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Rick D

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  • Is Total A Decent Long-Term Bet? [View article]
    User 6672041,

    In a comment in this article on Statoil from last year, "hiker2" commented that Fidelity did the proper filing for him to get the lower 15% treaty withholding rate on dividends:

    I haven't seen any comments about Schwab.
    Sep 8 11:10 PM | Likes Like |Link to Comment
  • Statoil well results disappoint [View news story]

    All oil exploration companies drill lots of dry holes. The geology may look great, seismic information look promising, there may be other nearby wells that are successful, etc., etc., but until you actually drill the well you don't really know for sure. Oil exploration is not a low-risk endeavor and unpleasant surprises are common. That's actually one reason why I prefer major integrated companies over smaller independents. A run of bad luck isn't going to sink an integrated oil & gas major, not even one of the smaller ones like STO.

    I personally believe that Statoil has the best exploration team in the business. Statoil certainly has an excellent track record, and a string of a few very recent disappointments really doesn't change that.

    As for "is it really a buy at these prices?", that's a matter of opinion. While my crystal ball is a little cloudy and difficult to read, I wouldn't be surprised to see Statoil at $50 in a few years. I'd be absolutely flabbergasted if it was at $20. So I think the risk-reward ratio is pretty good, plus I'm getting a nice dividend while I wait.
    Sep 8 01:34 AM | Likes Like |Link to Comment
  • Is Total A Decent Long-Term Bet? [View article]

    Some brokerages properly handle the paperwork required to get the 15% rate and others do not. I use Vanguard for my STO holding and so far have had no problems; Vanguard has always filed the correct paperwork on my behalf with no input at all from me. Their brokerage rates are in the "discount" category. I understand from others using E*Trade that they get proper handling of treaty withholding rates seamlessly as well. Conversely I have heard of people having problems with Scottrade.

    So I don't think it's discount brokerages per se that are the issue here; it is WHICH discount brokerage you use. If your brokerage isn't interested in helping you get the treaty withholding rate, my advice is to change brokers.

    Also, I think you are referring to Form 1116, not Form 1066. I will certainly agree with you that Form 1116 can be somewhat nasty for those of us with more than $300/$600 in foreign taxes, and you may not get full recovery of those taxes on your US tax return. Realistically, though, if you are paying 15% withholding and can only recover 2/3 of that via Form 1116, that's effectively a 5% additional tax on foreign dividends. That's not quite negligible, but it isn't huge and certainly should not deter someone from a quality foreign investment at a good price.
    Sep 8 01:13 AM | Likes Like |Link to Comment
  • Is Total A Decent Long-Term Bet? [View article]
    This article is a good summary of both the financial and operational aspects of Total. I want to thank the author for writing it. It's articles like this one that make SA worth reading.

    A very minor nit: why wasn't RDS included in the peer group?

    I have many investments in the oil and gas sector. I've been following TOT kind of half-heartedly for awhile but haven't yet taken the plunge to buy any. This article has encouraged me to do some in-depth due diligence and seriously consider adding TOT to my portfolio.
    Sep 6 07:33 PM | 2 Likes Like |Link to Comment
  • Shell: There Is Room For Further Re-Rating [View article]

    A shares are Netherlands-based. Dividends on A shares have 15% Dutch tax withheld. In taxable accounts this Dutch tax can often be reclaimed in whole or in part via the Foreign Tax Credit.

    B shares are UK-based. Per the US-UK tax treaty there is no withholding on dividends on B shares.

    If you are buying Shell shares in a tax-deferred or tax-exempt account such as an IRA you should own B shares, as you can't claim the foreign tax credit for these account types.

    If you are buying Shell shares for a taxable account, the share class you should purchase depends on how much of the Dutch tax you can reclaim. There is currently about a 5% differential in share prices between the two share classes, so if you can recover more than 2/3 of the Dutch tax you should own A shares and if you can recover less than 2/3 you should own B shares.

    The foreign tax credit can be somewhat complex; however, many investors qualify for 100% recovery of the Dutch withholding via a single line item on Form 1040. In order to qualify for this simplified 100% recovery, all of the following must be true:

    - You must have paid $300 or less in total foreign taxes to all countries and from all sources. This limit is increased to $600 if you are married filing jointly.

    - Your US tax liability must be at least as much as the Foreign Tax Credit you are claiming. The Foreign Tax Credit cannot reduce your tax below zero.

    - You must not be subject to the Alternative Minimum Tax.

    There are a few other conditions but they affect very few investors. The IRS instructions for the Foreign Tax Credit detail these.

    If all of these conditions apply, you should own A shares in your taxable account because they are cheaper and you can buy more shares for the same number of dollars. At tax time, just enter the entire amount of Dutch withholding (along with any other eligible foreign taxes paid, such as foreign withholding on stocks other than Shell) on the Foreign Tax Credit line of Form 1040. Piece of cake, and you get all the Dutch tax that was withheld returned to you courtesy of Uncle Sam.

    If you are over the $300/$600 limit you will need to complete Form 1116 and your recovery may be limited.

    If you are making a large purchase of Shell shares in a taxable account and your tax situation is complex, a consultation with a good tax advisor would be wise.
    Sep 6 05:08 AM | 5 Likes Like |Link to Comment
  • Statoil well results disappoint [View news story]

    Do you call offshore Tanzania, Johan Sverdrup, or Bay du Nord "a continued string of bad results"? Those are all huge discoveries coming on line in the next few years.

    Statoil has found more oil and gas over the last few years than any other oil and gas major, even though it is one of the smallest O&G majors. These are "bad results"? "Things aren't looking promising"?

    Oil and gas exploration involves a high percentage of dry holes. It isn't a low-risk business. Statoil has a lower percentage of dry holes than most.

    If you don't want your shares, sell them to me! Statoil is my largest energy sector stock holding by far, yet I'm still considering adding to my stake.
    Sep 4 03:52 PM | 1 Like Like |Link to Comment
  • New Shell CEO Takes Out The Trash [View article]

    A shares are Netherlands-based. For US-based investors, the dividends have 15% Dutch tax withheld from them.

    B shares are UK-based and per the US-UK tax treaty there is no withholding tax on dividends for US-based investors.

    In a tax-deferred or tax-exempt account such as an IRA you should own B shares. This is because you cannot practicably recover the Dutch withholding tax in an IRA.

    In a taxable account, investors who can recover most or all of the Dutch withholding via the foreign tax credit should own A shares because they are cheaper.

    Small investors in taxable accounts who pay less than $300 in foreign taxes from all sources (not just Shell withholding) each year ($600 if married filing jointly) can usually easily recover 100% of the Dutch withholding via a single line item entry for the Foreign Tax Credit on Form 1040. (Exceptions are taxpayers subject to AMT and taxpayers with less than $300/$600 in total US tax.) Investors who get 100% recovery via this method should own A shares.

    Investors with more than $300/$600 of foreign taxes from all sources must file Form 1116 to claim the foreign tax credit and may have their recovery limited. With a 5% differential in pricing between A and B shares, investors in taxable accounts who can recover at least 2/3 of the Dutch tax withheld should own A shares; those whose recovery is less than 2/3 should own B shares.
    Aug 15 03:12 PM | 2 Likes Like |Link to Comment
  • New Shell CEO Takes Out The Trash [View article]

    When you signed up to DRIP your Shell shares, Fidelity signed you up for Shell's corporate DRIP, the Scrip Dividend Programme, which for tax and legal reasons beyond the scope of a comment issued only A shares regardless of the class of shares held by the shareholder. Shell recently discontinued the Scrip Dividend Programme. Since Shell no longer has a corporate DRIP, I would guess that you will be enrolled in Fidelity's brokerage DRIP and you will receive B shares in the future. You might want to double-check with Fidelity to be sure.
    Aug 14 07:25 PM | 1 Like Like |Link to Comment
  • Statoil Results Show The Price Of Value [View article]

    Yes, there is a Norway/US tax treaty. US individual investors in Statoil's ADRs have 15% withholding on dividends by Norway provided that their broker properly registered their shares as an individual with the depositary. Non-individual investors (including individual holdings through brokerages that do not properly register shares individually through the depositary) have 25% withheld from dividends by Norway.

    I use Vanguard and have 15% withheld on my STO dividends.

    This issue was discussed in the comments on these two SA articles on Statoil:

    I agree that STO is a very good company; in fact, I just added to my already large position yesterday. Their exploration results over the past 2 years have been astoundingly good. Bay du Nord, offshore Tanzania, and Johan Sverdrup are all huge resources that will most likely pan out very well for Statoil over the next decade or so. But Wall Street only cares about the current quarter, and in my opinion that's what makes STO an outstanding value right now for a patient long-term investor.
    Jul 29 04:26 PM | Likes Like |Link to Comment
  • Finding Value And Safety In Two 6% Yield Plays [View article]

    I take it you are a newcomer to MLPs. Let's start with some basic terminology. MLPs aren't stocks. They don't issue shares, they issue units. They don't pay dividends, they pay distributions. The differences are NOT academic, especially come tax time.

    When you own shares in a corporation, you have ownership of a small portion of the company as a whole. By contrast, when you own units of a partnership, you directly own a fraction of the assets of the company. In the case of TGP, you directly own a portion of each ship that TGP holds and of each contract that TGP enters into on your behalf. There is no corporate "shield" between you and those assets and contracts.

    Like most MLPs, TGP pays out nearly all of its "distributable cash flow".
    DCF is essentially all the cash that the partnership takes in minus all the cash it pays out in the conduct of its operations. Nothing is subtracted out for non-cash items like depreciation. By contrast, GAAP earnings subtract out non-cash items like depreciation and amortization.

    How can TGP sustain a $2.77 distribution? Simply put, it takes in that much net cash each year. Of course, each year its ships get older, and when they are 35 or 40 years old they will most likely be scrapped for a fraction of their original value. If TGP never bought any new ships, after 40 years or so the partnership would be dissolved and you'd only receive the scrap value of your ships, which would almost certainly be much less than the original value of the units you purchased. In effect, a portion of TGP's distribution represents a return of your original investment capital equal to the diminution of value of your share of TGP's ships.

    GAAP earnings are typically not very meaningful for MLPs because GAAP tends to be overly conservative about depreciation. MLPs are usually capital-intensive with long-lived assets. GAAP typically assumes that MLP assets will be worn out and worthless long before they actually are.

    In TGP's case, their fleet is relatively new. If we assume the ships will be scrapped in 35 years for 30% of their initial value, and we assume straight-line depreciation, that works out to 2% depreciation per year. Using these assumptions, one can subtract 2% from the distribution yield to get the "real" yield that a similar company organized as a corporation might pay out. This kind of analysis can be useful for making apples-to-apples comparisons of MLPs with dividend-paying stock corporations.

    It is normal for MLPs to have a payout ratio of over 100% of GAAP earnings. There's nothing to be alarmed about here. But when you buy MLP units it's extremely important to understand exactly what assets you are buying and what their real useful life span is.
    Jul 20 04:19 PM | 1 Like Like |Link to Comment
  • Finding Value And Safety In Two 6% Yield Plays [View article]

    That's a good question. It depends on what you call a "small position" and it also depends on the partnership. Some are more difficult than others tax-wise.

    TGP is a relatively easy one. My tax preparer charges me less than $100 extra each year for the extra paperwork. It's also possible to handle TGP's K-1 yourself, even without tax software, though I'd recommend using a tax preparer for at least the first year.

    But TGP doesn't currently have operations in the US. Other MLPs such as pipeline companies can have more complicated tax issues. It is possible to owe state income tax in the states that the MLP has operations in. This could include all the states the MLP's pipelines pass through. The states generally have minimum thresholds for filing, however, so a small investor might not have enough income in a particular state to be required to file in that state.

    There are also issues that go beyond just the K-1. Since most MLP distributions include a partial return of capital, your basis will generally slowly go down over time. TGP will send you paperwork each year showing your total basis at the end of the year, so for TGP you won't have a lot of work to do keeping track of your basis. (To be on the safe side, though, I'd still hold on to all the K-1s for every year that you held the position until you discard the tax return for the year you sell.) If you sell your entire position at some point in the future, computing your capital gain will be pretty straightforward; however, selling only a part of your position introduces additional complications. If you're interested in having simpler taxes, it's fine to accumulate an MLP in dribs and drabs, but when it comes time to sell, I'd suggest doing it all in one shot.

    The above assumes you are investing in a taxable account. Many different issues arise if you put an MLP in an IRA.

    To answer your question "is it really worth all the extra paperwork?", in the case of TGP, the extra paperwork in my opinion subtracts about $100 worth of value each year. That should be a good rough guide as to whether or not it's worth it for a small position.

    Disclaimer: I'm not a tax advisor, just a TGP unitholder sharing my own experiences.
    Jul 19 07:56 PM | Likes Like |Link to Comment
  • Chevron Lacks Growth [View article]
    Some comments:

    For an oil and gas major, capex in the current quarter or year does not result in production growth in the current quarter or year. It results in production growth 5 - 10 years down the road. I see this mistake made over and over again in analyses of oil and gas majors, which is good for long-term investors such as myself as it results in mispricing. Chevron should have quite good production growth over that 5 - 10 year time frame. A patient investor is likely to be amply rewarded for a position in CVX.

    As the author states, Chevron's balance sheet is solid. At today's rock-bottom interest rates, why not borrow money for capex, as long as the money is intelligently spent? If you're looking 5 - 10 years down the road, who cares if the current quarter has negative free cash flow? I'll bet it won't be negative in 5 or 10 years!

    Other oil and gas majors are cutting back on capex to improve current results. Chevron is not. I don't see any letup in demand growth for hydrocarbons. Asia in particular should see high rates of demand growth. This could put Chevron in the catbird seat if demand growth is not matched by supply growth due to limited capex by the other majors.

    Disclosure: Indirectly long CVX via VDE/VENAX. Considering taking a direct long position in CVX.
    Jul 13 07:48 PM | 10 Likes Like |Link to Comment
  • Royal Dutch Shell Changes Rules, So Now What? (Part 2) [View article]
    I don't think FATCA will affect a typical US-based Shell shareholder. The depositary for US ADRs is Bank of New York Mellon. I'm sure they'll take care of any required paperwork affecting typical small holdings of Shell ADSs.
    Jun 26 09:17 PM | Likes Like |Link to Comment
  • Norway's government to retain big stake in Statoil [View news story]
    It's my understanding that the Norwegian government does not vote its shares, so they don't directly control or dictate the business policy of STO, at least not at present. Of course there's no guarantee they won't exert control in the future at some point.

    The pre-election proposal was to reduce the Norwegian government's stake to 51%, so they would still have had majority ownership under that proposal. From an investor's standpoint, today's announcement only affects the size of the float. It's somewhat of a non-event.
    Jun 23 12:33 PM | Likes Like |Link to Comment
  • Teekay LNG Partners, L.P. - Expensive At Current Prices? [View article]
    "I have a question about why the cash from JV operations isn't released to TGP, is it not paid until pay-out of the cost of building a ship? "

    Oilberta, that's a good question. I don't know the answer to it. Maybe in some cases it is released. That would be a good question to ask Teekay's Investor Relations department. If you find out the answer, please post a summary of it here so everyone can benefit.
    Jun 15 05:48 PM | Likes Like |Link to Comment