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ItsAValueTrap

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  1. Sometimes the erroneous trades is somebody (probably retail) getting screwed by shenanigans. (*This is why you don't use market orders.) I don't know if that still happens nowadays.
  2. Some pipelines have lasted 60 years. And I think some have lasted even longer than that. The maintenance costs will likely rise a lot after 50-60 years. I'd expect defect rates to go up and require more constant surveys+repairs. The worst case scenario is that most of the pipeline would need to be replaced (e.g. people freak out over having dangerous pipelines in their area). The pipelines themselves don't need a lot of maintenance capex. The other businesses like the E&P segment, the Jones Act ships, and the gathering networks have cash flows that decline much faster. Companies keep separate books for tax and GAAP reporting purposes. In rare cases, they must use the same rules for things like LIFO/FIFO inventory. Kinder Morgan's (cash) taxes will likely go up in the future. If it keeps growing, it can keep deferring taxes.
  3. Wells that generate most of their hydrocarbons within a few years are the most predictable. Most fractured wells fall in that category, as their decline rates are often 30-70% in the first year. By decline curve I assume you mean "decline curve analysis"?? In any case, look at the literature on predicting the decline curves on shale wells. The engineers don't know exactly what the decline curves will be. There's a lot of uncertainty.
  4. I think most of their low-cost ness is being able to find and develop assets cheaply. If you ignore their F&D and look at their G&A, it's very low. Peyto's G&A as a percentage of revenue is around 4%, their peers are around 4-11%. I think it might be difficult for them to create value by driving down their G&A because it's so low. To create value, they have to go drill new wells. Unfortunately, those opportunities will depend on what other people do. If their competitors oversupply the market and bid too much on land / oil services / etc., then it will be difficult for Peyto to create value. They'll probably keep finding high-IRR opportunities going forward, but there's a small chance that they won't due to macro conditions outside their control. I feel like the market cap of the stock exceeds what the liquidation value / private market value of the company would be. Certainly their secondary offering suggests that the shares were overpriced. I don't feel like paying a huge premium for the company. 2a- I think the late Ken Peak is a cut above Don Gray (and Derren Gee). The stuff in the Peyto letters about 50+ year lives on their wells is a little... misleading. The longer life only makes a small impact on the NPV of a well due to the time value of money. As well, assuming a 50 year life on your wells may turn out to be overly optimistic. One of the problems is that horizontal drilling + hydraulic fracturing on low-permeability reservoirs is a new phenomenon. We have virtually no historical data on how long the well life will be and what the decline curves will be. 2b- The metrics that Don Gray used to present in the investor presentations don't fully capture what's important about the business. In general, I think that every single Canadian oil and gas company has overly-optimistic reserves, including Peyto. That skews some of Peyto's metrics. But they don't really explain the reserve estimation shenanigans that go on in Canada. At the end of the day, they're good operators who have joined the party of selling overpriced shares in secondary offerings. If the current futures strip pricing holds, a lot of these guys will stop producing. He's involved with a third company that has been diluting its shareholders via private placements. It's not publicly-traded.... yet.
  5. In my opinion, you don't want an "Outsider" CEO that fits the mold of Thorndike's book. Leverage is a dangerous strategy in the oil and gas space because too much debt means you blow up at the bottom of the cycle, when returns are the most attractive. Ken Peak was a great oil & gas CEO but he passed away. Don Gray owns very few shares in Peyto and Gear Energy. If you think that actions speak louder than words, he doesn't seem excited about either company. I used to like what Kinder Morgan was doing in it's enhanced oil recovery (EOR) business. I like the way they communicate to investors- they are one of the few management teams that explain what they're doing and explain the business. But if you look at the futures curve, most downstream oil & gas assets aren't that attractive. I think midstream energy companies are more interesting at the moment- the shale boom is driving huge demand for new energy infrastructure like gathering pipelines, wet gas treatment plants, pipelines, (LNG export), etc. Contango Oil & Gas / Ken Peak did that in its early days with farm-outs.
  6. DaVita makes kidney doctors sign non-compete agreements. DaVita has been accused of giving doctors equity ownership in their dialysis centers, which is illegal. The problem with kidney doctors owning dialysis centers (or portions of them) is that they may refer patients to their own dialysis clinic, even if the quality of care is subpar or if there are more cost-effective alternatives elsewhere (e.g. other dialysis clinics, at-home dialysis, etc.). Other countries have much higher rates of at-home dialysis, which allows patients to hold normal jobs. DaVita has also faced many, many accusations of defrauding Medicare. Defrauding Medicare is something that scales. - Intentionally wasting drugs so that drug manufacturers make more money and give kickbacks/rebates to DaVita. - Overdosing patients on EPO so that the EPO manufacturer makes more money. (One of the side effects of EPO is death.) - Gaming the quality of care metrics by using their own blood testing clinics and by overstating the number of patients with fistulas. 2- DaVita also makes high returns in legitimate ways. Their culture is unique and has been described as "cult-like". Regardless, their culture seems to be good for morale. They measure their dialysis clinics on various metrics, to ensure that their clinics are well-managed. They also have various initiatives such as their fistula first program. 3- DaVita used to have international operations and exited those markets shortly after Kent Thiry turned the company around. If you compare the US healthcare system to other countries, you'll quickly see that the US system is horribly messed up. Other countries: - Push at-home dialysis - Have lower costs - Do not re-use dialysis filters. Re-using dialysis filters require staff attention in cleaning the filters. There is a small risk of things going wrong if a staff member does not clean the filter properly. Re-using filters can "save" DaVita money because they can simply overwork their staff. Staff time has a cost, but if you overwork the techs then their time is "free". Part of the reason why there are barriers to entry is because there is a very limited supply of kidney doctors, and because dialysis patients do not want to drive 2-3+ hours to a dialysis clinic and 2-3+ hours back for something they have to do frequently. The kidney doctors tend to band together into practice groups. It's cartel-like.
  7. Those Tesla home batteries will get cheaper over time -- and they're pretty cheap already. People with those batteries won't be selling their excess solar energy to the utility at "wholesale prices". Instead, they will consume that energy themselves, offsetting the purchase of electricity at far-above-wholesale rates. So the "harm" to the electric utilities from net metering is exaggerated, IMO. At best, net metering costs them the delta between daytime electric rates and nighttime electric rates -- if they differ. For customers with batteries, that is. And I expect those batteries would become rather commonplace if the utilities succeeded in eliminating net metering. There are other issues. The infrastructure that delivers electricity to your house costs money. With the current billing system, those who consume very little electricity (who underpay for the infrastructure costs) are subsidized by those who consume a lot of electricity. Solar can also cause power grid fluctuations, so it takes money to solve that issue. Solar gets a free ride from everybody else. And of course, generating electricity at scale and storing it at scale is more efficient that doing it on a very small scale at each residence.
  8. For various reasons, yes. Example: They might find more ore. A lot of the time, mining companies hold off on deep underground exploration drilling until a deep shaft is sunk (so the drilling distance is a lot less). When you drill very long holes, the $/ft goes up a lot and the drillhole will curve off course. 2- Perhaps you are missing the point. If you grossly inflate a technical report, it is extremely unlikely that regulators will do anything. At worse, they say that another technical report must be done. I don't know of anybody that received a slap on the wrist for inflating a technical report. There are wonderful opportunities for fraud by hiring engineers that will write an inflated technical report. Using a 15% discount rate likely will not protect you.
  9. NPV estimates are inflated all the time. Some examples: - Consolidated Thompson / the Bloom Lake mine - Canada Lithium Positive NPV in the technical report. The company is currently in some sort of bankruptcy or something because it turns out the mine didn't have cash flow once it opened. And regulators won't protect you from these shenanigans.
  10. Hmm so I don't know the actual rules. KPMG has a white paper on the subject: https://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/first-impressions/Documents/first-impressions-production-stripping%20-costs.pdf From skimming their white paper, it seems that there were changes in 2011. After the changes, mining companies are allowed to capitalize stripping costs. 2- Sometimes I say GAAP when I mean to say accounting earnings (US GAAP, Canadian GAAP, IFRS, etc.).
  11. For some reason Rick's Hospitality (RICK / formerly Rick's Cabaret) put a lot of effort into stock promotion.
  12. Very interesting, thanks for that link!
  13. The real estate market got really hot when people didn't have to do this. ;) On the origination side, credit is getting tighter because nobody with a brain wants to make subprime loans (QM rules, reps and warranties, dramatic increases in the cost of servicing delinquent loans, etc.). On the inventory side, foreclosures are finally working their way through the system. --- Here's my opinion of the management of homebuilding stocks: The best - NVR Above average - TOL, LEN (especially the B shares) Average - Pulte Below average - KBH, AV Homes Bad - HOV Really bad - CHCI A year or two ago, it was easy to figure out the quality of the companies by simply looking at the return on assets.
  14. I don't think they actually "see" the order. I suspect that they use a special order type that automagically cancels if the whole order would fill. So one strategy is: Sit there on the bid and the ask all day flipping shares by buying at the bid and selling at the ask. Market makers have an advantage because they can front run you via price improvement. Suppose the bid/ask is $100.00 / $100.01 They place their bid at $100.0001 and their ask at $100.0099. So they cut ahead by a fraction of a penny (or a subpenny). They might only want to do this for a small number of shares. If somebody comes in with a buy order for 500,000 shares, suddenly their order is pre-emptively cancelled and doesn't get filled. They do this because somebody trying to buy that many shares has a good chance of moving the market. ------------------- The bottom line is that retail brokers, institutional brokers, and the exchanges are selling out their clients to market makers and other financial parasites (HFTs, intermediaries, etc.). That's the simplest way of looking at the problem.
  15. Seems like Mr. Circuit Speaker is doing just fine though... maybe our punishments are not harsh enough. I think he got punished fairly. He probably still has money stashed away but at least he went to jail. Many of these guys actually don't get punished.
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