Sunday, February 14, 2016
Stock advice in actual English.
Joined Sep 2, 2009
1,218 Blog Posts

OPEC Happily Pens Own Eulogy

Mideast Saudi Culture Janadriyah

I had figured that OPEC would at least, at this junction, try to act and save their own skin. Instead, they gave the weakest press release known to man, then smiled gaily about it.

The problem with OPEC’s strategy is that they are conflating oil share with profits. Somehow, they have gotten it into their heads that they can never make as much money with, say, a quarter of the market as they could with a third of it.

But at the end of the day, price can matter an awful lot too. Saudi Arabia in particular has decided that, for whatever reason, they must preserve the old production levels. Maybe it’s a status symbol. Maybe the new king is a moron. Maybe they just can’t add very well. But they are prepared to take on US levels of indebtedness in exchange for bragging rights.

It’s really coy. I just don’t know what to make of this. I bet a lot that they wouldn’t do something this deranged, yet here we are.

Saudi Arabia is saying that they won’t cut production unless non-OPEC members do. Uh huh…and how pray tell do they expect to organize that meeting? So much of the new production is private business, it’s not like you just call them all up on the phone.

For some unfathomable reason, Saudi Arabia thinks they can call the shots and have this all under control. Why such a small and widely disliked country would think that is beyond me. So my best guess is before this flood is over, the Saud family will be drowned by it. It takes a special variety of stupid to shoot holes in your own life boat.

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Saudi’s For The Save?

oil

This morning was all set to be a real shit show. The kind of day that makes ol’ Cain want to slit his wrists and watch the sun set. But then, just before the open, Saudi Arabia came out with some stern words for the oil markets, saving them from impending demise.

You see, Saudi Arabia just wants a fair deal; and to be recognized as SUPREME MASTERS OF THE OIL MARKETS. That’s not too much to ask for, is it? That a country representing less than 0.5% of the global population should have the absolute authority to dictate prices of a plentiful commodity found (thanks to advances in technology) pretty much everywhere.

Saudi Arabia wants to be the Federal Reserve, so to speak, of oil. They know in their hearts that they and they alone should have the capability to make wild eyed predictions and scribble down their own off the wall paranoia, and have those things be taken for the indelible fact for which they are.

That’s why Saudi Arabia felt the need, earlier last year, to utterly destroy the oil markets. Because it was their God given right to be in charge of those oil markets, and if they can’t be then no one will. Why should it matter that the good people of Saudi Arabia would have been inarguably better off if they had just accepted change and moved on? Sure, their finances wouldn’t be in complete shambles, but they would also be down one MASTER OF THE UNIVERSE hat. And as any gentleman knows, there is no price too high for a good hat.

Particularly when such hat says “MASTER OF THE UNIVERSE” written across the top of it.

So Saudi Arabia had to almost bankrupt half the planet’s oil and gas reserves, you see. Much like American Idol, if no one is watching, are you really a good singer? I mean, even if your singing is terrible and you’re like 10 years past needing to have the show cancelled and all the talented producers have already left, better to demand those camera’s keep on rolling, no?

So today, Saudi Arabia saved the oil markets; and will proceed to save the oil markets via jawboning every time they come under duress from now on. Why? Well because if they’re the ones talking when oil goes up, then they are obviously in charge still (even if we all know damn well they aren’t).

And isn’t that what really matters? Not technological innovation or stability of market pricing or running deficits one fifth of your national GDP…but love. Love, and of course the rights of a theocratic monarchy operating in the 21st century to destroy at least $500 billion of oil and gas debt and wipe out a couple trillion in market cap by operating against their own self interests?

But hey, at least the Saudi’s get to keep their fucking hat.

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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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The Drilling Hiatus Has Begun

02dbfe95f5

BAS just reported utilization numbers for October, and nestled in the release was this gem:

Drilling rig days for the month were 50 producing a rig utilization of 13%, compared to 27% and 88% in September 2015 and October 2014, respectively.

In the BAS earnings call, CEO Patterson gave advanced notice that this was happening. Basically, as companies hit their 2015 budgets in this awful environment, managers are just idling drilling fleets rather than bother asking for more. We should start to see drilling collapse to 0% over the last month and a half of the year.

This should be an almost industry wide phenomenon. Then, we wait and see if they come back online in January.

Of course oil prices are now screaming to $40, testing every nerve I possess. This is the most trying market I have ever had the bad luck of being caught in. Even in 2008 I had the good sense to get out while I still could.

Yet here I am, in the most milquetoast of economic situations, watching billion dollar companies being sliced into quarters for no reason other than some foreign devils decided they’d rather gamble away their very existence.

Good grief.

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In Hindsight, Today Will Be Important For HCLP

midway

HCLP and their bank reached a fast agreement on the compliance ratios. This is a big deal and I am very grateful for it. I almost turned tail and ran earlier this month when the threat of a breach surfaced in their earnings report. Sticking around has already proven fruitful (see the relief rally).

Hi-Crush Partners LP Announces Revolving Credit Facility Amendment

Houston, Texas, November 6, 2015 – Hi-Crush Partners LP (HCLP), “Hi-Crush” or the “Partnership”, today reported the completion of an amendment to its Revolving Credit Facility Agreement. The amendment, among other things, provides for a reduction in the commitment level from $150 million to $100 million, waives the compliance ratios through June 30, 2017 (the “Effective Period”), establishes certain minimum quarterly EBITDA covenants, allows distributions to unitholders up to 50% of quarterly distributable cash flow after quarterly debt payments on the term loan, and increases the pricing to LIBOR plus 4.50% during the Effective Period.

Accordingly, when HCLP has to take write offs early next year (they hinted at this) and they breach the old ratio limits, they will have a full two years to get back into compliance. And, as they have just suspended distribution, they should have plenty of cash to make that happen. Any recovery in oil prices over that time will obviously expedite the process, but I don’t have to count on such a hypothetical occurring in any timely manner now.

More importantly, their bank is labeling them a victor and communicating a commitment to making them work. Someone else will be getting the sharp end of the spear of destiny.

I am now all but completely confident that both of my remaining oil investments – HCLP and BAS – will experience full recoveries over the next few years.

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29% Relief Rally In HCLP

oil

Hi-Crush Partners L.P. is having a little party today, up 29% as of now and taking back some of the vicious losses from the last month. Oil prices are laying under $50 per share; a bleak reminder of the horror lying in wait for everyone in the U.S. oil and gas industry.

The once mighty WTI-Brent spread has been decimated, now barely $2 difference, having all but priced in the US opening domestic oil production for exportation. Or perhaps a global depression of shocking depth and scale. I can’t really tell for sure.

We are fast approaching the winter months, when production budgets for oil and gas companies reset. The next two months will be full of nightmarish stories playing out in real life. Bankruptcies will pick up, solvent firms will implement a drilling holiday anyway, and real hard decisions will be made about what are “core activities”. Non-essential (and especially money draining) operations will never reopen for business.

This should feed the narrative of a tightening market and help to shore up prices a little more. But then in January, with fresh budgets for the year, we’ll see what’s left turn the lights back on and set forward.

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