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gausmus

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  • Going All-In On SandRidge Energy [View article]
    Answer me these questions three:

    1) Can Ward be dislodged? Enterprise value is binary on this point. He still (apparently) has the support of the Prem Watsa, the "Buffet of Canada". Who else?

    2) Is the Mississippian an economic play? Most/all of it? SD's management has a huge credibility problem. Can anything they say be believed? See SD article posted on SA "What Happened to the Economics of Sandridge's Mississippian Wells?" A pretty good deep dive on the company's primary asset. The author went back back and plotted the production curves, compared them to SD's publicly claimed economics, came to a 'NO' answer. In fairness, another analysis by Braden Holt, also posted on SA, was a bit more positive. Mr. Holt still professes skepticism on the economics of the entire play.

    3) Presuming Ward, et al are kicked out, does the ugliness stop there? It would seem that the Board of SD would have a fiduciary responsibility to go after the WC Trust, and perhaps other assets of the Ward family. That will be a distraction.

    The whole problem here is that the investment is an up/down bet on the exit of the current management team. Why do that when there's so many other transparently managed O&G firms that have great economics and upside? Then, you can look at the stuff you are supposed to look at, like cashflow, growth opportunities, multiples.

    It's just a darn shame. A founder with this kind of smarts and drive, so blatantly engaged in self dealing; treating the shareholders like marks waiting to be fleeced. And the market discounts accordingly. SD could be a good deal for everybody, and probably a better deal for the Ward family. It makes you wonder what's going thru his head.
    Jan 7, 2013. 10:42 AM | 9 Likes Like |Link to Comment
  • A Tale Of 2 Companies - Consolidation In The Global Steel Industry [View article]
    Jeffery: As a former steel industry executive and as someone whose company sells into the steel industry, I read your article with interest. I will gently point out that there may be a logical point in your article that requires some revision of your work.

    You are correct about overcapacity. That is a simple math exercise. And you are correct that, under normal circumstances, the capacity would be winnowed, leaving the better mills/management holding the remaining capacity.

    BUT - As you have stated: "The fractured state of the global steel industry is due to the industry's historic role as a primary engine of a country's economic development." This historic role (development) usually means that state sponsored capacity can and does operate below full absorbed cost. For years on end.

    Nucor is hardly the first to suggest consolidation. Lakshmi Mittal (ArcelorMittal) has preached this for years; was the central force in industry consolidation for most of the period 2000-present.

    Now faced with uneconomic capacity in France, Mr. Mittal had his head handed to him by the French govt. for having the temerity to suggest that +/- 600 uneconomic jobs should be eliminated. Threats of nationalization over 600 jobs?!?

    So, I guess I'm saying that I am not sanguine that this consolidation will come without years of subsidization by national governments. My view is that overcapacity will persist.

    Steel, Energy, and Airlines are the playthings of misguided governments seeking to "develop" their economy with state sponsored investment.

    I'd argue an alternative future: The steel biz will continue to be the profitless zombie industry it has been since the 1970's.

    And what a shame. Nucor, Steel Dynamics, and the mills along the lakefront in NW Indiana are among the leaders in the industry for competitive cost structures. In a fully rational market, they'd have no problem. With France, China, et al operating capacity to export unemployment, I'm not so sure anymore.
    Dec 3, 2012. 06:14 PM | Likes Like |Link to Comment
  • The French government says it has found an industrialist willing to invest €400M to renovate ArcelorMittal's (MT) Florange steelworks in eastern France. Raising pressure on MT to agree to a sale, the industry Minister says the interested party is a private steel industry investor who wants to inject money into the site with financial backing from the state. MT +1.2% premarket. [View news story]
    Let us not forget history: Arcelor was the amalgamation of 3 money losing national steel companies, the resultant entity was at the public trough of all three countries (Spain, France, Belgium) in direct and indirect ways. Corporate welfare is a multigenerational activity in Europe, I guess.
    Nov 29, 2012. 09:03 AM | 1 Like Like |Link to Comment
  • The steel industry is suffering from chronic over capacity, with production ability of 1.8B tons but expected 2012 orders of just 1.5B tons. And instead of cutting back, the sector is building more mills, often supported by governments. Major problems include the fragmentation in the industry and the political difficulties of closing plants - witness ArcelorMittal's (MT) travails in eastern France. [View news story]
    "Chronic overcapacity....[irrat... Government Support"? Thus it always has been in this industry. Perhaps a better way to think of it: Some players (ArcelorMittal, et al) are in it for the $. Others (Hollande, China) are in it to create jobs, or rather, to export their unemployment.

    Lakshmi Mittal got his start buying govt. owned/subsidized steel mills when their government sponsors got tired of the endless drain on the national treasury. Sure, Mr. Mittal (who I admire greatly) gave these assets the tough love they needed to make Revenues > Costs. That's what owners do!

    France should consider:

    1) The company predecessors of Arcelor were wards of their governments (France, Spain, Belgium). For Hollande to step in at this point and threaten nationalization ignores a sad and recent history in the FRENCH steel industry.

    2) If anybody can make a steel mill profitable, it's Mr. Mittal. His "street cred" on this point is legendary. Should France succeed in wresting control of this plant from ArcelorMittal, it almost guarantees an ongoing drain on the FRENCH treasury.

    So jev - I agree with your "defragmente" comment. Mr. Mittal does as well, and has said so in the press many times. But it will not work with Hollande & his sychophants roaming the earth unfettered by a moral code and clear business purpose.

    This is a very black mark on the history of French commerce.
    Nov 28, 2012. 01:17 PM | Likes Like |Link to Comment
  • I Don't Understand Dividends [View article]
    Well, George, you certainly have a point. The rationale for div's are 1) the Clientele effect (described in practice above). Some investors prefer them, some don't --and-- 2) Discipline. As long as you have management that acts in the best interest of shareholders, no problemo. One need not look too far (CHK and SD being recent examples) of a management acting in a manner that could be reasonably interpreted as misaligned with shareholders. Div's take $ of the hands of rascally management. Of course, as investors, we seek to avoid these folks, right?
    Nov 20, 2012. 08:06 AM | Likes Like |Link to Comment
  • SandRidge Energy (SD) adopts a shareholder rights plan and amends its bylaws to require a majority vote of stockholders to appoint directors. Two major shareholders have criticized the company and CEO Tom Ward in recent weeks, urging "a strategic sale or sensible development of assets" to boost shareholder value. SD -1% AH. [View news story]
    Entrenchment.
    Nov 19, 2012. 06:17 PM | Likes Like |Link to Comment
  • SandRidge Energy: Should Tom Ward Go? [View article]
    Tom Ward built the company, and for that he should be recognized and paid. Both things have occurred in full measure. But - let's look forward, not back.

    How to build a company is not at issue here. How to make it reflect full value is. By the only objective measure that matters (the market), SD's management is wanting.
    Nov 14, 2012. 01:40 PM | Likes Like |Link to Comment
  • SandRidge Energy: Should Tom Ward Go? [View article]
    Assets all over the place. Good ones. But Management can't figure out out to make the development budget fit inside the properties ability to throw cash. Management brags about having 12-15 years of drill sites under lease in the Mississippian. SO - shareholders get to carry that stone around for 15 years before they see cash? Come on. What business has 15 years of raw materials parked out the back door? And management brags about this? SD - Rightsize your asset base. In a thoughtful, transparent way.

    Then there's production property purchase in the Gulf. How is that accretive?

    Finally, there's the communication problem you mention. The response to the TPG-Axon letter was a classic. Let me paraphrase: "We (SD) disagree with TPG's assessment of the situation. We'll talk to them. That's all for now, shareholders."

    Tom Ward and Co. need to figure out that the point of a business is to make the owners richer. Not to drill every well you can. Not to snarf up every lease you can. Not to grab every drop of oil you can. Make it cashflow. Get your credit rating back. Cull your assets.

    It's so darn simple. And some management team is gonna do it, either Tom Ward et al or the next group. But it will happen. Meanwhile, shareholders will suffer.
    Nov 13, 2012. 03:08 PM | 8 Likes Like |Link to Comment
  • Haynesville Shale Production - 2013 Will Be The Year It Finally Starts Dropping [View article]
    devon shire: Simmons-International in Houston, a boutique buy-side shop that specializes in energy has done some really nice work on Hayesville and other shale plays. Talk to them.
    Oct 29, 2012. 01:27 PM | Likes Like |Link to Comment
  • Haynesville Shale Production - 2013 Will Be The Year It Finally Starts Dropping [View article]
    A third possibility (well, actuality). the industry has learned to accelerate the spud to completion cycle, increasing the # of wells per active rig,

    and,

    The industry has learned to complete the wells far more effectively than the orignal horizontal wells. Average Initial potentials and average ultimate recovery (estimated) are up.

    Both of these incremental improvements have done much to support production volumes.
    Oct 29, 2012. 12:32 PM | 5 Likes Like |Link to Comment
  • Five suitors are interested in acquiring one or both of ThyssenKrupp's steel mills in Brazil and the U.S. following the first round of bidding for the assets, Die Welt reports. ArcelorMittal (MT) is interested in the steel finishing plant in Alabama, while other potential buyers include Brazil's Vale (VALE), South Korea's Posco (PKX) and Japan's JFE Steel. (previous[View news story]
    Why would anyone build a new mill when such a nice, gently used one is available at a discount? New build = wealth destruction right now.
    Oct 10, 2012. 11:00 AM | Likes Like |Link to Comment
  • What To Expect When Cliff Natural Resources Reports Earnings [View article]
    Revenue = Price x Quantity. U.S. steel production has been turning in 20 month lows the last few weeks, volumetrically speaking. Low Q. CLF has to be taking it on the chin as US producers down opt in their mine partnership agreements. Agree that all the stimulus $ will get to CLF eventually - but not anytime soon. Internationally, BHP is laying off.

    Point is, it's all timing on these commodity stocks. Think you are a little early.
    Oct 10, 2012. 07:57 AM | 1 Like Like |Link to Comment
  • ArcelorMittal: A Steel Maker With Solid Growth Potential And A 4.35% Dividend [View article]
    Two questions:

    1). Is the dividend sustainable? X, MT, AKS have been on the "trail of tears" for some time now. Eurpope's travails are a particularly heavy weight on MT's stock price/earnings power.

    2) what are the intentions of the Mittal family? The Arcelor/Mittal Steel merger can be understood as a liquidity event for the family. What's their next move?

    I have no idea what the answers are. But the questions need answering before investing.
    Oct 9, 2012. 12:54 PM | 2 Likes Like |Link to Comment
  • ThyssenKrupp (TYEKF.PK) is considering selling its two-year old $5B high-tech steel plant in Alabama and its $6.8B facility in Brazil after a strategy to transport slabs from the latter facility for processing into high-grade sheets in the U.S. factory led to massive losses. Those officially or unofficially interested in the Alabama plant include Nucor (NUE), U.S. Steel (X) and ArcelorMittal (MT). [View news story]
    With U.S. production at a 20 month low, capacity has to exit.
    Oct 2, 2012. 06:54 AM | Likes Like |Link to Comment
  • Siemens (SI), GE and start-up backed by Bill Gates are among those developing different methods for storing surplus energy. It's not just about batteries, with one technique using excess electricity to pump compressed air into caves and then releasing that air to generate power when needed. The storage is needed to cope with the vagaries of solar and wind energy. [View news story]
    In re: JohnInMA's comment. You are right as to the opportunity cost and the marginal cost of operating a generation facility. There are times when the capacity to produce power (or shed load) is very valuable and thermal efficiency doesn't matter. That said, the project still has problems from two perspectives.

    1) The clock hours in a year when capacity is valuable are few in number. These numbers are publicly available from MISO, PJM, ERCOT, etc. So, the project must make sense vs. other alternatives (load shedding, predominantly). New gas fired capacity is maybe $1200/kW, which is a tough price target for compressed air facilities. Load shedding is even cheaper than that, and we've only scratched the surface of this resource in the U.S.

    2) Even if you can get past 1), the project has to overcome the triviality issue, ie, a 1 or 2 MW capacity project is too small to have any meaningful change in the capacity/demand balance at the ISO or utility level. And that's what matters.

    There's another test out there that all should consider. Investor owned utilities have a very low cost of capital and every incentive to invest (that's how they earn, after all). If the IOU's could dream up a scenario that showed benefit to ratepayers, these things would pop out of the ground like toadstools after a summer rain. They don't. That speaks to the (non) viability of this technology very loudly.

    Those outside the industry can hope, dream, imagine. Investors (that's what Seeking Alpha is about, right?) will take a pass absent subsidies pointed at the technology.
    Sep 5, 2012. 08:47 AM | Likes Like |Link to Comment
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