these two points—as best I can tell—you
    > get an A+.
    >
    > And so, just as you've put it on yourself to save the whole US, all
    > I want to do is help little, old you a tiny bit. And again, as I've
    > noted, with the lofty goal that you have, you need lots of help.
    >
    >
    > Indeed, leftists are very sensitive people and almost universally
    > refuse to listen to anybody except people who present them with negatives.
    > They want someone to agree with them or they immediately begin slandering
    > such folks or grouping them with someone all leftists hold in total
    > scorn, such as Rush and Bush.
    >
    > Do you really think you're going to get anywhere by bashing Bush?
    > Or even Obama. So, leave out the personal pejoratives.
    >
    > I don’t like Big Oil either—not for the same reasons you don’t, but
    > nonetheless, I don’t like them. But when you toss a shot in a paper
    > against them, you’re only throwing meat to the eco-maniacs. No one
    > else cares. So, leave out the industry slanders—no matter how sly
    > they are.
    >
    > Moreover, you’re going to need both political parties to achieve
    > your goal of turning America into a natural gas grid. So, leave out
    > your politics.
    >
    > The way I see it (and others should comment in this vein), Fitz,
    > you have three things to prove to move the nation in your direction:
    > 1) that NG is the best way to go over all else; 2) that C02 is a
    > serious pollutant; 3) that “peak oil” is real and the world is headed
    > down that hill already.
    >
    > You can’t simply say that C02 is a dangerous pollutant, Fitz; you
    > have to show that it is, for merely because you have it in your mind
    > that it is, does not mean most of the rest of the nation does. <br/>
    >
    > And you can’t simply say, Professor X says C02 is deadly and that
    > the planet can’t last much longer if we don’t control it. We’ve all
    > heard those tales before. You have to show how C02 is detrimental,
    > what it’s already done, and what it may do in the future. Show! Don’t
    > tell!
    >
    > As far as arguing for NG, you did a good job toward that end in this
    > paper, but I’d consider it a rough draft. I hope you’re not firing
    > your articles out to members of Congress and the Senate, or other
    > people who have readers filtering their mail. For as soon as they
    > see the bad transition, paragraphs stacked with multiple subjects,
    > the unsubstantiated claims, and your punctuation, they’re not going
    > to send your papers upstairs to the boss. They're going to get tossed
    > pretty quickly.
    >
    > I don’t mean to talk down to you Fitz, but just as I am not an engineer
    > and would need your help in that area, you are not a writer—and that’s
    > where you need help if you’re ever going to get anyone on your side
    > powerful enough to help you.
    >
    > You do certainly write, but you are not a writer, especially of the
    > type you need to be, say, on the order of Rachel Granby (SA editor),
    > whose writing is perfect—to say the least about it. She’s an editor;
    > perhaps she would look over your papers for you.
    >
    > Writing is a series of processes that literate humans use to produce
    > a product that enables them to communicate with others. So then,
    > punctuation, syntax, transition, grammar, spelling, sticking to a
    > subject, and editing are all required to complete the writing process.
    >
    >
    > Writing is an acquired craft, Fitzy. And you’ve not yet acquired
    > it to the point that you need to so that you can save our great nation.
    >
    >
    > Hey, it’s not too late, Fitzy. You’re an intelligent, passionate
    > person. A little cynical—but you mean well. Loosen that stiff neck
    > of yours a mite, humble yourself, and get to work.
    >
    > That’s my bit to help you, and I hope it does.
    >
    > The best to you and to your effort to change the nation for what
    > you see as the better.
    >
    > If you stay passionate and honest, others will come along who're
    > much much smarter than I am (and that doesn't take much!), and they'll
    > be able to help you moreso than I.
    >
    > But you have to be ready with an excellent product to present to
    > them.
    May 1 11:30 AM | 3 Likes Like |Link to Comment
  • Pay Back Time for Credit Card Companies [View article]
    Very good job. You bring up a good question: Who is responsible for allowing credit card debt to pile up to size and mess it is now? Is it the consumer who used credit card debt to indulge in impulse purchases thinking that the appreciation of their house would pay it all off? Or, is the banks that granted easy credit to people who were poor risks and never had a prayer of being able to repay all their debt? Again, we come back to the evils (and there are also a lot of positives) of the securitization market. By securitizing credit card debt, banks substantial transferred risk to the note holders and generated fee income to boost their ROE. Investment banks were screaming for more product so they could maintain their fee income. Investors were screaming for notes that had higher interest rates in a low rate, low risk premium environment. So the banks, in turn, granted more credit to less creditworthy borrowers. Sound familiar? The music has stopped and we are short more than one chair. When you are a lender, you are responsible for maintaining credit standards and denying credit to the unworthy. If you fail to do this, you must suffer the consequences. Going back and raising rates and fees on the group that can still pay to cover your own misjudgment seems very unfair. Bankruptcy law is long established. It is designed to stop a lender from condemning individuals to a life of indentured servitude - from "owing their soul to the company store". So, in my opinion, yes, the government should limit extreme lending practices. And if that reduces banks appetite to lend to the credit unworthy, well maybe that would not be so bad!
    May 1 10:24 AM | 2 Likes Like |Link to Comment
  • Is There Enough Natural Gas? [View article]
    What a pathetic post.


    On Apr 27 10:30 AM Ferdinand E. Banks wrote:

    > Hmm. I like to see this kind of work. Too many mediocrities working
    > in energy for my taste. But even so I know a couple of things that
    > bother me when reading this article. I'm thinking of 'FUELING HALF
    > OF ALL US TRUCKS AND CARS WITH NATURAL GAS, AND REPLACING 50% OF
    > COAL FIRED PLANTS WITH NATURAL GAS. 'That may sound good, and make
    > sense from the point of view of chemistry, physics, biology, political
    > science, witchcraft and gender studies, but from the point of view
    > of energy economics - and the leading academic energy economist in
    > the world, as I occasionally call myself - it is very very wrong.
    >
    >
    > Then why don't I produce some numbers which show that it is wrong.
    > Well, as a Canadian billionaire once said, we are living in the most
    > dishonest period in history, and so I belong on the sidelines. But
    > I will say that ANDY has the right idea: flow rates and possible
    > flow rates tell a very different story from inventory values. And
    > by the way Mr Nieder, Germany had some of the highest electric prices
    > in Europe, and given their grotesque belief in wind I doubt whether
    > it has decreased.
    Apr 30 02:21 PM | 1 Like Like |Link to Comment
  • Is There Enough Natural Gas? [View article]
    Very well done. Nothing like a big dose of algebra with my coffee.

    You did not mention NG imports from Canada. We import not an insignificant amount now, I believe. We also import LNG. This would add life and availability to the equation.

    Al Neider's comments were interesting. Are you going to investigate?
    Apr 27 10:24 AM | 4 Likes Like |Link to Comment
  • Why is the Market Ignoring American Express's Bad Report? [View article]
    1. very good short summary of 1Q activity. Well written
    2. you said $136 billion, you meant million
    3. Visa MC as someone above points out is over several more quarters. But I agree, it is non-core income.
    4. $25M loss from US ops is not that bad given slow down in spending and write offs. In a past Amex presentation, they showed that write off in, I think '90-91 went to just over 10%. Amex survived. They could very well go to 12-15% this time. Amex will survive. I believe Mr. Market is getting excited about the prospect that the portfolio is getting close to being cleaned up. They aren't putting many new receivables on the books so at some point the losses will stop.
    5. You correctly point out that card member spending is way down. Again, at some point it will stabilize and come back.

    I don't know if we have reached the bottom of consumer spending or cc write offs, but we are a lot closer. Amex is a great company and it is trading a historical low multiples. It is buy low - sell high. You don't get the lows without a great deal of uncertainty. So don't get mad a Mr. Market, take advantage of his offers. That said, I am not going all in with Amex now. I think we are in for a long haul and there is a good chance Amex and a lot of other companies will retreat.

    Apr 26 10:52 AM | 1 Like Like |Link to Comment
  • Natural Gas Companies Increasingly Important [View article]
    Marc,
    You are long on opinion and short on detail here. How much cash is APL getting from Williams to pay down their debt? Is not the goal to pay down debt to avoid covenant breech? I see no mention of that. How did you or your mentor come up with $400M for the sale of NOARK? What effect on Adj EBITDA will that sale have. NOARK is one of their few assets that generates revenue from fee or toll contracts so the sale further exposes the company to commodity risk. And, could you please enlighten us all as to why your favorite pick of all the NG transportation companies is APL? If you like transportation and distribution, why on Energy Transfer or Enterprise Products. They are bigger, not in financial peril. They make much more of their revenue from fee based contracts, not keepwell contracts. I have to be blunt here in the interest of trying to keep high quality analysis on SA; I don't care about your "feelings" about a company. I am interested in hard analysis as to why APL is now a deep value play with little downside risk and very large upside. I see nothing here that tells me how and when APL will raise sufficient capital to pay down debt to avoid default. It won't matter how much they earn if the bank defaults their loan. This is an interesting story so do some real analysis before you publish. There is no value in putting up a piece that tells readers to look at the company's powerpoint.
    Apr 5 03:27 PM | 7 Likes Like |Link to Comment
  • Credit Card Crunch: Creating a New Generation of Subprime [View article]
    Interesting detail on FICO but this is old news and not very helpful in stock picking. How bad can the credit card losses get at JPM? What effect on earnings will that have? Will it take the company under? Are they under reserved? At $12 per share, there could be an awful lot of pain baked into that price. Is there a value investment opportunity there even if write offs go to 10-12%? What happens of consumer spending improves in 2-3 years? Or will the company go under?

    How this information affects specific stocks would be more helpful.
    Mar 26 09:50 AM | 4 Likes Like |Link to Comment
  • Atlas Pipelines: I'm Out of Here [View article]
    I spoke to Ed as well, nice guy. Funny, he didn't mention the possibility of default to me either. Their 4Q call was interesting in the fact that they announced quite happily that they were close to selling 3 assets but did not mention anything about their covenants. It wasn't until the Q&A that the subject came up. I have been in Ed's shoes and you want to present the information in the best possible light but you don't want to omit key facts either. I threw in the towel. I know Baupost significantly reduced their position. The Coopermans followed this one all the way down as well. We are not alone. The lessons are understand how a company makes it money and where the risks are, be ruthless about getting out if the stock goes down, set a bail out point ahead of time and just because a smart guy invests still do your own homework. Oh, one other, complexity is not your friend. Thanks for the comment


    On Mar 17 09:40 PM turbo47 wrote:

    > Skip,
    > Thanks very much for your thoughtful analysis. I wish both of us
    > had "been out of here" a lot sooner. My problem was I heard what
    > I wanted to hear. ..had a nice chat with Ed Begley when the stock
    > was at 7...as I recall a Citicorp analyst had blown the whistle about
    > possible debt covenant problems in '09, so I called the company
    > and heard what I wanted to hear. Nobody misled me, but me.
    > Sorry for both of us. Thanks again fror your take.
    > Turbo
    Mar 18 02:21 PM | Likes Like |Link to Comment
  • Atlas Pipelines: I'm Out of Here [View article]
    Thanks for the compliment. The only problem is that the company may be running out of time and unable to wait for the market to improve.


    On Mar 17 03:09 PM Jack Walker wrote:

    > Skip,
    >
    > This is a thoughtful and well-prepared article. We may well be near
    > the bottom of natural gas prices but the complexity of this company
    > and all of the financial engineering materially increases the risk
    > and certainly increases the time necessary trying to understand the
    > risk.
    >
    > Jack
    >
    >
    Mar 18 02:05 PM | Likes Like |Link to Comment
  • The 15 Most Cash Rich Companies [View article]
    GOOD ONE!! YOU SAID, "Just as you would not extend your mortgage to pay for day to day living....." I assume you meant that as a joke as that is exactly what people were doing over that 5 years that brought on the current Depression?


    On Mar 16 05:13 PM Anna Coulling wrote:

    > Finding a cash rich company in which to invest is an important first
    > step but trying to establish where the cash is coming from and where
    > it is going is even more important. I was given these tips by some
    > specialist insolvency accountants (and they should know!).
    >
    > It seems we all need to understand a balance sheet these days and
    > short of becoming forensic accountants at the very least we should
    > try to find answers to the following three questions. Number 1
    > - Where is the cashing coming from? Companies can boost short term
    > cash flow by borrowing or selling assets. However, there are only
    > so many assets that can be sold and without a regular inflow on cash
    > a company will soon run into trouble. The number to look for is
    > “cash flow from operating activities” – this shows how much cash
    > is generated from the company’s core business activity. A negative
    > number is a red flag and always check back a few years to see if
    > there is any pattern. Highly volatile operating cash flows can suggest
    > trouble – Enron was a classic case in point before it failed.
    >
    > A firm can also enhance operating cash flows by delaying payments
    > to suppliers just before the financial year end so always take a
    > look at the note that supports the cash flow figure (usually placed
    > a few pages back) and look for the number showing “change in creditors”.
    > If this number has jumped without a corresponding rise in activity
    > – “cost of sales” – in the profit and loss account, be suspicious.
    > It is also worth comparing the firm’s “operating profit” to its “operating
    > cash flow”. Big variations, or an operating profit not matched by
    > a similar amount of operating cash flow are both warning signs.<br/>
    >
    > Number 2: Where does all the operating cash flow go? Analysts often
    > quote “free cash flow” which should be positive and ideally consistent
    > with past years, allowing for changes in activity. For example if
    > sales have decreased 10%, free cash flow will probably have fallen
    > as well and should be in proportion. Companies such as Tesco have
    > been able to expand rapidly by using huge free cash flows to buy
    > freehold sites. However, if a company is enjoying high levels of
    > free cash flow and not expanding or paying it back to investors as
    > a dividend, be concerned. Also consider the relationship between
    > free cash flow and the equity dividend. If free cash flow does not
    > cover the dividend at least twice, future payouts could be at risk.
    >
    >
    > Number 3: The final area to look at is the “cash flows from financing
    > activities” section. Just as you would not extend your mortgage
    > to pay for day to day living, a typical bankruptcy candidate will
    > raise long term finance as new debt or equity and then use it to
    > keep trading. So compare the total raised as debt or equity in the
    > “cash flows from financing activities” section and the amount being
    > spent on new assets in the “cash flows from investing activities”
    > above it. A big mismatch with no explanation from directors is another
    > warning signs.
    >
    > In addition look at a company's “Altman-Z score” This indicates
    > the probability of a company entering bankruptcy within the next
    > 2 years. The higher the Z score, the lower the probability of
    > bankruptcy. An Altman score above 3 indicates that bankruptcy is
    > unlikely; a score below 1.8 indicates that bankruptcy is possible.
    >
    >
    >
    > Finally always look at the directors' dealings - are they buying
    > or selling.
    Mar 17 02:31 PM | 1 Like Like |Link to Comment
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