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  • Saudi Arabia reiterates no cut to output [View news story]
    The Saudi's goal is to cut off the financing for speculative E&P projects. They have to establish that is no reason good enough for them to ever cut production. It has nothing to do with the short term price. It is all about destroying the ability to get financing for speculative E&P projects.
    Dec 21, 2014. 11:25 PM | Likes Like |Link to Comment
  • OPEC has no target price [View news story]
    OPEC, and the Saudi's in particular, are crazy like a fox. This entire evolution is about neutralizing the source of funding for speculative oil exploration and production. There is no better way to do this than to say that 1) You will pump at your limit no matter what happens to the price and 2) since you will pump at your limit no matter what happens to the price there is no target price that will portend a change in policy.

    This stance will demonstrate to people with money to invest in new oil ventures that OPEC (and mainly the Saudi's) are no longer behaving the way they used to behave. It is now very risky to invest in the oil E&P business because there is no price floor.
    Dec 14, 2014. 03:51 PM | 2 Likes Like |Link to Comment
  • Saudi Arabia: Do The Math [View article]
    The Saudi's only need to demonstrate enough resolve that no bank will ever again loan money for speculative oil plays that depend on oil staying above a certain price. I think we can expect the Saudi's to continue to behave very irrationally, on purpose, to spook investors. Investors will not loan substantial money in an industry with an irrational player in the market. The Saudi's, by themselves, can ruin the oil production market for most players.

    In the end game of this strategy only E&P players who can self fund their exploration will be available to complete. Through the winnowing process the ones that are left will be more nimble for it - and they certainly will be able to turn up and down their production based on market dynamics.

    So, the Saudis are intent on driving out the marginally profitable producers, and those that survive will be nimble enough to continue to give Saudi Aarabia fits. They really are in a sorry strategic position, but it can improve for them.

    Once the players realize that the Saudi's are willing and able to defend their market share then I think a mutually agreeable distribution of market share will be worked out where everyone will produce less and thereby net more cash.

    Every ten years or so the Saudi's are going to have to remind the banks/investors that they are still irrationally attached to maintaining their market share. Occasionally other countries might have to be 'taught' that stepping out of line will only cost them money as the Saudi's amplify any overages by smaller players to make them (and every other producer) wish they hadn't been so indiscreet.

    And in North America production will be dominated by players with conservative balance sheets and a conservative approach to growth.
    Dec 6, 2014. 12:08 AM | 3 Likes Like |Link to Comment
  • FDIC sues 16 banks for rigging Libor [View news story]
    I think this is more sound than fury. Interesting perspective that they 'supressed the rate' which would both lower the earned interest the banks would have to pay and also the interest they could collect from new loans originated at the suppressed rate. Some may have been harmed and others certainly benefited. The legal arguments are going to be interesting to hear.
    Mar 14, 2014. 07:53 PM | 4 Likes Like |Link to Comment
  • WSJ: Chesapeake accused of underpaying gas royalties [View news story]
    I'm looking forward to understanding the accounting behind the claim. Perhaps the issue is the state taxes are too high for commercial property and PA is taking a larger cut than they deserve. There was no mention how PA's tax rate for producing property compares to other states. Then there are pipelines - or the lack thereof. What is the situation with midstream assets in the State of Pennsylvania and has the State hindered or promoted their construction? I'm just really suspicious that when these disputes get aired in the press that the real problem is not where it appears to be. Blame is being assigned by using the power of the pen - responsibility may lie elsewhere.
    Mar 12, 2014. 05:44 PM | 4 Likes Like |Link to Comment
  • BofA $8.5B mortgage settlement back in court [View news story]
    The new judge needed time to look it over. BAC got to keep their money a few more weeks. It sounds like the new judge has come around. It was a good play to suggest the $1 M per day payment while the (very) minority party held things up. All is good now and BAC can move on. Some people may think this a new $8.5B deal - buying opportunity for those with a memory.
    Feb 19, 2014. 05:26 PM | 1 Like Like |Link to Comment
  • CenturyLink: A Lost Connection To Growth [View article]
    Could you comment a bit more on the depreciation aspect. The leverage ratio is based on EBITDA and I was wondering if this is the best measure for a telephone company with lots of infrastructure being depreciated over a longer interval than equipment would be.
    Jan 28, 2014. 05:06 PM | Likes Like |Link to Comment
  • More on BofA being sued by the U.S. [View news story]
    Is there really a win-able case here? Purchasers of the MBS have lost about 9% after six years - or 1.5% a year. I would think BAC would have a pretty easy time defending their actions. In the housing boom times the default rate on mortgages was 1% per year. I'll be interested to see how this particular case plays out in civil court where the burden of proof is less stringent.
    Aug 6, 2013. 06:42 PM | 1 Like Like |Link to Comment
  • Chesapeake Sells Another Marcellus Package At Low Valuation: Transaction Analysis [View article]
    CHK needs a real boom in NG prices to clear some of their debt. That appears highly unlikely. They still need to invest to build their oil and liquids production. If I have read this right then they are selling mainly dry gas acreage that needs to be drilled quickly or the lease will expire. I think it is a natural consequence of the situation that these leases are not that valuable - or more accurately - the value has declined over time until it is very near expiration.

    CHK considers the properties for sale as non-strategic. This means to me that if they have no liquids then they need to go. CHK may have to sell some adjacent leases with liquids to move some of this property. I don't think they are in a position to drill on it just to hold it.

    If it is a dry gas lease then it is a waste of opportunity for CHK to pursue it and they have been able to increase their NG production with only a small focus on dry gas wells (9 drilling platforms). It appears the wet gas wells produce enough gas that they don't really need to pursue large scale dry gas drilling. They are leaving that for others.
    May 3, 2013. 09:40 PM | 2 Likes Like |Link to Comment
  • "This is a nuclear war on savings and wealth," writes Jefferies' David Zervos of the Cyprus bailout. "This is a policy move you expect from a dictatorial regime ... not in an EU member state. If the EU governments can clandestinely expropriate 7-10% of their (citizens' savings) after the close of business on Friday night, what else are they capable of doing ... Why keep your money at a Spanish or Italian bank when you can jump to Germany or France ... Why even keep money in the EU banking system at all." [View news story]
    Cypress has a choice. If the EU is going to treat them this way then they should leave the EU. I don't know the details of how they got into this predicament, but the EU appears to want to be rid of Cypress.

    This particular way of maneuvering Cypress to an EU exit will obviously backfire for the European banks in troubled markets - maybe even lead to an EU wide banking system. Whoa ... maybe that's the end game the EU has in mind.
    Mar 17, 2013. 09:29 PM | 3 Likes Like |Link to Comment
  • Read This Before You Invest In Chesapeake Energy [View article]
    I think you need to consider the $1.03B purchase price against CHK's market capitalization plus the outstanding debt. It becomes more like a 4% investment than an 8% investment.
    Feb 26, 2013. 10:32 PM | 1 Like Like |Link to Comment
  • McClendon's Departure Might Mark An Inflection Point For Natural Gas [View article]
    NG production is not falling. It was up a couple of percent from last year. Even though fewer and fewer wells are being associated with NG production there is NG being produced and captured when the intent is primarily liquids. I saw that Chevron and Exxon both reduced their NG production. CHK increased theirs. CHK has to do this to finance their transition to liquids - they need the cash. The trap is that at low price levels they don't make that much, and they can't cut back on production lest they actually lose money. CHK also isn't able to get a good price for their land/leases because of the low NG price and still high surplus levels. The company is trapped.

    How do they get out of this? They need to become a much smaller but profitable company. They need to sell a massive amount of land - enough to cover their debt and give them the necessary capital to complete the conversion to liquids. It must also be enough to fund operations for a couple of years - because they are going to cut back on NG production and let the price rise to more profitable levels. This will be a gut wrenching transition - the stock price will dive as traders grapple with the prospects of CHK actually pulling this off. This is the reason there is such a high short interest.

    The shorts play is that there is no other company willing to purchase CHK and take it through the transition for their own strategic reasons. There may be a company like that, or CHK could be broken up and sold in pieces - assuming the pieces are worth more than the debt and could actually be sold seperately. This is Icahn's play - a purchase or break-up.

    Place your bets.
    Feb 9, 2013. 12:14 PM | Likes Like |Link to Comment
  • Bank of America (BAC) is in talks to sell more than $300B in mortgage servicing rights, reports Reuters. The usual suspects: Ocwen (OCN), Nationstar (NSM), and Walter Investment (WAC) are among the firms angling for a piece. All 3 have jumped nicely higher in the last few minutes. [View news story]
    Is this thinking correct concerning the value of this deal? $300B in rights represents about 1.5M mortgages (at $200k each). I recall from previous MSR sales that they have sold for about $1000 apiece. So, that would be about a $1.5B deal, plus or minus.

    I don't think the article says they are selling the mortgages - this deal is for the service rights. The mortgages have probably already been sold. Wonder why they would be selling these now as mortgage servicing is set to be a good money maker as the number of foreclosures return to more average (normal?) level.
    Jan 6, 2013. 09:21 AM | Likes Like |Link to Comment
  • California's Attorney General has filed a civil suit against Phillips 66 (PSX) and ConocoPhillips (COP) for allegedly violating state law by failing to properly inspect and maintain underground gasoline storage tanks at more than 560 gas stations in California. The lawsuit accuses the companies of improperly handling and disposing of hazardous wastes and materials associated with the underground storage tanks at retail gas stations throughout the state, as well as tampering with leak detection systems. [View news story]
    Likely there is some interpretation of 'breaking the law' required. For example, what exactly is tampering? Do the detectors produce false positive indications? Do the operators reset the machines to see if they continue to indicate a variance? Is this resetting considered tampering? Where are the sensors located? If the sensor is moved is that tampering? If a sensor fails then how long is a reasonable time before it is replaced/repaired?

    There are likely a hundred shades of gray to be worked out by the lawsuit regarding what constitutes tampering. The State of CA has their view and the companies have a different view. Expert witnesses will be required. It will all be very expensive.
    Jan 3, 2013. 01:30 AM | 1 Like Like |Link to Comment
  • The latest lawsuit against Bank of America (BAC) is no surprise to FBR's Paul Miller (video), who thinks the $1B being tossed around is light. Of more concern is the ongoing battle between BofA and Fannie Mae on the amount of loans the GSE is demanding the bank buy back. Chris Whalen believes BofA may put Countrywide into bankruptcy to escape liability. Not so fast, says Miller, believing the two entities are far too intertwined. [View news story]
    I'm wondering if this is an admission that getting BAC to buy back the recent 'questionable' mortgages is not working and is not going to work. Maybe FNMA doesn't have a case for these loans and they are simply trying to strong arm BAC in a different way.

    Also, the government's success at winning these deals is nil. They are basically extortion. The banks will settle out of court to make the issue go away forever rather than continuing to litigate one hare brained idea after another about how FNMA managed to lose so much money and it was somehow the bank's fault.
    Oct 28, 2012. 01:00 PM | Likes Like |Link to Comment