I like Oil

[explanade]

Heard one analyst type say if oil price goes up to $45, new capacity will be ramped up quickly, which will dampen any upward trajectory right away.

 

[Fermion]

Heard one analyst type say if oil price goes up to $45, new capacity will be ramped up quickly, which will dampen any upward trajectory right away.

They can only ramp up for awhile. They have quit drilling for new oil so the only thing they can do is frack the existing drilled wells, which will give a few months of oil then we have years of shortage.

And deep sea looks as if it will go away with all the rigs being scrapped.

Probably looking at $150 oil in 2021

 

[aaronc879]

What a timely sell. Today SDLP is trading at $3.50 and lower. Should have sold it all at 4.32 I guess.

Might buy back at $3. I will hold what I have for awhile and see if it goes back up to the $4 or $5 range.

It'll be back up i'm sure. If it hits $4.50 i'll sell half to get my investment back in full then let the rest ride.

 

[aja8888]

They can only ramp up for awhile. They have quit drilling for new oil so the only thing they can do is frack the existing drilled wells, which will give a few months of oil then we have years of shortage.

And deep sea looks as if it will go away with all the rigs being scrapped.

Probably looking at $150 oil in 2021

Lots of shut in production was fracced immediately after drilling to complete the well and hold the lease. That way the wells get proved and valued. Don't bet on only a few months of new production. It's not how it works.

 

[youbet]

The "do as I say not as I do" mentality turns me off

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Well, no wonder you don't like politicians!

 

[petershk]

I'm finally up on HP... about 20%... sold a little... expect oil to drop again and it to follow but in the long run I still believe in the company

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[haha]

I'm finally up on HP... about 20%... sold a little... expect oil to drop again and it to follow but in the long run I still believe in the company

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I think we both own HP. I do not plan to sell, until mine is long term, and I hope more highly valued than today. Since all my oil and gas investments other than a royalty trust are in taxable accounts, I figure it is not worth it to try to trade. I am no good at that anyway.

I did sell the only C-Corp E&P I owned, SM Energy.
It can sure fly on energy up days, but similarly fall rapidly on down days. I sold on an up day, but at a small loss because it is the only oil and gas stock that I own that might be vulnerable to important financial damage if for example we enter a recession and demand collapses.

I am truly retired, my only source of cash other than my investments is what by the standards of this board is modest SS. I need to avoid getting kicked across the room by bad investments.

Ha

 

[petershk]

I think we both own HP. I do not plan to sell, until mine is long term, and I hope more highly valued than today. Since all my oil and gas investments other than a royalty trust are in taxable accounts, I figure it is not worth it to try to trade. I am no good at that anyway.

I did sell the only C-Corp E&P I owned, SM Energy.
It can sure fly on energy up days, but similarly fall rapidly on down days. I sold on an up day, but at a small loss because it is the only oil and gas stock that I own that might be vulnerable to important financial damage if for example we enter a recession and demand collapses.

I am truly retired, my only source of cash other than my investments is what by the standards of this board is modest SS. I need to avoid getting kicked across the room by bad investments.

Ha

Yes. I like HP A LOT and I admit I reduced a bit just to ease some of the potential future pain and avoid doing something stupid like selling out too soon. I'm "happy" to let all my energy investments ride for a while now. That's Exxon, NOV and HP. Exxon is about even now and NOV is still down about 20%... that's the somewhat scary one because their recovery is likely to lag the industry. But I believe that
1) Oil industry isn't collapsing in the next few decades at least
2) The best run/least in debt companies will win in the long run.

All 3 of those companies have fairly strong balance sheets, good leadership (IMO) and good business models in their respective fields. Honestly it's only pure cowardice and lack of conviction that keeps me from putting even more in, but I'm also respecting the balance of "low cost index funds" from my own ability to "beat the market."

you being in HP with me gives me a bit more confidence... even if it's misplaced

 

[aaronc879]

Hold SDLP. If Seadrill can make $6, then SDLP should be fine here at $3.50 and you still have to love the $1 a year dividend..

Maybe sell some SDLP at $5 next week.

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.

 

[Mulligan]

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.

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.




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[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.




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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/Moo...-Partners-to-Caa2-negative-outlook--PR_344520



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[petershk]

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.

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[aaronc879]

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.

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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]

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.


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[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]

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]

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...


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[aja8888]

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]

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]

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.


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[aja8888]

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]

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).