Tristan R. Brown

Alternative energy, long/short equity, commodities, energy
Tristan R. Brown
Alternative energy, long/short equity, commodities, energy
Contributor since: 2011
Company: Brownia llc
Thanks for the comment. A number of the news sites that reported the Aspire acquisition attributed it to Chesapeake's desire to get involved in the Utica shale play (see, for example, here: http://bit.ly/1PWt6gy). Your information suggests that this involvement hasn't actually occurred yet, though, so I appreciate the insight.
Apologies, I forgot to include the hyperlink. The information comes from the USDA:
http://1.usa.gov/1Pqms1R
Bad in as much as higher futures prices are reflected by higher spot prices. Management has stated in the past that they don't hedge in low-margin environments such as the current one, preferring to utilize the spot market.
Thanks for the comment. I agree about the relationship between D4 and D6 prices and biodiesel producers being the real winners (not least due to the visibility through 2017 for them). I also agree about the new volumes not boosting demand on their and I could have phrased that better. Gasoline consumption growth over the last year has boosted the E10 blend wall volume and created ethanol demand growth on its on. The EPA's new volumes will support those volumes in the event that energy prices rebound and demand weakens, though, limiting downside risk. Such protection hasn't existed until now.
Thanks for the comment. As you point out, the forward price ratio is a difficult metric to employ in this case since the forward earnings are so uncertain. Certainly the company would be attractive at 15x forward, but I view it more as a growth opportunity than as a value opportunity for the reasons described above. The timing is anyone's guess but I expect the RFS2 and export demand to limit the potential downside to margins, an expectation that is supported by KMI and ANDE's recent investments in capacity following the EPA's November rulemaking.
REG is feedstock-flexible, giving it an advantage when soy prices are high relative to other lipids. Soy prices have a strong influence on other lipid prices, however, so lower soy prices tend to be reflected by lower lipids prices in general and vice versa.
Regarding the demand curve, REG's share price performance in response to past EPA rule making suggests that the curve is driven by federal rather than state mandates (or, at a minimum, the market believes that it is).
The figure is in gallons, not percentages.
Yes, I've seen some of those papers regarding methane leakage. Certainly it is a concern, but the solution seems to be relatively simple monitoring at fracking sites, which is a less costly remedy than CC&S at coal-fired facilities.
Sorry for the confusion, I fat-fingered the ticker when I was typing it in. This has since been corrected - thanks for pointing it out.
Thanks for the comment. I hadn't considered the preferred shares, but that could be an interesting option.
Maxx,
Thanks for the comments/questions. I think that the GAAP targets are more in reach than they've been in the past, although I would include the disclaimer that tremendous uncertainty is involved and these could be easily missed due to unexpected downtime or a similar event. As you point out, however, the company does finally seem to have visibility on earnings growth moving forward with all of the new products that it is bringing online.
I like the direct-to-consumer strategy in the short-term but I have to question its viability in the longer-term, especially at scale. As you point out, there aren't many examples of the strategy in practice, and I have to think that there is a reason for that. Amyris simply doesn't have the networks in place to connect with the large number of customers that it hopes to see in the future.
A gallon of ethanol has roughly 2/3rds the energy content of a gallon of gasoline due to its oxygen content. Energy-equivalency looks at price on an energy basis rather than volumetric basis to account for this difference. Ethanol is almost always cheaper than gasoline on a volumetric basis despite being more expensive on an energy basis.
All ethanol makers are somewhat affected. PEIX's movements seem to be especially affected, however, likely due to its comparatively poor margins.
Thanks for the comment. I ultimately believe that optimism regarding the recent SCOTUS decision is overblown since the EPA will just redo its original analysis using the full criteria. While it is true that this could push the rule's revisions beyond the 2016 POTUS election, there is too much uncertainty there to say conclusively that it will benefit coal miners and coal-fired utilities.
Thank you for the comment. I prefer to look for overreactions by the market before purchasing. So no, a 15% decline for no reason is unlikely, but a 20% decline when fair value only falls by 5% is what I would be looking for, for example.
In retrospect, "undercovered" would have been a much better word to use there.
Thanks for the comment. The difficulty in comparing CASY and MUSA in terms of EPS growth is that the latter's IPO was rather recent, preventing any clear trends from appearing in the data. MUSA is more reliant directly on fuel than CASY, especially given the latter's focus on prepared food. Indirectly, though, CASY's food sales still are affected by fuel prices, as seen by the increase in non-fuel margins that has coincided with the fall in fuel prices.
Thanks for the comment. I'd be willing to buy for up to $32 and certainly for under $30.
I've been kicking myself for being a textbook example of the Breakeven Fallacy in action when it came to the REG shares that I bought back in 2013, but the combination of higher crude prices and escalating biomass-based diesel RVOs could make it into a strong returner. Kudos to you, MWinMD, for predicting a few months ago that the EPA would ultimately end up making a decision favorable to biodiesel. I lost hope after its November 2013 proposal.
Visits to biotech labs tend to just depress me now since I inevitably compare the lab-scale yields with those being achieved on commercial-scale.
Beer is no problem, I have yeast and bacteria working their way through several gallons of wort in my own basement biotech operation at any given point in time. I've found that the refreshment is necessary when you're shoveling 5 feet of snowfall in a single month.
Thanks for the comment, Maxx. Your detailed insight is always appreciated.
Thanks for the comment. I think it is better positioned now in the areas of product portfolio and operating cash flow than it was a year ago. Its balance sheet is much weaker, however, and that will be the most important factor if the company doesn't begin generating positive cash flow from operations soon.
Thanks for the comment. It's not what I wanted to write, either.
"Wine" was supposed to refer to RINs, the price of which will possibly crash in June (RINs are a regulatory creation and the EPA has proposed to reduce demand for them at that time, although it is anybody's guess what the final demand volume will be). Murphy's management gave a fuel margin range in its Q4 earnings call of $0.09-$0.13/gal for the whole of FY 2015, but the lower range wasn't really expected until the second half of the year as crude prices rebounded.
I can't speak for PBFX specifically, but logistics aren't facing the same headwinds as refiners.
Fuel retail margins fell near the bottom of management's expected range for FY 2015.
You'll have to show me where I wrote otherwise. The company's shares were overvalued in early April relative to its historical ratios, which is probably why they are down almost 10% in price since the article was published (For the record, I'm linking the decline to the shares being overvalued, not the article's publication). I would happily buy into Casey's were its shares undervalued since, as you point out, it is a very sound company. But "soundness" isn't my only investment criteria - the shares need to be undervalued relative to future earnings as well and that wasn't true for Casey's at the time of publication.
Thanks for the comment. I should point out, however, that this sentiment is very similar to that expressed by the company's longs in response to my bearish articles from 2013 (and, as you point out, they haven't fared well). I don't see how Gevo's situation has improved in the interim given that it is still struggling to produce its isobutanol with even a fraction of its capacity.
Under normal circumstances I would agree with you. In this case, however, the firm's post-IPO investors have incurred paper losses of 99% or more, and selling at this point would cause them to lose most or all of their remaining value to the transaction fee. Their individual risk-reward dynamic is quite different as a result.
Maxx:
Thanks for the questions. Regarding the ability of production costs to fall further, there is a widely-acknowledged trend for unit costs to fall very rapidly as production is scaled up from lab to pilot to demo to commercial-scale, at which point lower unit costs are driven more by input cost volatility than improved efficiencies and facility learning. This isn't to say that additional reductions can't be achieved via the latter, I just don't expect them to be anywhere near the magnitude of the reduction experienced to date. Brotas is a relatively small facility compared to other bioenergy (let alone fossil energy) facilities so I would expect the unit cost to resume falling were production to occur at a larger facility due to economies of scale, but Brotas is nearing the end of the reductions predicted by standard learning curves (which, admittedly, weren't produced from facilities employing next-gen yeast strains, but have proven to be fairly uniform across sectors).
Regarding your second question, I am wary of announced potential dilution at unprofitable firms simply because it provides potential investors with a reason to wait to purchase shares until after the dilution and existing investors with an incentive to sell now and repurchase after the dilution. This can have the effect of keeping the share price low, reducing the cash brought in by the offering and further hurting the company's prospects. That's not to say that it's the wrong decision in this case, as the alternative (insufficient cash to cover its costs this year and no plans to bring in additional capital) would likely push the share price down even more. Dilution isn't as big of a concern for existing, long-term investors that expect milestone achievements to more than offset the negative impact of an additional offering, of course. Companies at this stage of the commercialization trek still face long odds, however, so the balance of probabilities is that the dilution will simply create paper losses on the way to further reductions to the share price. That certainly isn't a knock against Amyris - it has stood out from the crowd just by making it to commercial-scale production. Rather, it's a recognition that the company's financial position is still precarious enough that a single bad quarter, even one unrelated to its technology, could result in bankruptcy. 'Tis the nature of the beast that is the advanced bioproduct industry. Of course, there's something to be said for no guts, no glory - if Amyris beats the odds then its current shareholders will achieve very outsized gains. Such a result just isn't probable at this stage in the game, however.
Thanks for the question. I can't speak to the currency used by Amyris to buy sugar, although I suspect it is in reais. The problem with a stronger dollar is that the earnings of U.S. firms that derive profits in foreign currencies but report in dollars do not appear to be as substantial as they would were the dollar weaker.
One founder attended MIT, the other attended UCLA, and they met at UC Berkeley.