Jump to content

fareastwarriors

Member
 View Profile  See their activity

  • Posts

    5,261

  • Joined

  • Last visited

 Content Type 

Posts posted by fareastwarriors

    Natural gas

    in General Discussion

    Posted

    Gas Producers Accept Their Fate

     

     

    Natural-gas producers pray for a price rebound, but their god isn't listening.

     

    Last spring, near-month gas futures hit a 10-year low of less than $2 per million British thermal units. They are about $3.30 now, but that still isn't much help.

     

    As 2012 results have rolled in, companies have been cutting gas reserves that are no longer economic to drill. Companies such as EOG Resources and Penn Virginia saw gas reserves drop by more than a third. Some of those reserves will come back when prices rise. But Jon Wolff of ISI Group says another factor at play is companies simply taking some gas projects (and their associated reserves) out of their development line altogether.

     

    Another sign of E&P companies accepting that gas prices are low and staying that way is hedging activity. On Thursday, self-described "champion of natural gas" Chesapeake Energy said it had hedged half of its projected 2013 gas output at a price of $3.62. This time last year, it hadn't hedged any—and paid a heavy price as cash flow was crushed. Devon Energy, another big gas producer, has hedged 60% of its expected output at $3.87. This time last year, it had hedged only a third, at $4.73.

     

    Matt Portillo, a director at Tudor, Pickering, Holt & Co., sees a structural trend for E&P companies in terms of a "step down in the price they're willing to accept" for gas. This partly reflects lower costs from more-efficient drilling. But in trading some potential gains for the certainty of cash flow, it is also a tacit admission that gas prices look set to stay low for a while.

     

    E&P investors might gnash their teeth. But consumers, at least, will say "amen" to that.

    Natural gas

    in General Discussion

    Posted

    Barging Into North America's Cheap Gas

     

    Like the truth, U.S. natural gas will out—provided Washington doesn't block it.

     

    U.S. natural gas trades for about $3.30 per million British thermal units, while in Europe the price is closer to $12. A supply boom coupled with a lack of export options has kept gas prices low in the U.S. Europe, meanwhile, depends on imports from countries such as Russia that demand prices linked to those of oil, which is relatively expensive.

     

    Cheap stuff attracts buyers, and gas is no different. French utility EDF EDF.FR +1.01% has announced plans to develop floating barges that could liquefy North American gas to be shipped overseas. In theory, this could offer a cheaper, faster way to get U.S. gas on the high seas than some land-based projects.

     

    That remains to be seen. The bigger point to draw from this move is that Europe needs cheaper energy, and its companies are getting creative in how to tap it. In December, Austria's Voestalpine VOE.VI +1.74% announced plans to build a new facility in North America to use cheap gas to make a precursor to steel that will then be shipped back home for final processing.

     

    Europe needs the help. Its power stations are burning more U.S. coal these days, which has been displaced by cheap gas at home. That helps with costs but does nothing for Europe's carbon-emissions targets. Alistair Buchanan, who runs the U.K.'s energy-market regulator, warned again this week that the country's reliance on imported gas to power its electricity grid looks set to intensify, raising energy bills.

     

    Meanwhile, Jonathan Lane of research firm and consultancy GlobalData calculates that German residential consumers last year paid more than 2.5 times what Americans paid for electricity. High renewable subsidies in Germany are a big part of this, but the cheaper underlying cost of gas-fired power also gives U.S. bill-payers an advantage.

     

    Exporting U.S. gas to Europe, undercutting the likes of Gazprom, OGZPY +2.82% is a no-brainer from the market's perspective. The question is whether U.S. politicians allow much of it. For them, a gas glut at home means less inflation and a basis for more competitive manufacturing.

     

    Even if EDF and friends build their barges, they may struggle to find a welcoming dock.

    Alice Schroeder on Heinz deal

    in Berkshire Hathaway

    Posted

     

    By now the “Buffett deal” has become familiar: an investment by Berkshire Hathaway that includes high-yield preferred stock and very little risk. Berkshire’s purchase last week of Heinz fits the classic pattern. Before yawning, “he’s pulled off another one”, let us pause to consider some new shading that Heinz brings to the portrait of Warren Buffett as dealmaker and capitalist. Also worth noting are subtle signals that suggest where the US economy is heading. Mr Buffett has a history of being right about such things, so let us pay attention.

     

    Through the deal, Berkshire and its partner 3G Capital, the Brazilian private equity firm, will each take half of Heinz in exchange for $4bn of equity. For another $8bn, Berkshire acquires redeemable preferred stock yielding 9 per cent and warrants (options that give investors the right to buy shares at an agreed price at some point in the future). The $72.50 per share cash transaction includes $12bn of new and assumed debt, valuing Heinz at $28bn.

     

     

     

    What do these details tell us about Mr Buffett as a dealmaker? The most notable point concerns his tolerance for leverage. Heinz will sport $6 of debt for every dollar of equity – a ratio that has made bondholders and rating agencies uneasy. Mr Buffett bristles at applying the term “leveraged buyout” to the deal on the grounds that he does not intend to flip the company in a sale. That is a fair point. On the other hand, the deal does bark like an LBO – otherwise, the numbers would not work for the sellers. It may seem puzzling that Mr Buffett, who has criticised LBOs for decades, signed up to such a deal, but here is the twist. The leverage – which is very real for all the other parties – is largely illusory for Berkshire.

     

    Even if Heinz loses money, Mr Buffett’s holding company is paid its preferred dividend. Only in the unlikely event of bankruptcy is Berkshire at risk. Should that happen, Berkshire would be in a position to wipe out other creditors. Its power to snag a cheaply restructured Heinz essentially eliminates Berkshire’s risk. No wonder bondholders are nervous.

     

    These facts make it understandable that Mr Buffett would react to the term LBO as if it did not apply to him – because it does not. In effect, he has pulled off a leveraged buyout that leverages everyone but himself. While he has a well-established pattern of using other people’s money for Berkshire’s benefit, this sets a new bar. Generations of financiers to come will be studying his unparalleled creativity in finding low-risk ways to leverage.

     

    Then there are the nuances the deal brings to our picture of Buffett the capitalist. However warm and grandfatherly he may be, the way he squeezed out every advantage in this deal underlines the fact he is as red in tooth and claw as any Wall Street predator. He is also exquisitely attuned to incentives, and worked out long ago there are many forms of currency. Here, he canonised his Brazilian partner, Jorge Lemann, who will be running the highly leveraged Heinz, as a hugely admirable businessman and “human being”. Mr Lemann, if he is smart, will use his reputational currency in other deals to extract actual money.

     

    Mr Lemann and 3G did not secure the same terms as Berkshire, just as any future transactions involving Heinz are unlikely to be as attractive. Thus, there is no particular reason why – contrary to some forecasts – this deal signals a turn in the economy that should spark a wave of mergers and acquisitions. That said, Mr Buffett has reminded us that, when money is cheap, takeovers follow. In that sense, leveraged deals could be seen as central bankers’ gift to acquirers.

     

    Even with the leverage that supported it, the lofty valuation that Heinz commanded raised questions about whether investors are chasing growth. A chorus of response quickly pointed out Heinz’s valuable brands as justification.

     

    There is little doubt that people will be enjoying the famous ketchup, Lea & Perrins and other sauces 50 years from now. Yet the pace of brand erosion in all industries is accelerating. Mr Buffett is well aware of this. So too are supermarkets, which are pushing harder than ever to close the gap between Heinz and other brands’ prices. The justifiable premium for brands is declining. This deal actually strikes a cautious note about the decades-old philosophy of investing in great brand businesses at premium prices. When Mr Buffett made investments such as in Coca-Cola in the 1980s, he was happy to make unprotected bets on growth. Berkshire never bit on Heinz until now, when a deal arrived with terms that guarantee it a 6 per cent return.

     

    In a world of near-zero interest rates, that 6 per cent looks pretty attractive. Mr Buffett, evidently, does not expect rates to rise sharply any time soon. A decade ago, he demanded a first-day return of 13 per cent before he would bother to consider a deal. Now the Oracle takes 6 per cent for his money. We should pay attention. There could hardly be a stronger signal that the investing tide has changed.

     

    A Rising Tide Lifts All Ships!

    in General Discussion

    Posted

    http://www.bloomberg.com/news/2013-02-12/bridgewater-bets-on-stocks-as-cash-moves-into-market.html

     

    Bridgewater Associates LP, the $140 billion hedge fund founded by Ray Dalio, is betting on global stocks and oil as it expects money to move into equities and other assets amid increased economic confidence.

     

    Bridgewater, the world’s biggest hedge fund, is bullish on stocks, oil, commodities and some currencies as it expects cash to shift to riskier assets, co-chief investment officer Bob Prince said on a client conference call on Jan. 23.

     

     

     

    “You want to be borrowing cash and hold almost anything against it,” Prince said, according to a transcript of the call obtained by Bloomberg News. “We are at a possible inflection point right now with respect to the pricing of economic conditions in markets and then the actual conditions that are likely to occur.”

     

     

    Natural gas

    in General Discussion

    Posted

    G Canada, a consortium led by Royal Dutch Shell RDSB.LN -2.39%PLC, is the second group to win a license from the Canadian government. Shell's partners in the project include PetroChina Co., 601857.SH +0.75%Korea Gas Corp. 036460.SE +0.75%and Japan's Mitsubishi Corp. 8058.TO +1.69%

    A second group, Kitimat LNG, led by Apache Corp. APA -2.10%and Chevron Corp., CVX -1.12%received approval in Canada for its own license in late 2011. That license was the first issued by Canada allowing for LNG exports.

     

    Last July, Shell applied to the NEB for a license to export up to 24 million tons of LNG per year, for a term of 25 years. Shell doesn't expect to start exporting any gas until 2019.

     

     

     

    Canada Backs Export License for Shell LNG Project .

     

     

    http://professional.wsj.com/article/SB10001424127887324445904578284402178099298.html?mod=WSJ_business_whatsNews&mg=reno64-wsj

    Fairholme/Berkowitz

    in General Discussion

    Posted

    http://www.bloomberg.com/news/2013-02-04/berkowitz-seeking-patient-capital-sours-on-mutual-funds.html

     

    Berkowitz Seeking Patient Capital Sours on Mutual Funds

     

     

    Mutual funds are great vehicles,” said Berkowitz, 54, who heads Miami-based Fairholme Capital Management LLC. “They’re transparent. They give investors daily liquidity. They’re highly regulated. But there are also constraints that go along with that.”

     

    As a result, Berkowitz said he’s considering alternatives that would tie up investors’ capital for longer and free him to buy as much of a stock as he wants. He’s also closing existing funds to new investors as of the end of this month to prevent an influx of capital that could dilute performance.

     

     

    Fairholme/Berkowitz

    in General Discussion

    Posted

    Berkowitz Expects Watershed 2013 as Fund Wagers on MBIA, Sears

     

    http://www.bloomberg.com/news/2013-02-01/berkowitz-expects-watershed-2013-as-fund-wagers-on-mbia-sears.html

     

    Bruce Berkowitz expects a “watershed” 2013 for Fairholme Capital Management LLC’s Focused Income Fund as he stakes the majority of its assets on junk-rated Sears Holdings Corp. (SHLD) and MBIA Inc. (MBI)

     

    More than 55 percent of the fund’s assets are concentrated on the debt of Sears and MBIA, Berkowitz said in a letter to shareholders and directors posted on its website today. MBIA debt comprises more than 38 percent and Sears almost 17 percent, with almost 40 percent in cash and Treasury bills.

     

    ...

     

     

     

    conviction.

×
×
  • Create New...