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  • Atlas Pipelines: I'm Out of Here [View article]
    AUTHOR RESPONDS:
    Thank you all for your comments and questions. I will attempt to answer all questions in this reply.

    As to some people bidding up the stock, I don't know anything about short term movements, reading sheep entrails or tea leaves. The company could sell its assets as planned and avoid defaulting on its bank debt and the stock will trade up, probably by a lot. However, if they don't and do default there won't be much left for the shareholders after the lenders get through. I will leave that type of investment to Bill Ackman or Marty Whiman. I try not to invest in companies that have a downside of $0. That leads to "gamblers ruin".

    As to conflicts of interest and new management at APL, yes Mr Dubay is the new CEO of AHD and APL; however, if you look at the companies you will see that Ed Cohn and his son Jonathan still hold the positions of Chairman and Vice Chairman at APL and Mr. Ed is still CEO at ATN and ATLS. To me, it seems that the Cohns might still have some influence around there. I would also comment that a business model and management are interlinked. You might have a great business model but will not do well if management cannot execute. Furthermore, management in all 4 companies is virtually the same. There are numerous inter-company agreements including the sales contract between ATN and APL, the incentive distribution rights between APL and AHD, and the new preferred stock issued from APL to AHD. Are they really arms length, probably, but who knows.

    As to compensation, let's say we don't have to worry about where the Cohn's next meal is coming from. There are about 20 pages in APL's 10K dedicated to explaining management's compensation programs. I did not have the time nor stomach to go into all 4 company's comp plans but it looked like shareholders took some dilution to their ownership percent over the years. From management's perspective, why work with one company when you can have 4 to get paid by?

    Regarding rising NG and NGL prices, it sure can't hurt. If they went back to $80/bbl and $8/mcf I would think the company would be profitable. But remember, the company needs NGL prices to follow oil and gas prices and there needs to be a market for them. I make absolutely no prediction on the short term movement of energy prices or the weather. But, it is the next few months that really matter.

    As to finding a jv partner, you might be confusing ATN with APL. ATN raises investor program money to fund well development costs. APL lays pipe to connect to new wells and then processes the gas and moves it to big long distance pipelines. Yes APL, along will all other domestic E&P companies, are capital constrained due to debt environment. However, the big issue here is not when their line expires but whether they go into default in the next few months. If they do default, the lenders will call the line immediately and may force liquidation of the company to repay the loans. You as a shareholder are at the bottom of the heap.

    Atlas America is the parent company of all the other entities. Their income is a function of the distributions they receive from the down stream companies like APL. Yes they are affected by the fortunes of the other companies.

    Atlas Energy Resources is probably the best of the lot. The downside is that their investor programs may get hurt by the new tax laws eliminating the upfront expensing of Indirect Development Costs. They are hedged for about 60-70% of production for this year and part of next (please confirm that on your own) but they are no Linn Energy that has it production hedged out 3 years.

    My conclusion is that this company has a very bad record of capital allocation and has destroyed a lot of value for shareholders. They are very close to defaulting on their debt and that would bring down the whole company. I personally don't want to invest in a company that has a chance of going to $0 (not matter what the tea leaves or market might currently be implying). There have to be better investments than this company if you want yield and some upside from rising energy prices over the next 3 years. If you are comfortable with the odds that they will finalize 3 asset sales in a few months at prices sufficient to pay down enough debt to avoid default, put your money on the table. Best of luck.

    For the record, I am out of all Atlas positions.

    On Mar 17 11:24 AM User 213076 wrote:

    > Kinder Morgan is similar to Atlas, a lot of incestuous relationships.
    > Management uses these relationships to seek over-compensation and
    > control.
    Mar 17 01:29 PM | 3 Likes Like |Link to Comment
  • 'AAA' Rated Companies: And Then There Were Six [View article]
    A few comments:
    - I'll go out on a limb here, Freddie MAC is not AAA. In fact it and Fannie Mae are virtually insolvent save for Government support. You may be looking a certain trenches of their securitized debt which may be rated AAA. But the company is not, unless you think the US Gov will support all its paper.

    - If Moodys downgraded Pfizer, then they ain't AAA anymore. I think you need both to be in the club. They took a big bite with Weyth

    - Note that Fitch downgraded Berkshire from AAA
    Mar 13 09:56 AM | 3 Likes Like |Link to Comment
  • Is Newmont Mining Still A Safe Place For Investors? [View article]
    Correct me if I am wrong, but I believe NEM has had its dividend tied to the price of gold for quite some time. It is not new at all. Low gold price, low margins, low dividend; makes sense.
    You have laid out the bear case well - due to a lack of interest in gold by investors, prices have gone down and will continue to do so. But you certainly missed the bull case. I have no idea where the price of gold is going or when it will get there. But I do know that all the miners' stock prices have really been beaten up. At today's prices, miners are operating close to break-even or are losing money. This is forcing the rather poor management of miners improve the efficiency of their operations and write off high cost reserves. It is also restricting supply. Miners have very high operating leverage so an increase in the price of gold will result in a much higher CF and NI, once break-even is passed. So miners provide leverage to the price of gold. It is also my understanding that the Chinese and Indians have not lost their interest in gold at all and most of the bullion that came out of the ETFs went to China thereby decreasing western inventory. Lastly, I also know that I don't know how the Fed's grand experiment is going to ultimately work out. I can imagine scenarios where the dollar becomes less valuable and gold retains its value. I can also imagine the US economy actually picking up and labor costs rising. After all, unemployment has dropped from 10% to 6.7 with only a 2% increase in GDP. If things improve further, inflation may raise its head as labor cost is a big inflation driver. Bottom line: I agree, dividends of miners may continue to decline. But to me gold continues to provide a hedge against unknown bad outcomes and miners provide a leveraged way to play an increase in the price of gold. Who knows, things may work out fine. Congress will get its act together and rein in the deficit, the Fed will unload $3T or so of bonds and gold will go down way below the cost of mining it forcing many miners out of business. In that case owning the shares of businesses should do well.
    Mar 10 11:20 AM | 2 Likes Like |Link to Comment
  • Allied Nevada Gold - Huge Relative Value And Ripe Takeover Target [View article]
    Note that old management that made the mistakes is gone.
    Dec 22 12:21 PM | 2 Likes Like |Link to Comment
  • Vanguard Natural Resources And Enhanced Oil Recovery [View article]
    Mr./Ms. Smurf:
    If you were to read the company's 1Q13 10Q, you would find that every one of your points is wrong.

    Yes the company has debt, about $1.0B vs $987m in equity. That is 1.01 debt equity ratio. I think that is very reasonable as it is only 3.5x adj. EBITDA.

    The company actually had less debt as of 3/31/13 compared to 12/31/12 by $200m as the company issued $256m of equity and repaid $303m of LTD

    While the company had a net loss from operations of $11.3m for the quarter, the loss was a result of a non-cash expense of $35m for unrealized loss on derivatives. Adding that back and subtracting the $6m realized gain, the company generated $18m in operating income.

    As you can see from the above, earnings did not come from derivatives; they generated a $35m unrealized loss. In fact, the company had a net loss for the quarter.

    Since you refer to their derivative activity as Shenanigans, I infer that that you believe that hedging is a bad policy. Taking the inverse of that view, I assume you would suggest that the company not hedge any of its revenues and expenses. That would leave the company exposed to volatility in oil and gas prices and interest rates, which at certain price levels could generate real operating losses. You would be effectively gambling on energy prices. That seems a bit reckless to me.

    The strategy of the company is to lock in a spread for several years on the majority of its production when doing an acquisition to significantly reduce the risk of a drop in oil and gas prices. This gives the company a determinable revenue stream and provides them with adequate cash flow to cover cap ex, dividends and debt repayment. In my opinion, that is one of the main attractive investment points of the company.
    Jul 6 01:38 AM | 2 Likes Like |Link to Comment
  • Teekay Tankers Ltd. - An Alternative Analysis [View article]
    I was actually impressed by the quality to the thread. It really enhanced my opinion of SA. No idiots no emotional garbage.
    Thanks
    Jan 2 04:19 PM | 2 Likes Like |Link to Comment
  • This 13.8%-Yielder Could Soar Within Days [View article]
    I have a small position in this stock and agonize over it regularly. I own it for the reasons you state - intermediate term time charters at higher than spot rates. However, as joecun361 pointed out above, dry bulk shipping is in terrible shape. Slower growth in China is curtailing demand and there is an over supply of new builds. That = a disaster for future rates. As the current charters expire, new rates will more than likely go down if demand does not improve. Shipping is a notoriously volatile industry where many people have lost money. Note that many of the charters are guaranteed by the Greek government. That ain't worth much today. Therefore you also have to worry about the credit of the shipping companies that charter their ships. Remember, their customer's fortunes are also tied to the dry bulk market and their freight rates are way down.

    I have hung in for the yield and the eventual turn around in dry bulk rates. But, if they stay low for an extended period the company could be in trouble. I may sell if it gets closer to $15-16. I also own teekay LNG. Their ships have 10-20 year charters with big oil companies. A little less yield but maybe a safer play.
    Thanks
    May 30 07:33 AM | 2 Likes Like |Link to Comment
  • Income Investors Face Enormous Macro Risks Ahead [View article]
    Quick comment: Point 1, first sentence - "the Fed will spare no recourse...in order to prevent depression and associated inflation." I believe you mean deflation, not inflation. In a depression, prices fall due to lack of demand. Falling prices creates a vicious cycle of people waiting for prices to fall further before buying. This is what the Fed has been trying to prevent by massive monetary stimulus and low manipulated rates. That sows the seeds for future inflation, but we have to get out of a recession induced by deleveraging first. That could be a very long time. Ask the Japanese.
    Sep 10 10:28 AM | 2 Likes Like |Link to Comment
  • The Nine Best Natural Gas, Oil Pipelines for Income and Capital Gains [View article]
    You are a little light on explanation about why you would purchase the companies you recommended. Are they selling at a cheap price to fair value? What is the fair value? You also don't go into much information about GP companies vs LP companies. You don't discuss hedging positions for gathering pipelines nor contract details about how a company generates revenue. There is a big difference between a keep whole agreement for a gathering pipeline and a long term transport agreement for a long haul pipeline.
    Sep 16 09:43 AM | 2 Likes Like |Link to Comment
  • 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
  • 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
  • The High Dividend Stock Investor's Collapsing Dollar Survival Guide, Part 3 [View article]
    I have not fully read your article but intend to but I have a couple of comments:
    1) Why are you recommending any Ultra ETF's for long term hedging? That is, I believe, very misguided. Have you read Morningstar's analysis of the compounding issues that occur with these ETF's?
    2) Your intro says a) high yield stocks are a form of cash - NO, where did you get that idea and b) inflation eats away at principal and yield. I thought the idea of owning stock in companies was that companies can pass along price increases and are therefore a form of hedging against inflation. Would stocks yielding nothing be a better hedge? I think your analysis is a bit off here.
    Mar 6 10:33 AM | 2 Likes Like |Link to Comment
  • Looks Like It's Time to Buy Oil [View article]
    It would be helpful and add to your credibility if you would provide support or explanations for your numbers. It sounds to me like you are making them up based on your gut feel. How do you know COP is a buy in the $40's? This was not a very useful article
    Dec 11 09:00 AM | 2 Likes Like |Link to Comment
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