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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 10:42 AM | 9 Likes Like |Link to Comment
  • Confessions Of An EV Pioneer Turned Heretic [View article]
    John: I agree with your assessment of the cold economics of EV's, as well as a number of other alternative energy schemes that have been stuck under my nose during working hours, usually by addle brained state regulators and others of the body politic.

    That said, you have to give deference to this fact: Humans are, to varying degrees, limitedly rational. Folks buy Ferraris, Rolls Royces, etc. There is no economic rationality in that. Rather, folks are buying a bundle of product attributes when they buy an auto. If folks wanna buy a wildly uneconomic, inefficient EV so they can impress their buddies in the Isaac Walton League, I say let'em. The market will clear.

    Just don't subsidize it. Let them have their EV straight up, no ice. Ditto for wind farms, Cow poop biodigesters, Marcellus shale wells, et al.

    You will never win the argument with those that like these alt-energy things. They just do. Rather, fight for NO subsidies. And when I say no subsidies, that's NO for windmills, oil wells, whatever. All energy production is a business. As such they should stand/fall on their merits. Every darn one of them.

    It's a logically principled and a far more winnable argument.

    Nothing is more powerful than ideas who's time has come. Keep giving voice to these ideas!
    May 3 04:04 PM | 9 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 03:08 PM | 8 Likes Like |Link to Comment
  • Why Batteries Are Too Valuable To Waste On Solar Power Integration And Electric Cars [View article]
    Two Comments:

    1) As an engineer, I'm embarrassed that a lawyer has to do an energy balance for the rest of us. Good job John!

    2) I agree with your general theme that use of batteries in ev's, load balancers on the grid, etc. is an exercise in economic silliness, I 'll just point out that many electricity consumers are not:

    a) fully rational in their energy economic choices
    b) fully rational in their purchase of other consumer goods.

    People buy Cadillacs, Suburus, etc. All are functional, but meet different consumer needs. EV's are no different. Not low cost, certainly, but they do provide a tangible badge for those that desire to be "greener than thou".

    Don't get me wrong. Nothing wrong with green. We should do it. But as John points out, it is not happening here when you take a hard look at the #'s.
    Mar 11 03:18 PM | 7 Likes Like |Link to Comment
  • A Natural Gas Stock With a High Dividend, Revisited [View article]
    Right stock, wrong reasons.
    1) As an IRA investment (a'la markbosje) it makes a lot of sense. Just keep stacking the $ in there. Tax comment raised by others certainly is a point of consideration for high income investors.
    2) The comparison of gasoline and natural gas is misleading. The U.S. has undergone a fundamental shift in it's perceived natural gas resource base. The trust has to make sense to you, dear investor, with a $4 to $5/MMBtu price deck for the for foreseeable future. There's just no reason to expect convergence between NG and any other fossil fuel. Markets are largely unique given the differing properties of each fuel.
    3) To me, investment in a royalty trust (SJT, MSB, HGT, etc) is akin to investment in a high yielding bond. The investor profile should be a person seeking lower risk, has a tax advantage (IRA, writeoffs elsewhere), and a GOOD understanding of commodities. Even though these royalty trusts trade like equities, they really aren't equities. They take a first position in the revenue stream, not a residual one.
    Sep 27 09:23 AM | 6 Likes Like |Link to Comment
  • Soros: Financial Crisis, 'Act II' [View article]
    Soros is a super smart guy, obviously, but he's ALWAYS talking his book, or perhaps more accurately, front running his book with his mouth. Salient situation is as he describes, but the color he puts on it - sure sounds like hes lined up in the gold bug camp.
    Jun 11 03:29 PM | 6 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 12:32 PM | 5 Likes Like |Link to Comment
  • Six Dividend Champions With Higher Yields (But Also Higher Payout Ratios) [View article]
    Mr. Fish:

    I'm a bit concerned about your use of Div Payout as a screen, that is, your desire to see high payout ratios.

    Let's face it - management HATES to cut dividends. Usually, is will adversely affect stock price, the institutional investors will give management what for, etc. So - it logically follows that companies with CONSERVATIVE payout ratios are better. The div is a quasi-fixed obligation, and having some cushion is a good thing. Business is risky, earnings variances are not normally distributed, and all of that. I feel a lot better about the surety of a 50% claim on a revenue stream than a 85% claim.

    Other than that - really good stuff!
    Oct 7 10:43 AM | 5 Likes Like |Link to Comment
  • BP: What Options Does an Investor Have? [View article]
    Stock has gone from $60-ish to $45-sh, so about $50 Billion of market equity has gone POOF! Now, I'll accept that a lot of this is probably market selloff, ie, beta, not alpha. But, BP's beta is 0.75. Using the S&P as a proxy, we've seen the market go from 1220 to 1120 or down 8%. If BP's beta is .75, then that's .08*.75 or 6% to market action, balance to Macondo, I guess.

    Using an energy ETF: (VDE) - high was 91, presently trading @ 81, drop of 9%. (USO) - 42 to 34 = 19% drop, but I think they have a BP position, so they don't count. (XLE) - 62 to 56 = 9.6%. So, I'm saying the oily stocks have a 9% hit due to CL pricing & market dreariness.

    The math: .09 x 193 (This is the approximate BP equity @ $60/sh) billion = 17.3 billion. Alpha (Macondo) valued at 50 - 17.3 or 32.7 billion?!?!

    Hmmm... a deep sea completion like this costs what? $500 million? Relief well another 500? Replacement another 500? Cost of a dead (and soggy) semisubmersible? 600 million Cleanup 2 billion? Lawsuits? 1 billion?

    Other cleanup #'s I've seen: $5 x $7 billion. Exxon Valdez in 2010 $:
    Settlement in 1991, all figures are millions USD:

    Environmental fine: $150
    Forgiven <$125>
    Criminal Liability $100
    Civil Settlement $900, structured over 10 yrs.
    Reopener $92
    Total (w/o discounting) $1,117

    CPI in 1991: 136
    CPI today: 215
    Postulated cost: 215/136 x 1117 = 1,766 Still way less than 33 billion. Point is: NO WAY to get to 33 B.


    I'm not saying you buy it today. I'm just saying that it's WAY overdiscounted, and it bears watching. Once the momentum traders get tired of jumping on it, it sure looks cheap 2 me.
    May 19 10:38 AM | 4 Likes Like |Link to Comment
  • US Steel - Should You Buy Now, Or Wait? [View article]
    IMHO, steel stocks, esp. Integrated steel stocks are just a proxy for the underlying commodity Hot Band (hot Rolodex steel sheet). Per the latest edition of AIST (Jan 2014 ed., p. 16), flat rolled capacity utilization is >90%. U.S. Hot rolled sheet is firm and increasing. All of the integrated sheet producers X, AKS, MT have very bullish charts. Regress stock prices against hot band prices and you'll see what I mean.

    Your thought on normalizing earnings and PE's over a 10 year cycle is a good thought as it dials out the hyper cyclical nature of this industry, as it starts to look at anomalous pricing vs. the underlying commodity. I used to do that, but it's too much work. These days, I just watch capacity utilization and the stock chart.

    Presently long X.
    Jan 6 10:34 AM | 3 Likes Like |Link to Comment
  • IEA Oil Release: A Counterproductive Idea and a Market Opportunity [View article]
    Personally, I see election politics at work. Oil is heading down anyway, given the softening of the economy. This action is "piling on" by the U.S. administration - allowing the election claim that "See - we broke the backs of the oilcos and OPEC". I agree that the action is conflicted as this does have a stimulative effect on the economy, but the primary motivator is probably political
    Jun 24 12:22 PM | 3 Likes Like |Link to Comment
  • Deficit Commission: How Mortgage Deductibility Affects Housing Prices [View article]
    Do we really think residential home buyers operate in this left-brained logical way? Really? C'mon. I'll agree that the math works. But many factors permeate consumer purchases.
    Dec 13 11:44 AM | 3 Likes Like |Link to Comment
  • Energy Watch: Should Regulators Require Drillers Build Preemptive Relief Wells? [View article]
    OMG - a theoretical physics professor opining about a risk mitigation activity far from his area of expertise - and it carries the weight of serious discussion. How far we've fallen.

    First off, happy Cajun is right. Every penetration of a hydrocarbon deposit creates another opportunity for a blowout. What risk has been mitigated? But then, we could always require a relief well for the relief well. You know - just to be sure.

    Second - let's be absolutely honest about BP's activities here (and I'm long BP). The well design was unsafe, driven by pointy headed accounting analysis, not sound engineering principles. The practices during drilling were unsafe, again driven by schedule and cost, not by actual well conditions. They had a "wet shoe" on the last casing string (bad cement job), the well was flowing (as evidenced by mud pit gain). The well gave every sign of needing additional work while it was still under control - and the management on site IGNORED this. "I'm 9 million red on my budget - horrors!" We all know the real horror now.

    That mindset is rooted in relentless adherence to budget and schedule. For this, Sr. Management @ BP deserves a horsewhipping.

    But then - that's the point. The solution isn't in the "relief well" solution. Structurally increasing the cost of energy exploration will drive more pointy headed accounting behavior, and misses the real problem. The real solution is sound well design and sound drilling practices. That's driven by sound management oversight. If you are going to demand anything - demand that!
    Jul 22 11:13 AM | 3 Likes Like |Link to Comment
  • Gulf of Mexico Oil Spill: Liability Payment Capacity View [View article]
    What was it Bernard Baruch said? Oh yes: "Buy when there's blood in the streets". Metaphorically apt and sound advice, as oil is the life blood of the world's economy. The longer this goes on (and I earnestly hope it doesn't go on one second longer than necessary), the more hysterical the rhetoric becomes, and the richer the opportunity will be for unemotional investors.
    Jun 3 09:26 AM | 3 Likes Like |Link to Comment
  • Is It Wrong to Exploit the BP Oil Spill for Profits? [View article]
    Oh really? What's happened here (BP Mocando) is deplorable - no right thinking person would dispute that. Should procedures, regulation, etc be revisited - absolutely.

    But other forms of deplorable exist, and you've glossed over them. Nondispatchable renewable energy at costs 5 to 10x what's available from fossil fuels would fit in this box. To say nothing about renewables inability to meet overall energy needs from the available (or projected) renewable energy resource opportunity.

    That future is neatly encapsulated by Spain, which has spent a ton on renewables. They don't dispatch well, Spain has spent their way into the poor house, and they are still dependent on imported fossil fuels. As Ayn Rand would say: "A is A". The world is what it is. Not what we would wish it to be.
    May 28 11:21 AM | 3 Likes Like |Link to Comment
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84 Comments
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