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Rick D

Rick D
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  • Teekay Offshore Looks Attractive At These Levels [View article]

    "I would think the transport of LNG is inherently more risky than the
    processing and transport of off-shore crude production.....

    I can't help but think TGP could be negatively impacted by crude's
    soft prices as well as nat gas continued low prices ......which is the
    chemical feed stock for LNG."


    TGP doesn't have direct commodity exposure.

    TGP's average charter length is about 13 years. They only have one ship on the spot market right now.

    Long TGP, TOO-PA
    Aug 20, 2015. 04:05 AM | Likes Like |Link to Comment
  • A Yield On Cost Analysis, Why Income Investors Should Favor Shell Over Exxon Mobil [View article]

    I'm not smurf but I'll answer your question.

    Per the US-UK reciprocal tax treaty, dividends on common stocks held by US investors in UK-domiciled companies are not subject to any withholding by the UK.

    This of course does not mean these dividends are exempt from US taxation. If held in a taxable account they will be subject to the same taxes as a US-domiciled investment.
    Aug 18, 2015. 10:09 PM | 1 Like Like |Link to Comment
  • Teekay Offshore Looks Attractive At These Levels [View article]

    Teekay Corporation receives pretty typical incentive distribution rights from Teekay Offshore. TOO is currently just barely in the 50% IDR tier.
    Aug 16, 2015. 03:43 PM | Likes Like |Link to Comment
  • A Yield On Cost Analysis, Why Income Investors Should Favor Shell Over Exxon Mobil [View article]

    "Shell...lacks meaningful exposure to high-quality U.S. oil and gas shale resources."

    Shell has significant exposure to US shale gas in the Marcellus and Utica plays. They're about to get even more with the BG Group acquisition. I guess the Morningstar analyst missed that.

    "Additionally, its downstream footprint is geographically disadvantaged and is underexposed to cost-advantaged markets such as the U.S. Gulf Coast..."

    Shell is operator of and 50% owner of the huge Motiva refinery in Port Arthur, Texas. I guess the Morningstar analyst missed this too.

    As I insinuated in your earlier article about Shell, I don't think the Morningstar analyst did their homework. They made glaringly obvious mistakes in their analysis. I would disregard that analyst's opinion entirely.
    Aug 16, 2015. 04:48 AM | 4 Likes Like |Link to Comment
  • A Yield On Cost Analysis, Why Income Investors Should Favor Shell Over Exxon Mobil [View article]

    Shell is selling most of its stake in Showa Shell Sekiyu KK, the parent of Solar Frontier, with the sale expected to complete next year. After the sale Shell will only have a 1.8% stake.

    I do hope that Shell takes on additional solar investments in the near future. I believe that solar, while a small part of the energy mix today, will be more important in the future, and I'd like for Shell to have at least a toehold in it so they can expand as the market for solar expands.

    I agree completely with the rest of what you say.

    Long RDS.B, GLOP, and TGP.
    Aug 16, 2015. 04:19 AM | Likes Like |Link to Comment
  • A Yield On Cost Analysis, Why Income Investors Should Favor Shell Over Exxon Mobil [View article]

    I'm not terribly concerned about Shell's payout ratio or reserve replacement ratio.

    The payout ratio will improve as Shell continues to reduce costs over the next couple of years.

    Reserve replacement ratios tend to fluctuate a lot. Shell's RRR will likely drastically improve with a major Arctic oil find.

    Shell has other projects which should be accretive to future earnings besides oil and gas exploration, most notably the Prelude floating LNG production platform.

    I will agree with you that XOM is a higher quality stock. However, you pay for that quality. Given its relatively low valuation, RDS may well be the better value of the two.

    There has been significant insider buying in RDS recently. Obviously they don't think Shell is a long-term disaster.

    I have long positions in both: a modest direct position in RDS.B and an indirect holding in XOM via a large position in VDE/VENAX.
    Aug 16, 2015. 03:54 AM | 3 Likes Like |Link to Comment
  • A Yield On Cost Analysis, Why Income Investors Should Favor Shell Over Exxon Mobil [View article]

    I haven't confused the topic. The statements you quoted from my Instablog post are both correct.

    "* I suspect those holding RDS.B shares in a TAXABLE account can file at year-end for a tax credit equal to the tax withholding (also due to the reciprocal tax treaty)."

    There is no British or Dutch withholding on RDS.B dividends. This is true regardless of whether they are held in an IRA or a taxable account.

    There is no tax withheld by the UK on dividends of any British stock held by a US-based investor. The US-UK reciprocal tax treaty specifies a 0% rate. There is no tax credit in this case because there is no foreign tax withheld.

    The only possible foreign tax withholding on any class of Shell shares owned by a US-based investor is Dutch (and then only on A shares and even then only if one does not enroll those A shares in the Scrip Dividend Programme). I realize now that the reference to "no Dutch withholding tax" on RDS.B might be a little confusing. There is never any British withholding tax because of the reciprocal US-UK tax treaty, and no Dutch withholding because RDS.B shares are considered British, not Dutch. However, some people (persons subject to backup withholding or possibly some foreign nationals) might be subject to *US* tax withholding. That's why I said "Dutch withholding tax" instead of just "withholding tax". A reference to British withholding tax would make no sense because there is none for US-based investors in either Shell share class. Hence, the only tax you can avoid by owning B shares or by enrolling your A shares in the SDP is Dutch tax.

    I hope it all makes sense now.

    Also, FYI, the US DOES have a reciprocal tax treaty with the Netherlands. The rate specified is 15%. If we did not have that tax treaty the rate would be significantly higher.
    Aug 16, 2015. 03:36 AM | 1 Like Like |Link to Comment
  • High Yield In Focus: Should You Buy Into Teekay LNG's 9.6% Yield? [View article]
    I'd like to correct some misinformation here.

    LNG is not under pressure. It is stored and transported at atmospheric pressure, at a temperature of approximately -160 degrees Celsius (-260 degrees Fahrenheit), which is the boiling point of methane.

    Boil-off gas from LNG is also at this temperature (the boiling point of methane). At this temperature it is too cold to ignite. I have seen a video of someone taking a lighted cigarette and placing it into a beaker of boiling LNG. The cigarette was extinguished. No fire resulted.

    When LNG is regasified, it must also be warmed well above its boiling point. Simply boiling it is not enough. Pipelines won't accept it below a certain temperature because it needs to be warm enough to be flammable.

    Natural gas is flammable only in a 5% to 15% concentration in air. It is also lighter than air and dissipates in the atmosphere. By the time boiled-off LNG exposed to open air has warmed up enough to be ignitable, it has dissipated to where its concentration is below 5% and is not flammable.

    The only fires I am aware of that have resulted from LNG spills are those where the spill has occurred into a confined space, such as into a storm sewer system. In a confined space like this, given enough time, the temperature of the methane can rise to a level where it can be ignited while the concentration of methane is greater than 5%.

    The bottom line is that while LNG vapor cloud fires are possible, they are much less likely to occur than you might imagine.

    Sometimes people confuse LNG and LPG. LPG is stored under pressure at ambient temperature. It is flammable immediately upon gasification, without the need for warming. LPG is much more dangerous than LNG. Unlike methane, vaporized LPG is heavier than air and can hug the ground, spreading out until it finds an ignition source, then instantaneously ignite in one huge bang.
    Aug 13, 2015. 04:38 AM | 3 Likes Like |Link to Comment
  • Shell's Dividend Pledge: Solid Or Empty Promise? [View article]

    That's not a dumb question at all. I believe it actually would make sense, especially at today's low share prices.

    Why isn't it being done? I would guess because of three factors:

    1 - Shell doesn't want its credit rating affected. More borrowing reduces its credit rating and increases future borrowing costs.

    2 - Shell has a stated policy of keeping gearing (leverage) low. While they could, and arguably should, borrow to buy back shares, that would reduce the amount of dry powder they have for future borrowing for operational purposes.

    3 - Shell is pretty conservative financially. Borrowing to buy back shares is not a conservative action. We don't know for sure what the future holds. Remember that interest MUST be paid regardless of circumstances. Dividends are not legally required to be paid, and some flexibility is possible, for example, paying dividends in shares instead of cash. I don't think lenders will accept shares in lieu of cash payments.

    It is certainly frustrating that Shell, like many other oil and gas majors, tends to buy back shares at high prices. But that's precisely when they have the most cash to do so, without having to resort to borrowing. Oil and gas is a very cyclical industry and this sort of conservatism is part of why the oil and gas majors are able to weather the storms of the industry relatively well. Compare and contrast this with what is happening with many of the more leveraged players in the industry in the current low pricing environment.

    If you believe that Shell should borrow to buy back shares, you can do a similar thing yourself, assuming your borrowing costs are low. Just borrow money to buy more Shell shares yourself. (I am not recommending this course of action; I'm just pointing it out as a possibility. Obviously there are risks to doing this.)
    Aug 9, 2015. 08:43 PM | 4 Likes Like |Link to Comment
  • Shell's Dividend Pledge: Solid Or Empty Promise? [View article]
    Shell discontinued buying back shares as of January 30, 2015:
    Aug 4, 2015. 08:33 PM | 1 Like Like |Link to Comment
  • High Yield In Focus: Should You Buy Into Teekay LNG's 9.6% Yield? [View article]

    TOO is Teekay Offshore Partners. This article is about TGP, Teekay LNG Partners. They are sister companies with the same general partner, Teekay Corporation, but they are in very different businesses.

    Also, I think you misunderstand "yield to worst". "Yield to worst" is the lowest yield you could get on a callable security (assuming no defaults, that it remains at the current price, and that you never voluntarily sell the security). Since it is trading below par, TOO-PA's yield to worst is the same as its current yield: the 9.34% that you state. Think about it this way: even though TOO-PA is callable, if it remains at its current price, why would TOO call in the preferred at par of 25 when they could just buy the preferred units back in the open market at 19.40?

    Here's Investopedia's definition of "yield to worst":

    I'm not disputing that TOO-PA is a good investment, especially at its current price. I own a little of it. But it hasn't got anything to do with TGP other than a common parent, and, barring a meteoric rise in price, you won't get a 17.35% annual return on your investment.
    Aug 2, 2015. 02:56 PM | Likes Like |Link to Comment
  • High Yield In Focus: Should You Buy Into Teekay LNG's 9.6% Yield? [View article]

    I am a US-based investor. I have owned TGP in a taxable account for a few years now. I have never received a State Schedule, just a basic K-1, and haven't had to file state taxes in other states.
    Aug 2, 2015. 02:31 PM | 2 Likes Like |Link to Comment
  • High Yield In Focus: Should You Buy Into Teekay LNG's 9.6% Yield? [View article]
    For the most part this is a decent summary of TGP as an investment. However I would take exception to the statement that LNG activities are suppressed. Some of the more questionable projects won't go ahead but I doubt they would have anyway. There are many good projects that are going forward, among them:

    Australia: Gorgon and Wheatstone
    USA: Sabine Pass
    Russia: Yamal LNG
    Papua New Guinea: ExxonMobil's LNG plant went on line last year.

    Shell also has their Prelude floating LNG production facility under construction.

    TGP is involved with some of these and has long-term charters in place for Sabine Pass and Yamal LNG, providing multiple avenues for accretive future growth.

    Demand for LNG isn't going away because of reduced LNG prices. If anything, reduced prices will increase demand. I really don't expect Teekay to suffer from low LNG prices. (I also don't expect LNG prices to remain low over the life of Teekay's charters anyway.)

    Currently there is a surplus of LNG shipping capacity; however, in the next few years this is projected to become a shortage. I believe the future of LNG shipping is bright and that Teekay is well-positioned to benefit from it.

    The only major downside I see to TGP is that it is now in the 50% IDR tier, limiting future distribution growth.

    And to correct the author, TGP is not a stock. It's an MLP and pays distributions, not dividends. The difference is not academic, particularly tax-wise. Also, one should factor out non-cash items such as depreciation when evaluating the distribution yield. Though it typically isn't as high as GAAP makes it out to be, depreciation is a real long-term cost.

    Disclosure: Long TGP, recently added to my stake and may add more in the near future.
    Aug 1, 2015. 10:18 PM | 4 Likes Like |Link to Comment
  • How Much Kinder Morgan Is Too Much For A Dividend Growth Investor? [View article]

    I wouldn't stress too much over the storage capacity issue. There's more oil in storage than there was 5 years ago, but there's also more capacity than there was 5 years ago. Also, don't forget that Kinder Morgan owns quite a bit of that storage, so they're making money off of it.

    Also, that chart is for crude oil storage, not natural gas. Kinder Morgan has a lot of natural gas pipelines but not that many crude oil pipelines, so this is not really a big deal for them.
    Aug 1, 2015. 03:22 AM | 3 Likes Like |Link to Comment
  • How Much Kinder Morgan Is Too Much For A Dividend Growth Investor? [View article]

    "Jeesh, I'm not sure I understand this company well enough to own it."

    When you get this feeling, the right thing to do is to take the time to understand it well enough to where you ARE comfortable. KMI is in a lot of businesses, so this isn't a small task, but it's what you need to do.

    Awhile back, before everything got combined into just KMI, I was considering investing in the Kinder Morgan entities (KMI, KMP/KMR, and EPB). It took awhile but everything made sense to me. KMI and KMP/KMR looked fine to me. EPB looked a little stretched on its distribution but it wasn't particularly scary. I passed on the investment not because of any problems but because I found what I thought were better opportunities elsewhere.

    I also took a look at LINE/LNCO some time ago, before the oil price collapse. I thought the concept of an upstream MLP was a little questionable. Keeping the distribution stable in the face of a declining oil price requires hedging, but hedges expire. What happens if oil stays down longer than the length of the hedges? Oops... Then I saw they were cutting back on hedges. If I wanted to do what they were doing, I would have gone to a casino. I decided I wouldn't touch LINE/LNCO with a 10 foot pole.

    Spend the time to understand KMI's businesses. I've done it, and I can assure you there is no great disaster awaiting you in the short term, so you can take your time learning about them and then decide what you want to do with your KMI, making your decision with full knowledge.
    Aug 1, 2015. 02:50 AM | 6 Likes Like |Link to Comment