Tag Archives: nysexom

Invest Like Henry Kissinger

By Carlton Delfeld “I’ve always acted alone. Americans like that immensely.” – Henry Kissinger Have you seen Henry Kissinger lately? At 92, he’s as fluent as ever on foreign affairs. It makes you wonder whether, even at this advanced stage of life, he could do a better job managing American foreign policy than our current leaders. This brings me to Ukraine, Russia, and China. They look like a beautiful mess right now – but within a reasonable period, American foreign policy will gravitate back to a Kissinger dictum: America can only afford one big power adversary at a time. At this time, the one adversary is clearly China. In short, the whole Ukraine-Crimea-Russia fiasco could’ve and should’ve been avoided. Unfortunately, Ukraine is a prisoner of geography and history. It’s a bridge between East and West – a classic buffer state. The country will always need to balance closer ties to Europe with good relations with Russia, and this practical consideration should be reflected in American diplomacy. Pushing Russia closer to China is certainly not in American interests. Lord Palmerston once said, “Nations have no permanent friends or allies – they only have permanent interests.” Thus, the probability is on the side of U.S.-Russia relations improving in the long run. The stakes are simply too large and the logic of some sort of rapprochement too clear and convincing. In fact, while headlines have created a perception of a crisis in U.S.-Russia relations, the reality is that diplomats on both sides are working hard on “alliance management.” As an emerging bond trader active in Russia put it to me, “A lot of this is elaborate political theatre.” I believe that the gap between perception and reality is where fortunes are made, and Russia is the perfect example. Despite the country’s reputation as being a non-competitive, monopolistic economy, there were over 21,300 foreign capital enterprises operating in Russia by the end of the second quarter. And American companies invested $1.18 billion in Russia in 2014, nearly double the $667.2 million recorded in 2013. What’s more, Russia’s stock market is trading at astoundingly cheap valuation multiples right now. We know the reasons: economic sanctions imposed by Western democracies, falling energy prices, and, finally, the falling ruble, which is down sharply against the dollar this year. The stocks in the Market Vectors Russia ETF (NYSEARCA: RSX ) are trading at an 80% discount to the S&P 500 Index and at less than 65% of break-up value. Howard Marks of Oaktree Capital puts price and value at the center of his book, The Most Important Thing: For a value investor, price has to be the starting point. It has been demonstrated time and time again that no asset is so good that it can’t become a bad investment if bought at too high a price. And there are few assets so bad that they can’t be a good investment when bought cheap enough. Plus, we don’t need a miracle to profit from the situation, either. An American hedge fund trader active in Russian markets put it to me this way: “Things don’t have to turn around in Russia for me to make money. They just have to get a little bit better.” This is the key. If energy prices stabilize or rise, if the situation in Ukraine improves, if the ruble bounces back – any one of these catalysts could spark a sharp rally. RSX is down 32% over the past year and has pulled back 16% from its recent peak in mid-May. So it’s a good time to get ready to pull the trigger on one of the largest oil and gas companies in the world, Lukoil ( OTCPK:LUKOY ). Lukoil exceeds even Exxon Mobil (NYSE: XOM ) in total proven oil reserves. Even more impressive, the company has remained free cash flow positive during the entire past decade. The company also has a very low risk of government intervention, with a professional board and management at the helm. Despite this, Lukoil is trading at 37% of break-up value and 4.4 times trailing earnings. Right now, I’d nibble on a position and take a more sizable stake when a clear uptrend develops in the stock. Like Kissinger, don’t fear acting alone. Investing in undervalued – even hated – stocks when they turn is the most consistent way to build substantial wealth. Original Post Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

How To Catch A Falling Knife

Summary The “falling knife” stock is increasingly common. The current economic environment increases risk in falling stocks. One long-established investment technique can minimize the risk. Falling knife: A security or industry in which the current price or value has dropped significantly in a short period of time. A falling knife security can rebound, or it can lose all of its value, such as in the case of company bankruptcy where equity shares become worthless. –Investopedia Remember Boston Chicken? Inspired by the heady days of the late ’90s and my personal effort to improve their top line, I watched BOST decline in price and finally made a major share purchase when it was so low I could not resist. To this day I maintain that no company can go broke trying to sell too much fat, salt, and sugar to the American public. This axiom was overcome by BOST’s incestuous finances and the practice of selling one dollar of chicken for 95 cents, which led to bankruptcy in 1998. A $50 check from the subsequent class action lawsuit did little to assuage my five figure loss. There were many lessons to be had from this experience. The one I want to concentrate on is the value of dollar cost averaging, or DCA, in purchasing stocks that are declining in price. DCA refers to planned purchases in multiple increments over time, in contrast to a one time purchase of the full investment. If I had used DCA with Boston Chicken, my loss would have been much less severe. DCA is useful in many circumstances, but its benefits are magnified in cases where a stock is in a significant decline. The Falling Knife Scenario The classic falling knife scenario consists of an abrupt price change. Yelp is a particularly hair-raising example: A broader definition of “falling knife” is any stock that is in a clear price decline over a period of time. Under this definition there are many falling knives among today’s investment choices. Every day articles appear on Seeking Alpha enthusiastically recommending a purchase because stock X is N per cent off its high. Readers will often note that such articles have appeared since a decline began. Here are three companies in the falling knife category that have had bullish articles all the way down: American Capital Agency (NASDAQ: AGNC ), Emerson Electric (NYSE: EMR ), Chevron (NYSE: CVX ): How long and how severe these declines will be no one knows. At losses from 52 week highs of 22%, 19%, and 30% for EMR, AGNC and CVX there could still be a lot of air underneath them. Other widely held falling knives include: Exxon Mobil (NYSE: XOM ). Intel (NASDAQ: INTC ), Caterpillar (NYSE: CAT ), Freeport-McMoRan (NYSE: FCX ), BHP Billiton (NYSE: BBL ) (NYSE: BHP ), National Oilwell Varco (NYSE: NOV ), and 3M (NYSE: MMM ). The DCA Effect Using Chevron as an example the usefulness of DCA is clear. An investment of $30,000 when CVX had declined 10% from its high of $130 would buy 256 shares: Date Price Investment Shares 10/02/2015 $117 $30,000 256 Value 08/01/15 $88 $22,528 256 An investment in three increments over equal time periods would buy 293 shares: Date Price Investment Shares 10/02/2015 $117 $10,000 85 03/01/2015 $105 $10,000 95 08/01/20015 $88 $10,000 113 Value 08/01/15 $88 $25,784 293 The DCA approach buys 37 more shares, $3,256 more in value, and $159 more in annual income. If CVX returns to $130, the price at which it started, the difference in total value rises to $4,810. It is true that there is a possibility of losing out on some gains if a stock rises in value between purchases. But as Daniel Kahneman wrote in classic book Thinking, Fast and Slow : Losses loom larger than gains. The “loss aversion ratio” has been estimated in several experiments and is usually in the range of 1.5 to 2.5. For the average investor, the good feelings you get from gains are more than wiped out by the bad feelings from losses. Perhaps humans have an instinctual aversion to loss of capital. Why is DCA important now? DCA has strengths that apply to all circumstances, such as reducing risk and replacing emotion with discipline. In today’s markets its benefits are particularly important. After six years of almost uninterrupted rise in stock prices, recency bias is very strong. Recency bias causes investors to believe trends and patterns have observed in the recent past will continue in the future. Investors look at where a stock has been, not where it is going. Complacency among investors is high. New investors have with no experience of a declining market have an inflated sense of their stock-picking ability. Older investors, with six years of mostly positive experience, may think that their prowess has improved more than it has. Price declines reflect changes in the macroeconomic situation. Global growth estimates continue to be lowered. Money is no longer being added to the US system through quantitative easing, and as shown by Eric Parnell and others there has been a strong relationship between QE and stock market performance. In addition, numerous indicators have been flashing warning signs for some time. DCA is agnostic concerning market projections but economic changes do affect results. Conclusions The falling knife conundrum — what to do when a stock we like is falling — is increasingly common. The angel on one shoulder tells us to buy and the angel on the other shoulder tells us not to lose money. Dollar cost averaging is a way to resolve these different impulses. DCA is helpful in many situations, but particularly today when uncertainty is increasing and six years of successful stock-picking may have inflated both our confidence in the market and the perception of our abilities. DCA takes away the pressure of having to make a one-time purchase decision, allows us to act independently of market noise, and reduces risk. Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in XOM EMR over the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

EQT Corp.: The Dry Gas Utica Is A Diamond – No Longer In The Rough And, As It Turns Out, As Big As The Ritz

Summary EQT deep Utica test in SW Pennsylvania is successful and the 24-hour rate is exceptionally strong. The well validates the ultra-deep Utica concept in Pennsylvania and the result exceeds expectations. Continued success in dry Utica may have material consequences for the long-term natural gas supply/demand balance in the Northeast. East Coast LNG may be a logical solution, given the low cost and longevity of the expected supply. Those investors who are concerned that the Marcellus will run out of cheap natural gas too soon today have a reason to sigh with some relief – the Dry Gas Utica is standing by to help on the supply side and it is continuously proving to be a very capable helper. EQT Deep Utica Test Result – “Phenomenal” Is The Correct Word EQT Corporation (NYSE: EQT ) just reported results of its long-awaited Scott’s Run well completion in the Deep Utica in Green County in Southwestern Pennsylvania. (click to enlarge) (Source: EQT Corporation, June 2015) Due to the considerable depth and very high reservoir pressure, the well was challenging to drill and took more than half a year from spud to completion. The reason for the delay was associated with the need to replace the initial rig with a higher-spec rig to handle the reservoir pressure. However, EQT’s effort has been rewarded – the test is successful. The entire ~3,200-foot lateral length was successfully completed (EQT used 100% ceramic proppant). The entire amount of proppant was put away – no screenouts. According to EQT, the well was tested yesterday and had an average 24-hour rate of 72.9 MMcf/d with ~8,600 psi flowing casing pressure. Please note that this is a short lateral. EQT is trying to manage pressure at a reduced ~26 MMcf/d. The well is still cleaning up and pressure is still inclining. No EUR or decline rate estimate will be available for some time. The well came out at ~$30 million. However, this cost is clearly not representative of the expected cost in development mode. Going forward, EQT believes it can reduce its well cost in the Deep Utica to as little as $12.5 million for 5,400 foot laterals. In the immediate term, the well’s success is unlikely to materially change operational outlook for EQT (or any of its peers, for that matter). EQT is hoping to have a total of two-three wells on production by early next year and will plan further steps based on the performance results. EQT believes that it has ~400,000 net acres prospective for dry Utica, including ~50,000 net acres that look geologically “identical” to the announced well. The Significance of EQT’s Test EQT’s well result extends the technical boundary of the Deep Dry Utica play and implies that the play’s economic sweet spot may be very large in size. EQT’s Scott’s Run well is located almost 2,000 feet downdip from Range’s highly successful Sportsman’s Club well that Range brought online in December of last year. Simply eye-balling the contour made of the most productive Dry Utica wells from Ohio to West Virginia Panhandle to Southwest Pennsylvania and looking at geologic correlation charts, the size of the potentially productive area appears very large, with an enormous amount of natural gas in place. (click to enlarge) (Source: Range Resources, June 2015) There is obviously a strong read-across from this result to several peer operators in the area, including Range Resources (NYSE: RRC ), Rice Energy (NYSE: RICE ), Southwestern Energy (NYSE: SWN ) and several others. Range Resources’ Deep Utica Test EQT’s well is the second successful deep Utica test in Southwestern Pennsylvania. As reminder, late last year Range drilled its Claysville Sportsman’s Club #11H test in Washington County, PA to test Deep Dry Utica. The well achieved an average 24-hour rate of 59 MMcf/d flowing against simulated pipeline pressure and conditions (Range did not provide the choke data). The well was drilled and cased to a true vertical depth of 11,693 feet with a 5,420-foot horizontal lateral completed with 32 frac stages. Range reported that the formation was strongly over-pressured – the company’s initial calculations indicated a 0.88 psi/foot pressure gradient. The overpressuring contributed to the extraordinary initial production rate that equated to a 10.9 MMcf/d per 1,000 foot of lateral. The well remained shut-in for approximately 90 days while production facilities were being completed. After the well was brought on production under a managed-pressure restricted flow program, it produced 1.4 Bcf of gas in the first 88 days, or ~16 MMcf/d on average. Range believes that the Sportsman’s Club #11H result confirms the company’s geological interpretation. Range has ~400,000 net acres under lease in the Southwest Pennsylvania area which it considers prospective for the Utica/Point Pleasant play. The company recently cased its second deep Utica well drilled off the same location – the well is expected to be completed in Q3 2015. (click to enlarge) (Source: Range Resources, June 2015) Drilling Economics Are Promising Despite The High Well Cost The Dry Utica is already in development mode on the play’s western flank where wells are much shallower and, therefore, less technically challenging and less expensive to drill. The following chart from Rice Energy’s recent presentation shows a remarkably consistent performance of the first several wells that the company drilled in Belmont County, Ohio. The geology in that area correlates with the geology in Southwestern Pennsylvania. (click to enlarge) (Source: Rice Energy, November 2014) Sweet Spots And The Choice Of The Landing Zone Are Key Given the relatively high drilling and completion cost in the deep Utica and competitive capital allocation, the bar for well performance is set very high. The porosity cross-section charts below highlight the significant variability in the rock’s petrophysical characteristics depending on location. The charts also highlight that the formation is thick and has a complex structure. Therefore, the choice of the landing zone and completion design may be significant drivers of well productivity. Given that operators have just initiated their evaluation programs, the play has upside in the form of inventory high-grading (focusing on sweet spots) and play-specific technical learning curve. (click to enlarge) (Source: Range Resources, June 2015) (click to enlarge) (Source: Rice Energy, June 2015) Is Deep Dry Gas Utica Prospective In Northeast Pennsylvania Too? Last year, Royal Dutch Shell (NYSE: RDS.A ) (NYSE: RDS.B ) made public the results of its first two deep Utica exploration tests, the Neal and Gee, located in Northeast Pennsylvania, in Tioga County, over hundred miles to the northeast from Range Resources’ Sportsman’s Club well. I estimate that the wells were drilled to a true vertical depth of approximately 11,500 feet. Both wells had been on production for a significant period of time and are prolific producers. The Gee had been on production for nearly one year, and had an initial flowback rate of 11.2 MMcf/d from a ~3,100-foot lateral, which equates to ~3.6 MMcf/d per 1,000 feet of lateral length. The Neal began production in February of 2014, and had an observed peak flowback rate of 26.5 MMcf/d from a ~4,200-foot lateral, which equates to ~6.3 MMcf/day per 1,000 feet of lateral length. Shell did not provide any information with regard to the wells’ cumulative production, pressure metrics or completed cost. The company commented, however, that both wells were high-pressure wells and their “results are comparable to the best publicly announced thus far in the emerging Southeast Ohio Utica dry gas play.” Shell was awaiting results from four additional Utica wells drilled in Tioga County. Shell’s results suggest that Deep Dry Utica prospectivity may not be limited to Southwestern Pennsylvania. In Conclusion… While the dry gas Utica/Point Pleasant potential has been identified by the industry several years ago, the play remains in an early stage of its life cycle. The total number of test wells drilled in the Utica’s dry gas window is still miniscule – few dozen in total – and is dwarfed by the number of wells completed in the Marcellus or in the Utica’s wet gas and condensate windows. Perhaps the most interesting aspect of this play is that its limit on the eastern flank – geologic or economic – is yet to be established. EQT just extended that limit another 2,000′ feet further downdip. Inevitably, wells in the deep portion of the play will initially be challenging to drill and costs may be high. Most importantly, technical risks are also elevated. However, the longer-term outlook for the play appears very bright. Well results in the dry gas window so far have exceeded most optimistic expectations and suggest that the deep Utica, in its most productive areas, may rival Marcellus’ sweet spots in terms of drilling economics and will substantially extend the region’s already formidable discovered resource base. The progress that the industry is making in the Deep Utica suggests that dry gas supply potential in the Northeast may be substantially greater than was visible initially. This may necessitate a search for strategic takeaway solutions for natural gas production from the region. The concept of East Coast LNG appears increasingly compelling. New projects initiated now would probably come in service just in time to handle the potential capacity ramp up in the Deep Utica. Deep Utica will not have significant impact on operators’ production volumes in the Marcellus/Utica area (takeaway capacity determines production volumes). However, the presence of another prolific zone in the stack will extend the productive life of the acreage. The addition of the deep Utica drilling inventory should provide greater certainty to infrastructure developers in the region and have a positive impact on infrastructure development. Stock valuations will have meaningful positive uplifts as Utica gas should support the “higher for longer” production expectation. What Stocks Benefit Most From EQT’s Announcement? The most significant read-across from EQT’ deep Utica test would be to the following stocks: Southwestern Energy Noble Energy (NYSE: NBL )/CONSOL Energy (NYSE: CNX ) Joint Venture Chevron (NYSE: CVX ) Rice Energy Range Resources XTO/Exxon Mobil (NYSE: XOM ) Disclaimer: Opinions expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment, tax, legal or any other advisory capacity. This is not an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.