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Karl W Miller

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  • Chesapeake Jumps the Gun on Natural Gas Act [View article]
    Subsidies never work, never have, never will.
    Jul 24 09:24 AM | 2 Likes Like |Link to Comment
  • Chesapeake Jumps the Gun on Natural Gas Act [View article]
    As Mr. Miller has advised numerous times, government handouts do not work, never have, never will. The capitalist markets must make investment decisions based upon supply, demand, price points and other factors.

    Natural Gas is no different; Producers can't "jam natural gas" down the consumers throat by forced consumption, media blitzes, and government taxes (subsidies on natural gas vehicles, etc), Especially as the U.S. has virtually zero transportation infrastructure, as it is not economical to construct without massive subsidies.

    Boone Pickens has had the unfortunate virtue of promoting multiple energy plans, from Wind, Natural Gas, Trucking Fleets, all of which have failed miserably. Pickens and Chesapeake Energy announcements that they have essentially teamed up to spend a Paltry $1 billion to promote natural gas as a transportation fuel, is but a pittance and all for naught without the passage of a "massive federal subsidy" call the Natural Gas Act.

    Mr. Miller has advised that the Natural Gas Act is Dead on Arrival, much like the ill fated Cap and Trade proposal.

    _______________________

    What is the Natural Gas Act?

    The essential elements of the failed "Pickens Plan" were incorporated into the New Alternative Transportation to Give Americans Solutions Act, or the NAT GAS Act, which was introduced by groups of senators and representatives in the previous two Congresses. The legislation would jump-start the use of natural-gas-powered heavy-duty trucks by giving tax incentives to purchasers and manufacturers of natural-gas-powered vehicles.

    A bill promoting natural gas vehicles was first introduced in 2008 by archconservative Sen. James Inhofe (R-OK). The first NAT GAS Act was soon introduced by bipartisan coalition including Senate Majority Leader Harry Reid (D-NV) and conservative champion Tom Coburn (R-OK). There was little conservative opposition to this bipartisan proposal until very recently.

    Chief among those who are pushing conservatives in Congress to drop their support for the NAT GAS Act are the Koch brothers. Charles Koch has been loudly vocalizing his opposition to the “misguided suggestion that the natural-gas industry should receive enormous new subsidies.”

    Rep. Mike Pompeo (R-KS), a freshman in Congress who was the top recipient of Koch-related money in the 2010 elections, has been leading the conservative attacks against the NAT GAS Act. Rep. Pompeo maintains that he is opposed to “using taxpayer dollars to support targeted interests within the energy sector” despite his vote to protect billions in federal subsidies for Big Oil.

    The new efforts to oppose the NAT GAS Act are paying off, convincing co-sponsors to take the unusual step of publicly withdrawing their support for a bill that they previously cosponsored. Reps. Tim Griffin (R-AR) and Glenn Thompson (R-PA) withdrew their names as sponsors on May 26, joining Reps. Todd Akin (R-MO) and Steve Pearce (R-NM), who dropped their backing earlier in the month. Rep. Thompson had also been a co-sponsor of the 2009 version of the bill.

    The chart below lists the organizations oppose investments in natural gas vehicles, their statements against "subsidies" for natural gas and the proliferation of "Fracking".

    Groups that support Big Oil loopholes and oppose natural gas vehicles
    Oil industry support
    On subsidies for Big Oil
    On the NAT GAS Act

    Americans for Prosperity
    David H. Koch Charitable Foundation $1,000,000
    “Americans for Prosperity opposes any changes in the tax code that target specific industries for tax increases because some people don't like their product or profit.”
    “Americans for Prosperity opposes the use of the tax code to promote the use of natural gas as a vehicle fuel or to subsidize the purchase of natural gas vehicles. If natural gas is a worthwhile fuel source it should prove itself in the marketplace, not be handpicked by industry lobbyists and DC politicians.”

    Americans for Tax Reform
    Sarah Scaife Foundation $375,000

    Carthage Foundation $325,000
    “Oil and natural gas companies receive no subsidies—the government doesn’t pay these companies a cent to produce oil. Every deduction or credit S. 940 proposes to revoke or limit has a specific purpose common throughout the tax code.”
    “Congress and regulatory agencies have piled on rules and regulations in an attempt to nudge, or force, Americans to use lawmakers’ preferred energy sources.”

    Competitive Enterprise Institute
    Exxon Mobil $1,690,000

    Sarah Scaife Foundation $2,865,000

    David H. Koch Charitable Foundation $315,000
    “Whether the depreciation allowance tax is good tax policy is one thing. But it does lower the cost of producing oil. If you raise the price of production, that increase would be passed on to somebody. He [President Obama] is desperate to blame somebody else. He is unwilling to say that’s how supply and demand operates, so he just shifts the blame to the oil companies because they are the easiest target for political demagoguery in the world.”
    “Providing subsidies for every aspect of natural gas-fueled vehicles will only lead to a bloated industry of little help to energy consumers. Washington is no match for the free market when it comes to determining the most promising energy sources.” – Open letter to Congress, May 24, 2011, signed by CEI Senior Fellow Malco Lewis.

    The Heritage Foundation
    Exxon Mobil $385,000

    Charles G. Koch Charitable Foundation $78,000
    “Ending all energy subsidies, including those for oil and gas, would be good for American taxpayers and consumers. However, Congress should not punish the oil and gas industry with targeted tax hikes, nor should it reward other parts of the energy industry favored by the Administration.”
    “Subsidies funnel money toward projects that have little market support and offset the private-sector costs for investment that would have been made either way. … the fact that other transportation fuels receive government support is not a good reason to continue or expand special treatment for natural gas.”

    60 Plus Association
    “The 60 Plus Association … has spent close to $600,000 on such television spots. … the ads are part of a greatly expanded national role for the group … benefiting from what Republican sources describe as an influx of funds from the billionaire brothers, David and Charles Koch.” - Politico, October 15, 2010
    “It is absolutely mind boggling that President Obama and the Senate Democrats are seeking to raise taxes and make U.S. industry less competitive in this atrocious economic climate where millions cannot find work. But oil companies make an easy target and divert attention away from the fact that Obama’s energy policies are directly contributing to over $4 a gallon gasoline.”
    “Tax incentives like these allow government to decide which energy sources thrive or fail—and thereby distort the market. America’s experience with a number of similar energy subsidies dating back to the 1970s has shown that businesses benefiting from these incentives become reliant on government handouts in order to stay in business, causing the price of the subsidy to rise over time and leaving taxpayers to support industries for decades.” – open letter to Congress, May 23, 2011, signed by 60 Plus Association Chairman Jim Martin.

    Representatives who support Big Oil loopholes and oppose natural gas vehicles
    Oil industry campaign contributions
    On subsidies for Big Oil
    On the NAT GAS Act

    Rep. Todd Akin

    (R-MO)
    $47,750
    Voted against rolling back taxpayer subsidies for Big Oil on March 1. Voted in favor of the GOP budget, which retained $40 billion in Big Oil tax loopholes on April 15. Voted against legislation to prohibit the Big Five oil companies from receiving tax breaks for domestic manufacturing on May 5.
    Withdrew co-sponsorship of the NAT GAS Act in May 2011.

    Rep. Tim Griffin

    (R-AR)
    $136,459
    Voted against rolling back taxpayer subsidies for Big Oil on March 1. Voted in favor of the GOP budget, which retained $40 billion in Big Oil tax loopholes on April 15. Voted against legislation to prohibit the Big Five oil companies from receiving tax breaks for domestic manufacturing on May 5.
    “I am concerned that H.R. 1380 might be inconsistent with my goal of simplifying the tax code by lowering the overall tax rate and simultaneously ending industry-specific incentives.” Withdrew co-sponsorship of the NAT GAS Act in May 2011.

    Rep. Raul Labrador

    (R-ID)
    $4,000
    Voted against rolling back taxpayer subsidies for Big Oil on March 1. Voted in favor of the GOP budget, which retained $40 billion in Big Oil tax loopholes on April 15. Voted against legislation to prohibit the Big Five oil companies from receiving tax breaks for domestic manufacturing on May 5.
    “Energy subsidies do two things—they distort the market, leading the private sector to invest in less economical forms of energy, but most importantly, number two, they take taxpayer dollars to do this.”

    Rep. Steve Pearce

    (R-NM)
    $1,218,192
    Voted against rolling back taxpayer subsidies for Big Oil on March 1. Voted in favor of the GOP budget, which retained $40 billion in Big Oil tax loopholes on April 15. Voted against legislation to prohibit the Big Five oil companies from receiving tax breaks for domestic manufacturing on May 5.
    Withdrew co-sponsorship of the NAT GAS Act in May 2011.

    Rep. Mike Pompeo

    (R-KS)
    $291,156
    Voted against rolling back taxpayer subsidies for Big Oil on March 1. Voted in favor of the GOP budget, which retained $40 billion in Big Oil tax loopholes on April 15. Voted against legislation to prohibit the Big Five oil companies from receiving tax breaks for domestic manufacturing on May 5.
    “What we don’t need to do is use our tax code to subsidize them [energy sources] and pick them and favor them.”

    Rep. Glenn Thompson

    (R-PA)
    $100,572
    Voted against rolling back taxpayer subsidies for Big Oil on March 1. Voted in favor of the GOP budget, which retained $40 billion in Big Oil tax loopholes on April 15. Voted against legislation to prohibit the Big Five oil companies from receiving tax breaks for domestic manufacturing on May 5.
    “My support of this act was conflicting with my desire to simplify the tax code.”

    Withdrew co-sponsorship of the NAT GAS Act in May 2011.




    Themes: natural gas act, energy, oil, natural gas, fracking Stocks: LNG, CHK, EP, WMB, SUG, SD, SWN, RRC, HK, BHP, OXY, APA, APC, EOG, MRO, BP, COP, XOM, CVX
    Jul 24 09:22 AM | 1 Like Like |Link to Comment
  • Are Cramer's Oil and Gas Plays Worth Buying? [View article]
    Proposed Natural Gas Act: Dead on Arrival in Washington

    As Mr. Miller has advised numerous times, government handouts do not work, never have, never will. The capitalist markets must make investment decisions based upon supply, demand, price points and other factors.

    Natural Gas is no different; Producers can't "jam natural gas" down the consumers throat by forced consumption, media blitzes, and government taxes (subsidies on natural gas vehicles, etc), Especially as the U.S. has virtually zero transportation infrastructure, as it is not economical to construct without massive subsidies.

    Boone Pickens has had the unfortunate virtue of promoting multiple energy plans, from Wind, Natural Gas, Trucking Fleets, all of which have failed miserably. Pickens and Chesapeake Energy announcements that they have essentially teamed up to spend a Paltry $1 billion to promote natural gas as a transportation fuel, is but a pittance and all for naught without the passage of a "massive federal subsidy" call the Natural Gas Act.

    Mr. Miller has advised that the Natural Gas Act is Dead on Arrival, much like the ill fated Cap and Trade proposal.
    Jul 23 09:02 AM | Likes Like |Link to Comment
  • The Natural Gas Investment You're Ignoring [View article]
    All things are possible, but we don't see any material "moving of the needle", despite the public relation blitz by Pickens/CHK. Still insignificant, no infrastructure, and loss making operations. We will of course follow over the next 5-10 years.
    Jul 21 03:56 PM | Likes Like |Link to Comment
  • Are Cramer's Oil and Gas Plays Worth Buying? [View article]
    One way to view CHK is similar to the old Wall Street Partnerships like Goldman Sachs, Lehman, etc. before they became public. 99% of the cash was distributed to insiders. CHK is public and all of the cash continues to be distributed to insiders. CHK may be making the best "buggy whips" in the world, but if the buggy whip price is declining, demand is declining and management keeps what little free cash flow there is, well point taken.
    Jul 20 09:58 PM | Likes Like |Link to Comment
  • Are Cramer's Oil and Gas Plays Worth Buying? [View article]
    Dow Jones: BHP's 65% premium for Petrohawk (HK) shouldn't be hardwired into valuations; BHP couldn't afford another busted deal and paid through the nose

    ________________________

    We like natural gas and we like CHK. However, we see no justification for the substantial run up in CHK stock price to excessively speculative level.

    We get the strategy that the Company has built itself upon, but that model was based upon a land value/reserve value analysis, or old school reserve valuation analysis for natural gas valuation. Additionally, CHK was the king of buy and flip, perhaps they even inspired the financial institutions to do the same thing on the mortgage backed securities (MBS) market.

    Problem is, that model is no longer in effect, no longer profitable, and irrelevant in a "just in time" domestic natural gas market, which is the U.S.

    We like natural gas but will not overpay for producer equity in over-supply market at $4/mmbtu w/ no pricing power and the fundamentals are looking worse each month.

    When natural gas was in excess of $10/mmbtu, debt was plentiful, and the U.S. Economy was seemingly growing at a very high rate, CHK's lease, flip, sell forward Volumetric Production Payment (essentially a mortgage on its natural gas production) allowed the Company to amass tremendous amounts of debt to do the next deal. Problem is, the natural gas market collapsed as did the U.S. Economy, massive amounts of new natural gas production came on line and continues today, and the debt markets evaporated.

    Now today, natural gas storage facilities are full across the U.S., Natural gas is close to $4/mmbtu, production continues to increase, and natural gas has become a "just in time" commodity.

    There is no pricing power, there is no premium in storage, and there is no growing industrial demand, at least not in the next 3-5 years of any meaningful nature.

    So where does that leave domestic, on-shore natural gas producers like CHK?

    From our analysis, with $4/mmbtu prices, mortgages on production in form of VPP's, and other debt, CHK is in a circular death spiral which requires management to sell assets to raise cash, then continue to execute more mortgages/VPP's to meet existing drilling/leasehold and interest payments, and round and round they go.

    The only way for CHK to break out of this circular death spiral is for natural gas prices to increase dramatically, which as we know will not happen due to massive market oversupply, or for management to take on substantially higher financial (debt/trading/hedging) risk and higher operational risk.

    So essentially what we are left with is to justify the current price range of $30/share for CHK; it is based upon management going way out on the risk curve, betting what is left of the Company's value (which has not been mortgaged through VPP's and other asset sales/JV's).

    CHK must unwind itself form the complex web of debt, VPP's, hedges, and other complex contractual agreements, but this will only be done in time. Nothing can be done overnight to fix the problem.

    Thus, we conclude that CHK shares are worth $25/share with "extrinsic speculation" premium.

    When you dig a big hole, it takes time to fill it in!


    Themes: natural gas, energy, oil, fracking Stocks: CHK, DVN, EOG, APA, APC, SD, HK, BHP, SWN, RRC, MRO, XOM, CVX, COP, BP, EP, WMB
    Jul 20 09:01 AM | 2 Likes Like |Link to Comment
  • Chesapeake Energy: Ripe for the Picking? [View article]
    “Our engineers here project these wells out to 20-30 years of production and in my mind that has yet to be proven as viable,” wrote a geologist at Chesapeake in a March 17 e-mail to a federal energy analyst. “In fact I’m quite skeptical of it myself when you see the % decline in the first year of production.”

    Exerpts from Chesapeake Energy Geologist correspondence with Federal agencies:

    “In these shale gas plays no well is really economic right now,” the geologist said in a previous e-mail to the same official on March 16. “They are all losing a little money or only making a little bit of money.”

    Around the same time the geologist sent the e-mail, Mr. McClendon, Chesapeake’s chief executive, told investors, “It’s time to get bullish on natural gas.”

    Stay short or Flat.
    Jul 19 10:25 PM | Likes Like |Link to Comment
  • Chesapeake Energy: Ripe for the Picking? [View article]
    Nat Gas Oversupply Likely For a Long Time: RCH Energy

    In the last year natural gas production has grown over 7 percent despite prices going down, Robert Raymond, principal and founder of RCH Energy, told CNBC Monday.

    "What we're seeing in the natural gas market here is we're sort of in year two or three of an ultimate capitulation in the price of gas. But, this can go on for a long time," Raymond said.

    "The concept of a chronically oversupplied market relies on a shifting supply curve and one in which the demand curve doesn't keep up. I'm fairly confident that the demand curve hasn't shifted 7 percent in the last 12 months," he explained.

    The rebalancing of supply and demand after a technology is applied is measured typically in half decades and decades, added Raymond.
    Jul 18 01:59 PM | Likes Like |Link to Comment
  • Chesapeake Energy: Ripe for the Picking? [View article]
    CHK for lack of better terms is a Pyramid. They rely upon the hype to "stay in the game". NG prices are generating negative operating margins for the Company, when their massive fixed cost, debt and other obligations are added on a MCF basis. The have very little oil production, and potential NGL's and projected future profit margins are being driven down daily by substantial increase in NGL production by other market producers, thus driving prices down, just as they did for NG. Finally, CHK remaining properties are fringe properties, unproven well production profile, and highly speculative.
    Jul 18 10:22 AM | Likes Like |Link to Comment
  • Chesapeake Energy: Ripe for the Picking? [View article]
    There are fundamental reasons CHK valuation and operating position remain weak, and why it is the most heavily shorted stock in the NG producer segment. CHK history of racking up excessive debt, continually leasing/buying more acreage than it can develop, excessively speculative trading/derivative book, opaque off balance sheet debt (whereby management has hocked future production value), 90% NG production profile at depressed prices, and extremely poor corporate governance. Solid companies do not have to constantly promote, like CHK does to try and pump up their business and stock price, which clearly has not worked. Is CHK a house of cards? Time will tell, but the very large cracks in the foundation tell seasoned investors to stay away, or stay short.
    Jul 17 07:06 PM | 7 Likes Like |Link to Comment
  • Chesapeake Energy: The Set-Up for the Next Buying Opportunity [View article]
    Be careful. Would only buy cheap out of the money calls on the Natural Gas Producers. Commodity complex substantially over-leveraged/over-bo... by hot money.
    Jul 5 04:33 PM | 1 Like Like |Link to Comment
  • Natural Gas Opportunities Gaining Momentum [View article]
    All,

    We are major supporters of Natural Gas. Over 250,000 MW of new natural gas plants were constructed from 1995-2005. The capacity utilization factor on those plants is less than 40% or 60% idle. Utilities have no incentive to shut down their "rate base" coal plants, and there is excess capacity in existing NG plants. We built, contracted and managed many of these NG plants over the past decade. As for NG prices and producer valuations, the facts remain the same. The NG industry is over-levered, has over-committed to drilling rigs, land leases, and capital expenditures. In simple terms, the NG industry can't cover their fixed and variable cost until prices are sustained at $7-8/mmbtu for a consistent time period. Until that time, producers will continue to suffer financially, as they can't hedge forward at a premium given the substantial over supply and depressed prices, hence no pricing power. The market has a long way to go before the existing NG power plants already built are fully utilized, and economics support the new construction of additional NG plants, let alone the massive infrastructure required to be built/financed to fuel a trucking fleet or other vehicles with CNG across the U.S. NG may be the future, but the future is a long way off.

    Invest wisely!
    May 25 10:28 PM | 1 Like Like |Link to Comment
  • T. Boone Pickens' Extremely Bullish Energy Bets [View article]
    When you are long the industry, you are by definition "bullish" and have substantial self interest at risk.

    Boone is always bullish, nothing new here. When your over 80 like he is, your not betting on the market crashing. He needs the cash to create his legacy at OSU Athletic Department.

    We are short Energy complex; not so optimistic view of market at this point in cycle. Earnings premium is excessive for Oil/Gas producers in our view.
    May 25 10:15 PM | Likes Like |Link to Comment
  • 6 Oil and Gas Stocks With Continued Upside: Part VIII [View article]
    All,

    We maintain a buy rating on EOG, as the Comany management is very diciplined, has a very solid track record, and has made a credible transition to its production profile. EOG not leveraged (on and off balance sheet) nearly as much as CHK and does not rely upon lease, flip, sell forward to keep the lights on, like CHK.

    We maintain a Sell Rating on CHK.
    Apr 28 11:44 AM | 2 Likes Like |Link to Comment
  • 6 Oil and Gas Stocks With Continued Upside: Part VIII [View article]
    Don't see anything new here. We maintain a Sell opinion on the U.S. Natural Gas Producers. No pricing power, substantial over-production, very poor leveraged balance sheets.
    Apr 24 01:21 PM | 2 Likes Like |Link to Comment
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