It’s Shocking Because It’s Normal

705 views

Today BAS was up 4.5%. I’d normally be elated by this kind of action, but I am not.

Because last Wednesday BAS was 20% lower. And the week before that BAS was where it is today. And the week before that BAS was 20% lower.

In fact I’d say generally speaking that watching a stock ratchet between $5 and $8 is a generally tempestuous experience that does things to mans sanity. Dark things. Quiet things.

Dark, quiet things.

I want those dark things to be done to oil short sellers now. He says to himself, slowly rocking in his 9th floor prison.

BAS Earnings Breakdown

3,213 views

I am watching BAS very closely, for reasons that should be plain. I dug into the most reason filing and have a few observations.

BAS lost $0.45 per share in the most recent quarter ($0.56 per share after further impairment of goodwill), driven by business disruption for lower prices and extreme cold weather. However, this loss was driven entirely by write downs and does not appear to have consumed cash.

Without asset impairment BAS had earnings of $0.11 per share. As of right now BAS operations appear to be conserving cashflow well. The most recent quarter, expenses exceeded revenues by about $10 million. BAS has $59.5 million in depreciation and amortization, leading me to believe that BAS operations are still cash flow positive.

BAS is aggressively cutting into payroll, reducing employees by 10% in the most recent quarter. They are negotiating with their customers, offering concessions to defend business, and even managed to mildly grow revenues in the most recent quarter as a result.

I do not expect BAS to hold this performance. That is asking too much. They are currently expecting revenues to decline by 21% to 26% sequentially. That is an enormous drop and more losses should be expected.

For the moment, BAS is well capitalized. They have $80 million in cash and an addition $233 million in revolving credit.

It is my belief that BAS will weather the storm. I trust their management to make the right moves here; they have done so before so this is not new territory for them. They are watching cash flows closely and will keep expenses in or around those levels to preserve the business.

I believe that BAS will succeed in keeping cash burn to some level that staves off any insolvency concerns for some years, thereby allowing them to outlast the recent downturn in oil prices. I also believe that BAS has competitors that are in much worse position than BAS.

BAS will survive, and BAS will flourish in the aftermath of this oil industry crisis.

BAS And VOC Ended The Day Higher

3,099 views

The title of this post more or less speaks for itself. We had a 7 million barrel inventory build, yet two positions most susceptible to that sort of thing recovered and wound higher anyway.

I fully understand the possible danger here, holding these oil names still even after the “joy” I experienced in the second half of last year. But in my estimation, there comes a point when men separate themselves from boys, and needless worrying is shown to be just that.

Humanity endures. And capitalism is to date the closest thing to humanity. You can pretend like the world is just going to sit tight and let calamity knowingly take hold. Or you can believe man will take the steps necessary to prevent such a thing.

In the early years after the depths of the Great Recession, I made some bets against humanity. I bet that oil would trade to $60 (it’s amusing seeing it happen now with me on the opposite side of the fence) and that there would be massive growth shocks. I lost then just as you’ll lose now.

Man endures. Job growth is coming back and early signs of life in wage growth are also creeping up. There are, as there have ever been, many many things that a man could concern himself with. Disease and pestilence, war and famine, corruption and malfeasance, natural disasters, savagery and every other possible thing in between.

But man endures still.

The most pressing problem for the US at the moment is the strength of the US dollar. This is why there is a $10 spread between WTI and Brent, and why US manufacturing is having some problems…because a strong dollar opens them to strong competition. Our manufacturing base has had an easy time of it lately.

But these are problems to be overcome and nothing more. Our trifles are the great boon of another. The oil will find its home. I am tired of these drab years and would very much welcome a return to the soaring spirits of the 90’s. Others are looking for a chance for optimism too. At the end of the day, many of our problems are just numbers on a page. And numbers on a page are hardly immutable.

No we shall overcome our problems.

And man will continue to endure.

Good Showing Today

1,480 views

Not bad all things considered. CCJ, HCLP, OMAB and TIS all went higher, with HCLP up more than 4%, OMAB up more than 3%, and TIS up more than 2%. BAS was down 1%, but this is a process.

BAS just recently announced their rig count numbers. Utilizations are way down, from 67% at the beginning of 2014 to 56% today. 4% has occurred just since the start of the new year.

Well? We’ve seen that these methods are more expensive. Now let’s see how cheap they can be. And who’s going to be around next year. My guess; BAS are champs.

If oil prices run back to $100 now that Russia has decided to play nice, I will die from laughing. The days of global competition are done; the USA is the victor. I know you defeatists want to apologize for our might – it’s nothing but luck of course, and that is somewhat true – and rekindle the “peaceful” yester-years of blood thirsty despots butchering the peasants for land and spoils, never ending. Save your breath.

Someone was going to win this game sooner or later, and it looks like that someone is us. Rather than wishing upon us another 1,000 years of savagery, suck it up and move on. You could hardly ask for a more genteel ruler than America, no? What other nation has ever spent this much time self-reflecting and prostrating over the vanquished?

Our President’s order is about to smote tens of thousands to ruin. And when he is finished, he will give a long, sophomoric lecture on the importance of civility and equal opportunity in the global marketplace. Could you imagine the look on the faces of Genghis Khan or Alexander the Great, if they could see such a spectacle? I imagine they would have both cast down their arms and retired to spend their final days as hermits.

What comes next is very important. The crowd is skittish, but today surely helped. We need Brent to breach $60 soon, and it would be very constructive if bond yields of the safe havens could, you know…yield something again.

The people are very scared of the Eurozone breaking up…for why, I could not possibly tell you. The euro has brought nothing but suffering on the nations of Europe. It was as if a spattering of intellectuals across the continent tried to trick Germans, French, Greeks, Italians, Spaniards, Finnish, Austrians, Belgians, Irish, Dutch, and Portuguese people into thinking they were all from the same place, like they wouldn’t figure it out.

It seems that way because that was exactly what happened. Such a brainless ploy. And almost set up to fail, from the beginning. The number of American economists, almost uniformly and unanimously across all walks of life, that laughed at this idea; it is incredible.

I will spoil the ending. Greece is going to walk away from the Eurozone, and nobody will care.

Did creating the Eurozone destroy the global economy in the first place? There were many currencies that were trading one day that didn’t the next. The euro came out and life went on. Reversing the process is no different, except at the end of the rainbow, Greece defaults and ruins their credit rating for a decade, and a bunch of banks get whacked (what else is new?). Then voila! we have a brand new example of what not to do when managing a country, as Greece becomes the butt of jokes for a half century (see France as to fighting wars or Venezuela as to not being filthy animals, for reference).

I remain cash heavy for now, but am looking for that moment when people start getting excited again.

A Messy Process

1,909 views

I am getting constructive on oil markets, and starting to feel more comfortable with my BAS, VOC and HCLP positions. I may just edge in a little further, in another month or so.

I understand how dark prospects for oil are right now; we have numerous estimates calling for the total dismantling of oil, sending it into the $20’s, and suddenly those forecasts aren’t feeling quite so fanciful. It’s the fear creeping up in people.

But how many of these forecasts existed before last October? Tell me that, will you? Back in July, it was only a matter of how many $10’s we could stack on top of the $100 mark. Nobody I know was seriously calling for sub-$40 oil. Even those of us who were expecting a pullback had the $70-90 range as a guide. Which is why almost everybody long got smoked. Even scaling a position back to half the size wasn’t enough to escape this (trust me I know).

Which leads me to think a lot of these “experts” talking up ultra cheap crude oil are just trolling the public. Goldman Sachs has a pretty horrible record of forecasting commodities, actually. That’s not how commodity storage facilities work – there you have cheap cost to store and opportunistic offerings and purchases. You also have a futures trading desk which you can tie into to cooperate with. But you still don’t know what’s going to actually happen. You just roll with it and make money as you can.

Names like BAS are chopping 8% every other which way. But they are working a floor in, and steadily, slowly, offering higher prices.

And what about the demand for crude globally? Yes there was a (not really that) significant excess supply gap, which is growing. But that gap existed with $100 crude oil and well development pricing in $100 crude oil. We are seeing just massive layoffs as the industry reacts to new facts on the ground. So future supply is being taken offline.

And to boot, oil is cheap now. So cheap.

Look at industrial output in the Eurozone; one part oil prices, one part a cheap currency. Is that killing the US? Nope, we seem to be absorbing the currency strength but still happily putting along. Cheap oil lifts all boats. I was very concerned that oil prices would make a serious headwind to the US – and certainly on some level it is, gross – but net jobs are working out fine as any complications from the Dakota’s are being more than offset.

Currency games are fun, but net economic growth is all that really matters at the end of the day. If a few thousand losses in one spot beget a few thousand gains in another, then activity will continue apace and crude demand will keep growing. You’re only really in trouble if you start getting net losses.

I think the oil market got way ahead of itself as unabashed speculators got their comeuppance. This is drawing to a close and I wouldn’t be surprised if oil abruptly rediscovers that $70-90 range we all sort of guessed was a fair price. I would not count on crude oil hanging out at levels from the 20th century, because that’s just not how extraction costs have trended.

And ultimately, no matter what crude oil does, I think there are going to be limits to how much devastation we see in oil companies. It doesn’t take much to swing the oil market back into balance; the imbalance is really not that significant. If oil sustains these prices, it will be because it is profitable for enough US shale companies to do so. If US shale cripples, you are going to see way more than just US shale cripple. Which is sort of a Catch 22.

It’s Shocking Because It’s Normal

705 views

Today BAS was up 4.5%. I’d normally be elated by this kind of action, but I am not.

Because last Wednesday BAS was 20% lower. And the week before that BAS was where it is today. And the week before that BAS was 20% lower.

In fact I’d say generally speaking that watching a stock ratchet between $5 and $8 is a generally tempestuous experience that does things to mans sanity. Dark things. Quiet things.

Dark, quiet things.

I want those dark things to be done to oil short sellers now. He says to himself, slowly rocking in his 9th floor prison.

BAS Earnings Breakdown

3,213 views

I am watching BAS very closely, for reasons that should be plain. I dug into the most reason filing and have a few observations.

BAS lost $0.45 per share in the most recent quarter ($0.56 per share after further impairment of goodwill), driven by business disruption for lower prices and extreme cold weather. However, this loss was driven entirely by write downs and does not appear to have consumed cash.

Without asset impairment BAS had earnings of $0.11 per share. As of right now BAS operations appear to be conserving cashflow well. The most recent quarter, expenses exceeded revenues by about $10 million. BAS has $59.5 million in depreciation and amortization, leading me to believe that BAS operations are still cash flow positive.

BAS is aggressively cutting into payroll, reducing employees by 10% in the most recent quarter. They are negotiating with their customers, offering concessions to defend business, and even managed to mildly grow revenues in the most recent quarter as a result.

I do not expect BAS to hold this performance. That is asking too much. They are currently expecting revenues to decline by 21% to 26% sequentially. That is an enormous drop and more losses should be expected.

For the moment, BAS is well capitalized. They have $80 million in cash and an addition $233 million in revolving credit.

It is my belief that BAS will weather the storm. I trust their management to make the right moves here; they have done so before so this is not new territory for them. They are watching cash flows closely and will keep expenses in or around those levels to preserve the business.

I believe that BAS will succeed in keeping cash burn to some level that staves off any insolvency concerns for some years, thereby allowing them to outlast the recent downturn in oil prices. I also believe that BAS has competitors that are in much worse position than BAS.

BAS will survive, and BAS will flourish in the aftermath of this oil industry crisis.

BAS And VOC Ended The Day Higher

3,099 views

The title of this post more or less speaks for itself. We had a 7 million barrel inventory build, yet two positions most susceptible to that sort of thing recovered and wound higher anyway.

I fully understand the possible danger here, holding these oil names still even after the “joy” I experienced in the second half of last year. But in my estimation, there comes a point when men separate themselves from boys, and needless worrying is shown to be just that.

Humanity endures. And capitalism is to date the closest thing to humanity. You can pretend like the world is just going to sit tight and let calamity knowingly take hold. Or you can believe man will take the steps necessary to prevent such a thing.

In the early years after the depths of the Great Recession, I made some bets against humanity. I bet that oil would trade to $60 (it’s amusing seeing it happen now with me on the opposite side of the fence) and that there would be massive growth shocks. I lost then just as you’ll lose now.

Man endures. Job growth is coming back and early signs of life in wage growth are also creeping up. There are, as there have ever been, many many things that a man could concern himself with. Disease and pestilence, war and famine, corruption and malfeasance, natural disasters, savagery and every other possible thing in between.

But man endures still.

The most pressing problem for the US at the moment is the strength of the US dollar. This is why there is a $10 spread between WTI and Brent, and why US manufacturing is having some problems…because a strong dollar opens them to strong competition. Our manufacturing base has had an easy time of it lately.

But these are problems to be overcome and nothing more. Our trifles are the great boon of another. The oil will find its home. I am tired of these drab years and would very much welcome a return to the soaring spirits of the 90’s. Others are looking for a chance for optimism too. At the end of the day, many of our problems are just numbers on a page. And numbers on a page are hardly immutable.

No we shall overcome our problems.

And man will continue to endure.

Good Showing Today

1,480 views

Not bad all things considered. CCJ, HCLP, OMAB and TIS all went higher, with HCLP up more than 4%, OMAB up more than 3%, and TIS up more than 2%. BAS was down 1%, but this is a process.

BAS just recently announced their rig count numbers. Utilizations are way down, from 67% at the beginning of 2014 to 56% today. 4% has occurred just since the start of the new year.

Well? We’ve seen that these methods are more expensive. Now let’s see how cheap they can be. And who’s going to be around next year. My guess; BAS are champs.

If oil prices run back to $100 now that Russia has decided to play nice, I will die from laughing. The days of global competition are done; the USA is the victor. I know you defeatists want to apologize for our might – it’s nothing but luck of course, and that is somewhat true – and rekindle the “peaceful” yester-years of blood thirsty despots butchering the peasants for land and spoils, never ending. Save your breath.

Someone was going to win this game sooner or later, and it looks like that someone is us. Rather than wishing upon us another 1,000 years of savagery, suck it up and move on. You could hardly ask for a more genteel ruler than America, no? What other nation has ever spent this much time self-reflecting and prostrating over the vanquished?

Our President’s order is about to smote tens of thousands to ruin. And when he is finished, he will give a long, sophomoric lecture on the importance of civility and equal opportunity in the global marketplace. Could you imagine the look on the faces of Genghis Khan or Alexander the Great, if they could see such a spectacle? I imagine they would have both cast down their arms and retired to spend their final days as hermits.

What comes next is very important. The crowd is skittish, but today surely helped. We need Brent to breach $60 soon, and it would be very constructive if bond yields of the safe havens could, you know…yield something again.

The people are very scared of the Eurozone breaking up…for why, I could not possibly tell you. The euro has brought nothing but suffering on the nations of Europe. It was as if a spattering of intellectuals across the continent tried to trick Germans, French, Greeks, Italians, Spaniards, Finnish, Austrians, Belgians, Irish, Dutch, and Portuguese people into thinking they were all from the same place, like they wouldn’t figure it out.

It seems that way because that was exactly what happened. Such a brainless ploy. And almost set up to fail, from the beginning. The number of American economists, almost uniformly and unanimously across all walks of life, that laughed at this idea; it is incredible.

I will spoil the ending. Greece is going to walk away from the Eurozone, and nobody will care.

Did creating the Eurozone destroy the global economy in the first place? There were many currencies that were trading one day that didn’t the next. The euro came out and life went on. Reversing the process is no different, except at the end of the rainbow, Greece defaults and ruins their credit rating for a decade, and a bunch of banks get whacked (what else is new?). Then voila! we have a brand new example of what not to do when managing a country, as Greece becomes the butt of jokes for a half century (see France as to fighting wars or Venezuela as to not being filthy animals, for reference).

I remain cash heavy for now, but am looking for that moment when people start getting excited again.

A Messy Process

1,909 views

I am getting constructive on oil markets, and starting to feel more comfortable with my BAS, VOC and HCLP positions. I may just edge in a little further, in another month or so.

I understand how dark prospects for oil are right now; we have numerous estimates calling for the total dismantling of oil, sending it into the $20’s, and suddenly those forecasts aren’t feeling quite so fanciful. It’s the fear creeping up in people.

But how many of these forecasts existed before last October? Tell me that, will you? Back in July, it was only a matter of how many $10’s we could stack on top of the $100 mark. Nobody I know was seriously calling for sub-$40 oil. Even those of us who were expecting a pullback had the $70-90 range as a guide. Which is why almost everybody long got smoked. Even scaling a position back to half the size wasn’t enough to escape this (trust me I know).

Which leads me to think a lot of these “experts” talking up ultra cheap crude oil are just trolling the public. Goldman Sachs has a pretty horrible record of forecasting commodities, actually. That’s not how commodity storage facilities work – there you have cheap cost to store and opportunistic offerings and purchases. You also have a futures trading desk which you can tie into to cooperate with. But you still don’t know what’s going to actually happen. You just roll with it and make money as you can.

Names like BAS are chopping 8% every other which way. But they are working a floor in, and steadily, slowly, offering higher prices.

And what about the demand for crude globally? Yes there was a (not really that) significant excess supply gap, which is growing. But that gap existed with $100 crude oil and well development pricing in $100 crude oil. We are seeing just massive layoffs as the industry reacts to new facts on the ground. So future supply is being taken offline.

And to boot, oil is cheap now. So cheap.

Look at industrial output in the Eurozone; one part oil prices, one part a cheap currency. Is that killing the US? Nope, we seem to be absorbing the currency strength but still happily putting along. Cheap oil lifts all boats. I was very concerned that oil prices would make a serious headwind to the US – and certainly on some level it is, gross – but net jobs are working out fine as any complications from the Dakota’s are being more than offset.

Currency games are fun, but net economic growth is all that really matters at the end of the day. If a few thousand losses in one spot beget a few thousand gains in another, then activity will continue apace and crude demand will keep growing. You’re only really in trouble if you start getting net losses.

I think the oil market got way ahead of itself as unabashed speculators got their comeuppance. This is drawing to a close and I wouldn’t be surprised if oil abruptly rediscovers that $70-90 range we all sort of guessed was a fair price. I would not count on crude oil hanging out at levels from the 20th century, because that’s just not how extraction costs have trended.

And ultimately, no matter what crude oil does, I think there are going to be limits to how much devastation we see in oil companies. It doesn’t take much to swing the oil market back into balance; the imbalance is really not that significant. If oil sustains these prices, it will be because it is profitable for enough US shale companies to do so. If US shale cripples, you are going to see way more than just US shale cripple. Which is sort of a Catch 22.

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