I’ve been keeping up on earnings for my companies as they post, but I haven’t quite had the spare time to translate everything I’m thinking into posts. It’s been a rapid series of reports and not quite enough time to write out my thoughts on the subject.
Rest assured, if there had been any big deviations from the plans, I’d tell you.
As HCLP has been a particularly precious position and given how closely I’m tracking, it merits special consideration.
The company guided in on revenues and missed on earnings (depending on who you ask). But neither of that matters. This is what is actually important:
The company continues to see rapid increases in demand for product. Tonight, in addition to reporting earnings, they also announced another amended contract that, and I quote, “…significantly increases the annual committed volumes under the agreement signed in March and extends the term by two more years.”
No, you’re not seeing things. HCLP just amended this same contract two months ago. I guess realities on the ground have already changed so much that they were afforded the luxury of re-renegotiating.
I look at the last press release from March, where they announced the original amendment to the Weatherford contract, which was to be in place for a further three years, at a specified (then higher) volume of sand, for a higher price.
So two months later, that contract has become a five year contract for even higher volumes.
Yes I do like the sound of that. You can bank on these developments flowing through the natural gas producers and well servicing sectors soon enough. High demand for sand means high demand for gas.
Natural gas inventory is at eleven year lows and there is lingering concern that adverse weather this year could put real pressure on refilling storage. This would translate to pressure on users for higher prices and alleviate much of the residual pessimism surrounding natural gas from 2011.
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I think a valid question would be, ….is the company making $$ on those contracts or do they impact the top line only?
The amendments you mentioned surely bode well if they are indeed banking some coin on the transaction.
I would assume they are definitely making money – and I base that on three things.
First, they are profitable already, and so I can reasonably presume they make money on every unit sold.
Second, as they are already making money, economies of scale are in play.
And third, even though the partnership missed expectations this quarter, they did so during a period of time when they are actively moving from producing just over 2 million tons of frac sand to just over 4 million tons of frac sand. This is being half accomplished by a recent acquisition, and half accomplished by raw force of ground up expansion. Both of which are going to incur added expenses with a delay of benefit. I expect that by this time next year, we will have four quarters of after-acquisition performance plus one quarter of after-expansion performance, which will couple to provide robust earnings growth.
I know most people use the leveraged ETFs as trading vehicles, but have you considered just throwing on a position with UGAZ and holding through the wild swings?
There would be days that it would get murdered, but the long-term, macro trend is towards higher gas prices, and it seems like if you could stomach the swings, it would be a massive, long-term gain.
That would require me to trust the ETF product (and by extension the administering bank).
I don’t. See TVIX
Fair enough – leveraged ETFs aside, what about the basic commodity ETFs? UNG for example, from the United Sates commodity fund group.
Tvix is an etn not an etf. I think that’s where the problems arose.
If you want to trade it why not just trade the futures? You can get better leverage than you would on the leveraged ETF’s AND you get better tracking, AND you aren’t getting fucked by how they structure their products, and when they have to roll their contracts forward, AND you would directly be trading the instruments in these funds without having to pay the bank a slice for structuring it.
Oh, and you can trade the futures on many platforms readily available to the retail investor for very modest fees and very good leverage terms (IB is prime plus 100bps last I checked)
Came across this and thought it was a good read, you may have already seen it but I’d love to hear your thoughts, if any (seems like there may be some valid concerns here, but not company specific risk per say) – http://www.businessweek.com/articles/2014-05-01/junk-bonds-fuel-the-shale-gas-boom
My opinion is that this will matter…eventually.
But we’re still so early in this cycle, worrying about that now and trying to pre-emptively strike against it – you’d just waste a bunch of resources and miss out on the big gains.
It does seem like a suckers game trying to short this, like picking up nickles in front of a steamroller as my old floor supervisor used to say.
As always, much appreciated. Thanks.
Been steadily adding to my HCLP position; now third largest in my portfolio. Thanks again.