Tuesday, September 27, 2016
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Prepare For BAS Bankruptcy

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BAS beat earnings estimates last night, as they have done for 2 quarters in a row now. And they are still losing money.

Tucked into the earnings release was a little bit about the company looking to negotiate with creditors and retained the law firm Weil, Gotshal, & Mangers. This is an early due diligence announcement that Chapter 11 is on the table, executive style. Shareholder equity also probably just went negative.

Unfortunately, lads, this is a no win situation. The environment is just too bad, their competitors are all going bankrupt (ironically giving them a competitive edge) and the oil markets will not recover quickly enough. We are turning a corner but it’s not coming fast enough.

If CJES is any guide, creditors will be taking ~95% of these companies in restructuring. I am severely disappointed.

I never thought this would go as far as it did. Even after actively taking steps to lower my exposure in mid 2014, I held a position in BAS and HCLP because I thought it could be saved. Mostly because I thought this despair was obvious to everyone, and that the key players (namely OPEC and the Saudis) would make smart people moves to avoid it.

Well, I am here to tell you, Saudi Arabia is not staffed by smart people. They are staffed by lucky sperm cells surrounded by lunatics. And the oil space bankruptcies are just getting started.

The funny thing here is that these bankruptcies are going to make the US shale market stronger and have the exact opposite effect the Saudi’s were banking on. Congratulations, Saudi Arabia: your budget is in tatters and now US oil will have a cost extraction basis $10 lower from swapping credit for equity and desperation driving sector operating costs down.

Suffice to say, Saudi Arabia are real dipshits.

But I am a victim nonetheless. Now, I am not going to sell out of BAS…because I have 95% losses baked in. Seriously, I could take the CJES 6% equity swap, have the stock rally back to $10, and still be where I’m at today. The damage is done.

But I held this position from 2011. This was an investment and the difference between 93% losses or 97% losses is immaterial.

If you’re a recent buyer, or just have money on the table you can’t afford to lose, get out. The company is filing later this year, I would guess. Probably even if oil prices and drilling recover.

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BAS Has A Terrible End To 2015, But Clinches A Financing Agreement

smoldering-ruins-of-african-americans-everett

As predicted, 2015 ended in as bad a manner as imaginable for the oil industry. Patterson had been calling for this since September or October, warning investors ahead of time that the entire oil patch was going to “take a little break.” 2015 numbers are abhorrent.

So what’s next? Well, we can expect a mild reprieve to occur when first quarter 2016 numbers come in. But competition is still bloody and someone isn’t making it out of this alive.

On that note, BAS earnings contained a little glimmer of hope. Yesterday, apparently, BAS was given a life line of $165 million in term financing. They are going to use this to escape the atrocities awaiting anyone stuck in revolving credit facilities with asset value provisions attached to them.

Term Loan Financing

On February 17, 2016, Basic entered into a Term Loan Credit Agreement with a syndicate of lenders and U.S. Bank National Association, as administrative agent for the lenders. This agreement provides for borrowings of an aggregate principal amount of $165.0 million on the closing date, and delayed draw term loan borrowings in an aggregate principal amount not to exceed $15.0 million. The obligations under the Term Loan Agreement will be secured by substantially all assets of Basic. Basic expects to borrow the initial borrowings of $165.0 million under the Term Loan Credit Agreement on February 26, 2016, subject to the satisfaction of closing conditions.

The term loan will bear interest at 13.5%. In addition, Basic will be responsible for the applicable lenders’ fees, including a closing payment equal to 7.0% of the aggregate principal amount of the commitments.

In conjunction with this financing, Basic intends to amend its existing revolving credit agreement, reducing the aggregate commitment from $250.0 million to $100.0 million.

Pro forma liquidity as of March 31, 2016, including this term loan would be approximately $220.3 million, including $23.1 million of availability under Basic’s amended $100 million revolving credit facility.

Unfortunately, BAS also burned $10 million in the fourth quarter. And I’m guessing this time Patterson wasn’t making an eccentric corporate buyout.

Your move, other companies. Let’s see who dies first.

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Nibbled On More BAS

Go To HELL

I added another percent or two to BAS, because at $2.00 any recovery will yield 1,000% style returns and at this junction a few percent doesn’t greatly affect my risk profile. The over half of my account that’s in cash is going to sit tight until we get more clarity.

The rally in oil last week was great, but I have bad news. This run on oil companies isn’t done yet.

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As an aside, this is interesting

Hi-Crush Partners LP and Liberty Oilfield Services Partner to Increase Completion Efficiencies in Colorado`s DJ Basin

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Japan Reactor Restarts Continue

nuclear-power-plant

I’ve held a growing position in CCJ since the Fukushima reactor melted down and outlook on nuclear power soured. It has done poorly, but I remain wedded to it. Within the next few years we are going to see pricing for uranium recover and the suppliers are going to do very well indeed.

The Japanese, continue their “patient” process of reactor restarts with courts finally clearing two more this month for reactivation. And of course, by “patient”, I mean “the Japanese are the slowest most irritatingly conservative people on the God damn planet”. But we are finally getting there nonetheless.

A Japanese court on Thursday ruled that two nuclear reactors could be restarted after the operator said in an appeal that they were safe. The Fukui District Court in western Japan lifted an April injunction that was filed by a group of residents who said that an earthquake exceeding the reactors’ quake resistance could cause a disaster similar to the Fukushima crisis set off by a March 2011 quake and tsunami. The order paves the way for a resumption of the Takahama No. 3 and No. 4 reactors, operated by the Kansai Electric Power Company.

The declaration of nuclear power’s death was more than premature. Nuclear power is not dying at all. At this phase, it looks like U308 pricing has set a bottom and the real price for uranium (actually recorded by non-distressed companies like CCJ) has remained higher than the quotes being pushed around on the internet.

For the moment the collapse of hydrocarbon pricing is actually taking the most immediate pressure point off the table for keeping nuclear around, but there are still plenty of reasons why the power source isn’t going anywhere.

The most basic of these reasons is just the broad need of power we have. The planet is advancing; the rest of the world is no longer content to let the West live in the lap of luxury, free from all hunger and cold to work on the most pressing problems of micro-aggressions, while they dig in the mud.

The population of Earth is heavily concentrated in the East. India and China alone make up somewhere around 37% of Earth’s population. As they progress into the late stages of a technological revolution, their demand for power is going to soar. Do you really believe the Chinese care where that power comes from?

China, India, the lot of them, are going to build out EVERY power source available. Coal, nuclear, oil, hydroelectric, wind, solar …if it can turn on a light bulb, it’s getting done. They aren’t going to restrict themselves because some uppity American twat really loves polar bears and aspires to maybe go see some one day.

Now some people are making the case that the recent UN agreement is actually paving the way for more nuclear. I’m not going to buy into that. I’d actually make the case that the UN climate agreement is 99% talk and hype and that there really isn’t such a thing as international law anyway, so only a handful of suckers are going to follow through with what’s written on that paper. The climate agreement’s primary purpose is to funnel billions of hard earned American dollars overseas to bank accounts of the well connected.

But the climate deal does highlight an interesting point. Countries have made pledges to halt emissions growth but those pledges are not completely imaginary. They do seem to be based on emissions expectations for the next few years. And those expectations have a lot of nuclear power built into them.

China is already in the process of doubling their nuclear fleet. Their goal is to quadruple that this decade.

On the Western front, faux-concerned rich people continue to insist that free power come from nowhere especially, which is ironic seeing the West is where Kelvin, Hess, Maxwell, and Gibbs were all born. But if the power flow is actually disrupted I would imagine the pitchfork (or more aptly AR-15) carrying mobs will snap these lunatics out of it. So if we are actually going to attempt to hit these emissions numbers, then there aren’t that many ways to do it.

There is a report floating around that says the US could be almost 100% renewables powered. Of course nobody actually read the report, because if they had you’d realize the extent of madness needed to get there. The point of that report was to discredit the “base load” argument, but the content of the report does a better job of supporting it. In order to completely phase out the traditional power sources, you would need to vastly overbuild the wind and solar sources. It would be extremely wasteful. Otherwise, the variance of power generation would cause problems in the grid.

So my guess is that, for instance, Germany’s insistence they’ll be completely nuclear free (and coal free, and natural gas free, and thermodynamics free) by the early 2020’s in complete crap. Actually, my guess is Merkel’s party gets thrown from power (for unrelated reasons) and reneging on that particular promise will be one of the first orders of business for whoever triumphantly stands over her.

In the US, natural gas generation growth and the sudden collapse of commodities is taking some nuclear power out of commission. I’m not sure if anything is going to reduce this trend, since the GOP doesn’t seem to be going anywhere and they don’t give two fucks about gimmicky fad concepts like “clean energy”.

But big picture, I think US and European reactors will experience only marginal decommissioning (from market pressure and equipment aging). I’m not betting those reactors get replaced just yet, but on the Eastern front, you’re going to see every reactor the West lets idle be replaced by 2 or 3.

These new models have even better safety records than the old 70’s and 80’s models running in the West – which are already basically mortality free – and my guess is seeing them operate will pave the way for a fleet upgrade here at home.

The goal of most countries should be to have a diverse mix of energy sources. In the US, entrenched coal generation has been challenged very effectively. But coal isn’t going away, it’s just going to drop to its even share of the load. Once other sources claim enough market share, they’ll hike prices until equilibrium takes incentives for further conversion off the table. Unfortunately for coal producers, that isn’t a good thing right now. But following enough bankruptcies, there will be room to edge back into the coal industry.

Globally I expect that to be a consistent theme. East countries need more nuclear power to get there (but they need more of everything anyway). South America has very little nuclear capacity and I wouldn’t be surprised if some build out occurs there as well. Europe and North America will slide as they let aging reactors be decommissioned and can’t work up the effort to replace them. The Middle East will continue to push for nuclear because it’s a nice fix to their geographical location, because competition between countries will pick up as one or two implement the source (and because each time they do, America freaks out and showers them with billions at the bargaining table). Africa just needs every source it can possibly get.

Global markets are still experiencing weakness, and demand is soft. But once we work through this patch, it’s back on. Energy is a great place to be for the next 10 years, if you can look past the pain right now. And uranium specifically is a good bet.

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Nibbled On BAS For $2.60

Man on phone

I made a small addition to my BAS position this morning for $2.60. It’s experiencing a low volume relief rally today but that is irrelevant, big picture. As far as I know BAS is going to $1.00 before any sector recovery and I am prepared for that.

I couldn’t just let the $2 price range go completely un-bought, could I?

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Sold Out Of OMAB

detroit

I traded out of OMAB, going into the bell, for $40.36 a share. I added +6.6% in price appreciation, plus another +3.8% in dividends collected, for a return of +10.4% over

This is just not that big of a return, but I need to be honest about how this year is going. I’ve taken write downs and it makes sense to offset those losses with gains wherever possible.

OMAB’s growth rate has been slowing down from the stellar +17% it was at the beginning of the year, now at around +12%. Double digit growth is still impressive but aside from that, at the end of the day, I was still the owner of a Mexican airline company.

The reasoning behind the position was to ride cheap fuel and a rebounding consumer. But after this past year, the last thing I need is any more fucker.

And Mexican companies are nothing but fuckery.

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