Skip Olinger's Comments

The Nine Best Natural Gas, Oil Pipelines for Income and Capital Gains

Wed, 16 Sep 2009 09:43:01 -0400

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.

Plenty of Natural Gas: Exploration and Production Companies Keep Increasing Oversupply

Fri, 11 Sep 2009 10:31:54 -0400

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

Tiber Oilfield Spells Major Upside for Prices

Tue, 08 Sep 2009 14:52:47 -0400

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.

A Simple Valuation Model for Large Cap Stocks

Mon, 01 Jun 2009 09:43:42 -0400

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

Klarman, Witmer & Einhorn: Examining 2009 Q1 13F Filings

Tue, 19 May 2009 10:48:26 -0400

Thanks for doing the work.

Dividends: A Company's Leading Indicator

Mon, 18 May 2009 13:36:31 -0400

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.

Is There Enough Natural Gas?

Fri, 01 May 2009 11:30:36 -0400

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.

>
> 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.

Pay Back Time for Credit Card Companies

Fri, 01 May 2009 10:24:44 -0400

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!

Is There Enough Natural Gas?

Thu, 30 Apr 2009 14:21:11 -0400

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.

Is There Enough Natural Gas?

Mon, 27 Apr 2009 10:24:34 -0400

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?

Why is the Market Ignoring American Express's Bad Report?

Sun, 26 Apr 2009 10:52:46 -0400

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.

Natural Gas Companies Increasingly Important

Sun, 05 Apr 2009 15:27:42 -0400

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.

Credit Card Crunch: Creating a New Generation of Subprime

Thu, 26 Mar 2009 09:50:19 -0400

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.

Atlas Pipelines: I'm Out of Here

Wed, 18 Mar 2009 14:21:28 -0400

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

Atlas Pipelines: I'm Out of Here

Wed, 18 Mar 2009 14:05:40 -0400

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
>
>

The 15 Most Cash Rich Companies

Tue, 17 Mar 2009 14:31:17 -0400

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.

>
> 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.

Nervous About MLPs

Tue, 17 Mar 2009 14:12:14 -0400

I will reiterate what has been said above, this is not a well thought out piece and lacks facts and statistics to back it up. In short, this was a waist of time to read. By the way, if you actually read the quarterly press releases, many of the MLP's show the reconciliation from net income to EBITDA and then to distributable cash flow. Try a little research sometime.

Follow up to MATT:
Thanks for the insight on NG wells depleting faster than oil wells. I need to research that further.
There are 3 general types of MLP's: E&P and gathering companies tied to the price of commodities (hedging really matters here), pipeline companies that make a toll on throughput and propane distributors (tied to seasonal demand and to some extent their ability to hedge prices). Toll companies should be the safest and least volatile to energy prices. As I understand it, it is harder to shut off a gas well when prices are low than it is an oil well. Therefore, in most markets, a long haul pipeline will still get throughput and thus revenues. In theory this should make their distribution stream more stable. Look, if I could get my portfolio to grow at 10% a year, I'd be a happy man. So looking at Energy Transfer and Enterprise Products, I get temped here.

Best,
Skip

Atlas Pipelines: I'm Out of Here

Tue, 17 Mar 2009 13:29:31 -0400

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.

'AAA' Rated Companies: And Then There Were Six

Fri, 13 Mar 2009 09:56:12 -0400

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

Atlas Pipeline Partners: A Painful Lesson in MLP Investing

Fri, 06 Mar 2009 12:57:48 -0500

Good question. I am getting ahead of myself. I would like to do a bit more investigation before doing a full write up. However, APL's original attraction was that they had a percentage of proceeds contract with Atlas Energy Resources ATN where they got 16% of the sales price of the NG sold by ATN in exchange for building out the gathering pipelines to get their gas to market. And they still have that contract. The problem is that this represents a very small portion of their current revenues. They bought this much bigger operation in the Mid Continent with the keep well contracts that over shadow that favorable, easy to understand arrangement. I believe they said they were selling an asset in Appalachia as well as their Ozark pipeline and something else. Appalachia is their home turf and a growth area. It is where the Marcallas Shale is located and if you listened to the ATN call the same group of guys were jumping up and down about how great the future is there for NG and how much growth will take place at ATN. The Ozark pipeline is a regulated interstate pipeline and therefore it makes it money on tolls, just like you would think. So I am initially concerned about their selling these assets as they, I believe, have good growth and fee income, both goals they say they are pursuing.

Bottom line, it ain't good when a company has to sell assets to avoid default. Things are probably worse than they appear in the 4Q statements. But at this point the analysis is simply can the company survive. If it does the upside will take care of itself. If it does not, kiss your $2 good bye. I held my position all the way down so I am going to do more research. I'll keep you posted.

My big lessons here: use stop losses, know how a company makes money, and beware leverage, especially now.

On Mar 06 11:12 AM jpau wrote:

> Perhaps Marc or SkininCA can shed light on this, but if I understand
> this correctly, are the assets APL is attempting to shed, are they
> the assets most related to NGLs? Perhaps they are trying to migrate
> their strategy toward piping the bounty of gas that ATN is finding?
>

The High Dividend Stock Investor's Collapsing Dollar Survival Guide, Part 3

Fri, 06 Mar 2009 12:29:25 -0500

Roger,
Again, suggest your read the Morningstar article about the problems with Ultra ETF's long or short. They may have saved your backside, but if you are unaware of the risks over the long term, you may be kissing your backside good bye. But hey, it is your money.

Perhaps you have a counter argument to the compounding issue? I would like to hear it.

On Mar 06 11:51 AM Roger Ramjet wrote:

> The ultra short ETF's haved saved my a**. Your article is the best
> I have read in awhile. Mabe I missed it in your writing but what
> about EFU. I have done very well with this one.

The High Dividend Stock Investor's Collapsing Dollar Survival Guide, Part 3

Fri, 06 Mar 2009 10:33:40 -0500

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.

Atlas Pipeline Partners: A Painful Lesson in MLP Investing

Fri, 06 Mar 2009 10:20:14 -0500

I think your categorical condemnation of MLP's is a little extreme. Your point that you had better understand how a company makes its money is spot on. I sure did not understand this company's business. Another lesson is not to rely on other "smart guys" like Mr. Cooperman or Seth Klarman. It looks like Baupost punched out in 4Q of a substantial part of its holdings. Take a look at Linn Energy LINE, they have hedged 100% of current production out 3 years at approximately $80 bbl and $8 mcf. I think it is a much more straight forward business.

My brief analysis on APL is that no one including management realized how dependent the company was on NGL prices. Most of the profit from the company comes from the Mid Continent business they acquired a few years ago. Much of that business is under keepwell contracts where they get to extract the NGL's and sell them for their profit and have to maintain the NG flowing though. So this is not a simple business of just taking a toll on gas passing through its pipes. The company tired to hedge its NGL exposure when it made the acquisition using oil futures as a proxy for NGLs. This worked for a while until a hurricane shut down Gulf refineries for almost a year so there was no demand for NGLs and demand and prices dropped significantly. Therefore, the price relationship between NGLs and oil broke down. The company was left naked to a large amount of hedges that were rapidly going against it with rising oil prices last summer. The company raised $200M of equity to buy back the hedges at the top of the market. Perfect timing; just then oil prices fell like a rock. They basically threw the $200M out the window - bad luck. Now they appear unhedged for NGLs and are taking it in the shorts (technical term). You can only hedge out 6-9mos on NGLs vs 5 years with oil or gas. Now they are facing covenant breech and are forced to sell assets. If they can sell assets in this market the assets 1) have to high quality and 2) have to be sold a low prices. Not good for shareholders in the long run. The company said it is going to try to restructure its contracts to "fee based" going forward ie get a toll on the through put volume. Good luck. Oh, and as for the write down of the assets, to me that simply means they way way overpaid for a large acquisition whose business they did not understand. So it looks to me that this management has destroyed about $895MM of shareholder equity. Bad luck

What we pathetic shareholders are left with is Hope (which seems to be a reoccurring them these days and one that does not make a good basis for investment or running a country) Hope that they will be able to sell off good assets to avoid breeching their covenants. Hope that NGL prices return to more normal levels. Hope that they can rewrite contracts so the company is not so dependent on unhedgeable NGL prices. I hope management's luck changes.

Any comments or corrections on my analysis of the business would be appreciated.

US Bancorp: A $1.7B Loss for Berkshire Hathaway?

Mon, 23 Feb 2009 11:03:26 -0500

Is this an analysis of USB or BRK? I don't get the point of this post. Whatever your point, it is certainly not a well reasoned, in-depth analysis that is useful.

Your Oil Stocks Aren't Coming Back

Fri, 20 Feb 2009 09:04:28 -0500

You don't seem to address the fundamentals of peak oil or the ability of suppliers to bring production into balance with demand. This was not a well reasoned article and forgive me, but a good example of the worst side of SA.

America Needs a Natural Gas Transportation Infrastructure

Wed, 18 Feb 2009 11:59:05 -0500

PLEASE CHECK YOUR MATH. WE APPEAR TO HAVE A SHORTFALL BETWEEN US PRODUCTION AND US CONSUMPTION. IS THIS CORRECT?

Very well done article and many relevant and thoughtful comments.

I think you have some math errors at the beginning of the article. You say the US gas production in 08 was "1,700,000 cubic feet per month", which would equate to 56,667 cubic feet per day. I think you mean million cubic feet. Based on the embedded consumption chart, the US consumes 63,143,093,151 cubic feet per day (total consumption x 1M / 365). That is a pretty big imbalance.

However, if US production really is 1.7M MMCF per month, not CF, then we still have a shortfall in production - 56B produced and 63B consumed. Where to we make up this shortfall?

I plan on emailing your 5 point natural gas plan to Obama and Peolosi. I think there is a chance Obama may doing something proactive and positive with energy planning

Geopolitical Energy: Centered on the Caspian Sea (Part 2 of 2)

Wed, 07 Jan 2009 01:47:14 -0500

Thanks for the response. Is there a way to get in touch with you out of this forum to discuss fly fishing and alternatives to living in CA?

On Jan 06 12:59 PM Michael Fitzsimmons wrote:

> john s. gordon: the iranians took hostages because they were tired
> of the CIA and the US installed shah ruling their country. let's
> switch the roles for sake of debate. let's say the US had no nuclear
> weapon, and china invaded mexico and canada and installed a ruler
> in the US. what would our response be? we'd probably overthrow the
> ruler and start working on a nuclear bomb. right? it's all action
> and reaction, and it's all based on US military imprerialism and
> agression in the middle east and central asia in order to satisfy
> our foreign oil addcition. the unholy alliances the US has made with
> terrorists in the past (shah of iran, sadam hussein, bin laden, uzbekistan
> dictator, i could go on and on), is quite simply a failed foreign
> policy, and will fail in the long run as an energy policy. imho.

>
>
> skip: wrt GLD, i suppose it's ok short term. in the long run, my
> paranoia about the financial markets leads me to want to buy and
> hold the gold coins in my hot little hands. sure the coins have a
> mint premium, but that premium holds fairly constant as the price
> of gold goes up and down, and also holds if you want to sell them.
> wrt pipelines and MLP's, i agree with you - there are some great
> high yielding opportunities there, and i kick myself for not buying
> more of them in late december. wrt COP, everything i read is that
> the relationship COP has with lukoil and the russians is very symbiotic
> and beneficial to both partners. COP brings technology and management,
> and obviously russia brings the resources and manpower. from what
> i have read, COP and the russians want to expand their cooperation.
> i like the relationship - it goes to show what can happen if americans
> are so damn arrogant. the russians even made statements to the effect
> that COP CEO Mulva (i think the best CEO in the oil patch) wasn't
> arrogant like most big oil CEO's. he's regarded as a problem solver.
> anyhow, you are correct to point out the risk, but looking at COP's
> price, it appears to be priced in. COP was not long ago selling at
> a price in which the yield was about equal to the PE (!). i still
> think COP is a strong buy. thanks for the comments.

Geopolitical Energy: Centered on the Caspian Sea (Part 2 of 2)

Tue, 06 Jan 2009 09:30:22 -0500

Well done article. Regarding physical possession of gold, the only problem is that you have to buy coins at a large premium to the quoted price per oz. I doubt the world will come to an end so what is wrong with owning GLD?

I would also buy domestic oil and gas and some pipelines. While the US is the 3erd largest oil producer in the world, we consume about 3x as much as we produce, which is way above any other country's consumption. I doubt we will be able to significantly eliminate oil from our economy any time soon and I doubt conservation efforts will reduce the price of oil on a permanent basis. Therefore I think we have a unique opportunity to buy some really beaten up companies and MLP's. With the MLP's, if I am wrong about how soon oil and gas prices rebound, you get paid to wait. I own LGCY, LINE, ETP and ETE. I would also look at XCE in addition to the majors. I would concentrate on the company's balance sheet and be sure they have committed lines of credit for the next couple of years. Commodity prices are occasionally very volatile so you want to know the company has adequate funding.

While I own COP, i am very nervous about its stake in Lukoil. It could be confiscated as well.

Your thoughts?
Best regards,
Skip

Hedge Fund Tracking: Seth Klarman & Baupost Group, Q3 2008

Wed, 31 Dec 2008 13:03:39 -0500

Very good work. It is concise and useful. Thanks for taking the time to do this and sharing the work.

MLPs Entering 2009: High Yields Carry High Levels of Risk

Wed, 31 Dec 2008 09:43:11 -0500

I would have liked to see some greater depth to your analysis such as which companies have the greatest risk of having their dividends cut, what a worst case scenario might look like in terms of oil and gas prices and what to look for in a good MLP. Simply citing general market prices does not add much value. Thanks