I like Oil

[Mulligan]

Quote:

Originally Posted by Mulligan Aaron do really understand the mechanics of this company? The cross default possibilities of bonds? The finances of these LLC's can be very hard to understand. If you were just saying this is your "gambling account", I could completely understand the risk/reward ratio. But 1/3 of your net worth? If you haven't studied the financials, the debt to equity ratio (over 4-1, last info I saw), Bond ratings ( progressively sinking, B2 negative and that was 6 months ago), and the financing mechanism's of this LLC (way over my head to begin to understand), I would be very leery of anything more than fun money gambling on this. But full disclosure, I am a conservative investor. Sent from my iPad using Tapatalk

Here was the latest debt ratings and now the Seadrill family is down to Caa2... Here is a link. If it isnt understandable to you, I wouldnt be investing 1/3 of my money in it.
https://www.moodys.com/research/Mood...ook--PR_344520



Sent from my iPad using Tapatalk

[petershk]

Quote:

Originally Posted by aaronc879 Do you think the dividend will stay put if the share price is under $4.00? If the dividend is secure, I may buy 12,000-15,000 shares. That's $12,000-15,000/yr income. That's enough for me to live on. I could retire if that dividend doesn't get cut. Too risky? 15,000 shares at $3.50/sh would require nearly 1/3 of my investable net worth.

Yeah if I was asking people in the forums here if I should put 1/3 of my money in a holding that tells me I don't understand the company well enough to do it no matter what they say.

I'd go further... would you put everything you own into it? And proceed with research until you're pretty sure.

Personally their debt load is high enough that in the current environment I would not. But I haven't looked that closely.

Sent from my HTC One_M8 using Early Retirement Forum mobile app

[aaronc879]

Quote:

Originally Posted by petershk Yeah if I was asking people in the forums here if I should put 1/3 of my money in a holding that tells me I don't understand the company well enough to do it no matter what they say. I'd go further... would you put everything you own into it? And proceed with research until you're pretty sure. Personally their debt load is high enough that in the current environment I would not. But I haven't looked that closely. Sent from my HTC One_M8 using Early Retirement Forum mobile app

Their debt load is only one factor. The other being whether or not oil price is going to go up in the next year or two. If oil goes back to 60+ then their debt won't matter because they'll be able to pay it. My crystal ball is broken so I don't know if oil will go up to $60+ or stay closer to $40.

[explanade]

Don't the bigger companies like Kinder Morgan also have good dividends now?

Or even the big ones like Exxon and Chevron?

[Mulligan]

Quote:

Originally Posted by aaronc879 Their debt load is only one factor. The other being whether or not oil price is going to go up in the next year or two. If oil goes back to 60+ then their debt won't matter because they'll be able to pay it. My crystal ball is broken so I don't know if oil will go up to $60+ or stay closer to $40.

Its not just its debts you have to worry about... Cross covenants mean, congratulations, now you have at least another set of financial books to be knowledgable on also. Even if a default would not occur, but "recapitalization" is required, a typical stock could not possibly afford a 27% annual payment on a recapitalization which would dilute the current shareholders.
My money would be on this scenario as the only way money would be made as a long term investment scenario, not a flip. This being the money would be made on capital gains, not dividends. The only thing 27% is telling you is a serious dividend haircut is on the way. The only hope is the stock price already reflects that scenario.


Sent from my iPad using Tapatalk

[RISP]

Let's make it real simple. Should you put 1/3 of your stack on one stock, no matter what it is? Of course not!

[Fermion]

I am not one to talk since my mining company bonds are paying me 55% and 65% per year in interest, but I think SDLP is way too risky for 1/3 of your invested assets.

(I did at one point think of buying more of the 12.5% interest rate 2019 bonds for this mining company that were trading at 16% of par but now they are 26% of par with few offers. I figured with $160,000 of these bonds I could reap $125,000 a year in interest...)

[ESRwannabe]

Quote:

Originally Posted by aaronc879 Do you think the dividend will stay put if the share price is under $4.00? If the dividend is secure, I may buy 12,000-15,000 shares. That's $12,000-15,000/yr income. That's enough for me to live on. I could retire if that dividend doesn't get cut. Too risky? 15,000 shares at $3.50/sh would require nearly 1/3 of my investable net worth.

If it worked out that would be pretty awesome. It would be a gamble though.

Oil supply should be in a deficit by 2018, maybe even 2017. I think for offshore drilling oil needs to be around $70? So the question is would it get to $70 in time.

So far I have only been putting money into AMLP. I'm up to 20,030 shares and I think I am done adding. Next I will start putting some money into the etf "SEA" which is the Gugenheim shipping etf. Its also been beaten down by the commodities and emerging markets decline, but I think in the long term there will be more middle class people around the world and even more trade. Div yield on SEA is 12.27%.

Edit: So $50k would be about 1/3rd of assets. Hmmm, I probably wouldn't put that much onto one stock. I am putting around 50% on one etf though (AMLP). I feel very confident that the MLP sector will survive and be more valuable in the future. I do think oil price will be $50+ by 2017 and could easily get to $70+ in 2018 when we have a deficit. I think we will have oil deficits starting in 2018 and lasting for a few years.

[ESRwannabe]

FYI.

Offshore Drillers Suffer as Oil Prices Remain below Break-Even - Market Realist

"According to Rystad Reports, the break-even oil price for shallow water projects is around $71 per barrel, while deepwater and ultra-deepwater projects need oil prices to be around $77 and $64 per barrel, respectively, to cover their costs."

Edit: The Manhattan Institute thinks US shale can get down to a break even of $5-$20. I like reading their papers and they have been pretty credible before. So who knows. If that happened it might hurt off-shore like SDLP.

http://www.manhattan-institute.org/pdf/eper_16.pdf

[Mulligan]

Quote:

Originally Posted by ESRwannabe If it worked out that would be pretty awesome. It would be a gamble though. Oil supply should be in a deficit by 2018, maybe even 2017. I think for offshore drilling oil needs to be around $70? So the question is would it get to $70 in time. So far I have only been putting money into AMLP. I'm up to 20,030 shares and I think I am done adding. Next I will start putting some money into the etf "SEA" which is the Gugenheim shipping etf. Its also been beaten down by the commodities and emerging markets decline, but I think in the long term there will be more middle class people around the world and even more trade. Div yield on SEA is 12.27%. Edit: So $50k would be about 1/3rd of assets. Hmmm, I probably wouldn't put that much onto one stock. I am putting around 50% on one etf though (AMLP). I feel very confident that the MLP sector will survive and be more valuable in the future. I do think oil price will be $50+ by 2017 and could easily get to $70+ in 2018 when we have a deficit. I think we will have oil deficits starting in 2018 and lasting for a few years.

Outside of possibly slot machines, nothing has the successful historical track record of separating one from their money like shipping stocks. Overbuilding, over capacity, boom-bust, over indebtedness, defaults....rinse/repeat... Be careful...


Sent from my iPad using Tapatalk

[aja8888]

Quote:

Originally Posted by aaronc879 Do you think the dividend will stay put if the share price is under $4.00? If the dividend is secure, I may buy 12,000-15,000 shares. That's $12,000-15,000/yr income. That's enough for me to live on. I could retire if that dividend doesn't get cut. Too risky? 15,000 shares at $3.50/sh would require nearly 1/3 of my investable net worth.

I spent 30+ years in the oil and gas business with mega oil, mid size oil, small oil and then consulted to 100 + O & G companies. What I learned is I don't know anything about where the price of oil is going now, tomorrow or next year. Maybe I am a slow learner?

Anyway, a headline I saw recently was that the Iranians won't discuss price controls or production limits until they are selling 4 million BPD. Now that's twice what "experts" had said they are capable of. It's a dog-eat-dog oil world out there and everyone is wearing milkbone underwear.

Also, read up on how great a deal KMP turned out to be for the investors when it dissolved it's MLP status.

[haha]

Quote:

Originally Posted by aja8888 Anyway, a headline I saw recently was that the Iranians won't discuss price controls or production limits until they are selling 4 million BPD. Now that's twice what "experts" had said they are capable of. It's a dog-eat-dog oil world out there and everyone is wearing milkbone underwear.

We'll see if Iran ever produces this much. Iran is not exactly an under-explored province.

Also, wasn't KMI always a C-corp? They were the GP and incentive rights holder of Kinder Morgan Partners, El Paso Pipeline Partners, and I think Kinder Morgan Management. KMI seemed the obvious choice if one was interested in in this business.

If the US government forces conversion of all energy MLPs into C corps there will mucho dolor. I don't know if this can be done, or how likely it might be.

But Rich Kinder who is nobody's fool owned a lot of KMI, and although I have never been professionally involved in finance, I have noticed over many years of investing that if you are riding in the same bus with a CEO who owns a lot of the same security that you own a little of, this bus is unlikely to be destroyed by anything that that CEO has any power to influence.

Ha

[Mulligan]

Quote:

Originally Posted by haha We'll see if Iran ever produces this much. Iran is not exactly an under-explored province. Also, wasn't KMI always a C-corp? They were the GP and incentive rights holder of Kinder Morgan Partners, El Paso Pipeline Partners, and I think Kinder Morgan Management. KMI seemed the obvious choice if one was interested in in this business. If the US government forces conversion of all energy MLPs into C corps there will mucho dolor. I don't know if this can be done, or how likely it might be. But Rich Kinder who is nobody's fool owned a lot of KMI, and although I have never been professionally involved in finance, I have noticed over many years of investing that if you are riding in the same bus with a CEO who owns a lot of the same security that you own a little of, this bus is unlikely to be destroyed by anything that that CEO has any power to influence. Ha

Maybe in the long run that is correct. But all the people buying KMI in the 30's trusting him when said "the dividend is safe", all the way until the week before they whacked it probably are not feeling the love right now. The math was clearly saying one thing while he and the company was saying something else.


Sent from my iPad using Tapatalk

[aja8888]

[QUOTE]

Quote:

Originally Posted by haha We'll see if Iran ever produces this much. Iran is not exactly an under-explored province. Also, wasn't KMI always a C-corp? They were the GP and incentive rights holder of Kinder Morgan Partners, El Paso Pipeline Partners, and I think Kinder Morgan Management. KMI seemed the obvious choice if one was interested in in this business.

Sorry, meant KMP, not KMI.

Even if Iran can't actually produce 4 million BPD, they apparently are not willing to work with the Saudi's on limiting production. That's the message.

Here's another thing to consider: Once the advanced technology for horizontal well drilling and high pressure fraccing is spread far and wide (which it is not right now), you will see a whole lot more oil come from older fields that were vertically drilled decades ago. And most of those fields are in countries other than the U.S. This seems to be a topic no one is talking about.

[Lakedog]

Quote:

Originally Posted by Mulligan Maybe in the long run that is correct. But all the people buying KMI in the 30's trusting him when said "the dividend is safe", all the way until the week before they whacked it probably are not feeling the love right now.

I owned KMI in the 30s and own a whole lot more in the 12-15 range. I don't think you will find many energy/oil related stocks that have not seen a similar decline in share price. With one of the 3 credit agencies signaling a possible downgrade, they had the choice of continuing the large div or spending most of the almost $5 billion free cash flow on growth. I am glad they chose growth since I plan to hold long term. At some point in the not so distant future the div will likely be larger than the one paid previously. I expect that this drop in KMI will later be seen as one of the buys of the decade (as that is where I am placing a rather large bet).

[haha]

Quote:

Originally Posted by Mulligan Maybe in the long run that is correct. But all the people buying KMI in the 30's trusting him when said "the dividend is safe", all the way until the week before they whacked it probably are not feeling the love right now. The math was clearly saying one thing while he and the company was saying something else. Sent from my iPad using Tapatalk

True enough, but management frequently lies and math speaks the truth. Also the KMI price stress has to do with a dividend cut, not its conversion from MLP to C-corp, because this conversion did not and could not take place. Anyway, a fall from 30 to today's 18 or so does not seem too bad, considering the fall in oil itself.

I also think that a reasonable takeaway is "don't confuse speculating with investing". And if you are speculating, go after capital gain, not a dividend.

Ha

[haha]

[QUOTE=aja8888;1708689]

Quote:

Sorry, meant KMP, not KMI. Even if Iran can't actually produce 4 million BPD, they apparently are not willing to work with the Saudi's on limiting production. That's the message. Here's another thing to consider: Once the advanced technology for horizontal well drilling and high pressure fraccing is spread far and wide (which it is not right now), you will see a whole lot more oil come from older fields that were vertically drilled decades ago. And most of those fields are in countries other than the U.S. This seems to be a topic no one is talking about.

Thank you. these two things you mention are very important, I agree. And non-cooperation regarding a slowdown is important, at least short term.

Regarding fraccing all those old fields, it might take a brave company to invest what is would take in many of these countries. And in some of them, like Saudi Arabia, there is such excellent porosity that the reserves can be pretty well drained conventionally.

Anyway, these are certainly meaningful caveats.

Ha

[Mulligan]

Quote:

Originally Posted by haha True enough, but management frequently lies and math speaks the truth. Also the KMI price stress has to do with a dividend cut, not its conversion from MLP to C-corp, because this conversion did not and could not take place. Anyway, a fall from 30 to today's 18 or so does not seem too bad, considering the fall in oil itself. I also think that a reasonable takeaway is "don't confuse speculating with investing". And if you are speculating, go after capital gain, not a dividend. Ha

Agreed, and I only watched from afar. The less knowledgable got creamed starting in the mid 40s less than a year ago. Much discussion of it in income forums people loading up at that price point and through the 40s and on down, citing "safety of the dividend".
They were going in for income not cap gains, and they were led like sheep to the slaughter, not understanding the financing mechanisms behind the company. A guess it is a fool and their money thing....But it will be my turn in the barrel sometime on a folly purchase I am sure to make.


Sent from my iPad using Tapatalk

[ESRwannabe]

This is a very "outside the box" article on a huge dam in Iraq that is likely to collapse and take with it most of Iraq's oil (and kill millions of people).

The Mosul Dam - OPEC's Unavoidable Supply Cut | Seeking Alpha

"The Mosul Dam: The Mosul Dam is the largest dam in Iraq. It is located on the Tigris River in the western governance of Ninawa, upstream of the city of Mosul. Constructed in 1981, the dam has had a history of structural issues, requiring perpetual maintenance in order to maintain its integrity. Since 1984, this consisted of 300 man crews, working 24 hours a day across three shifts, filling holes in the bedrock through a process called grouting. For 30 years, this process worked, although it was always considered to be a ticking time bomb, dubbed "the most dangerous dam in the world" by the US Army Corps of Engineers.

In August 2014, the Islamic State of Iraq and the Levant took control of the dam, halting the maintenance process until it was retaken by Iraqi, Kurdish and US Forces two weeks later. Unfortunately, the damage was already done…"

[harley]

Well, hopefully the recent increase in the price of beef will drive people to eat more chicken. That will obviously drive the price of oil higher, which will be good for my oil investments.

Per capita consumption of chicken (US) correlates with Total US crude oil imports