bizaro86

I live in Calgary and work in oil and gas. I'm hearing rumours from friends/colleagues that PWE is doing layoffs again. Sorry, no written source or anything. However, a number of my co-workers are ex-Pennwest, and still know people there.

I'm hearing significant rumblings about a bunch more layoffs at PWE.

The Q2 report has the potential to be a catalyst for the stock, imo. Q1 doesn't look like they're making progress, becaust their capital spending is weighted towards the winter (as is typical in Canada). Q2 will have less spending due to breakup, plus the effects of the royalty sale on the financials, plus production from most of the Q1 drilling affecting the reported production numbers. Hopefully they keep up the asset sales, the market is pretty buoyant for those right now, and it would meaningfully surface value for them. I see potential for the reported debt number at the end of Q2 to be 2-300 MM less than at the end of Q1, which might be enough to re-rate the stock.

No, its not. I'm planning on doing a testamentary trust as part of the will. I live in a no probate cost/no estate tax jurisdiction, so some of those considerations are lessened. I'd be interested in hearing thoughts on structure, however, as I'm always open to doing things a better way.

I've had various long positions in ESI (some long stock, some short puts, some long calls at various times) basically on the dead cat bounce theory. It was really, really cheap. I still own some, but its less cheap than it was. It wouldn't be a good business with a long term future. What is, is something like PetroSkills. I've taken a few of their courses as part of my job, they're about 5k for a week of training in a hotel's meeting room. They're generally good, with curriculum and expert instructors (who would be expensive). But 5k in tuition times 30-40 students is real money, and they seem to have scaled it up. Multiple courses are offered in each city with oil and gas. The company is currently owned by a private equity firm who bought it from the founders, I'm watching for the IPO when they need to exit. I'm sure other industries have similar companies, that just happens to be one I'm familiar with that probably makes excellent ROIC. Their moat is the relationships they have with large O&G companies and the fact that everyone in industry has heard of them, which makes it easier to get the training expense approved.

Hadn't thought of that, thanks!

For sure. I've got a lawyer lined up for next week, who I expect will be able to advise on the mechanics of what type of structure is best, etc. I'm more looking for suggestions on what to ask for. As an example, if I ask for 40k per year to go to my kid's guardians, vs 100k per year, vs the income off the principle, I'm sure the lawyer would be able to execute any of those requests. My biggest concern is balancing how much control to give to any one person.

Hello, My wife and I recently had our first child, and are meeting with our lawyer to draw up new wills. Previously, if we both died all of our assets went to charity, but now obviously we'll want them to pay the costs of raising our son. When I added up the value of our (significant sized new term) life insurance and investments in equities and real estate, it would be enough to meet that goal, and likely have significant excess. What type of arrangements would you use for dispersing the money? The relatives we've selected as potential guardians are not wealthy, and would need the money or our child would be a burden. However, I'm a bit uncomfortable saying "here's a 7 figure check and a bunch of real estate and equity investments, have at 'er." I'm curious how other forum members hve dealt with this issue. I'm thinking of having our assets go into a trust with a fixed payout to the guardians, and the remainder to our son at 22/30. How much is reasonable for that? 50k per year, 100k per year? Would you select a trustee and give them discretion or fix an amount and have it adjust for inflation. Also, some of my investments are significantly illiquid and complicated to manage (real estate and microcaps/special situations). Would you have everything liquidated? I have a realtor I would trust to treat my estate fairly on the RE side, but nobody who could run my brokerage accounts with anything other than "rebalance these 3 index funds yearly" type instructions. Any thoughts on how much flexibility to give people and how much is too much? I don't want to tie hands from beyond the grave, but I also don't want my son to end up being fought over by relatives as some sort of sick lottery ticket. Anyway, this has been a long rambling post, but any thoughts, opinions, or anecdotes of how you've done your own estate planning would be appreciated.

Myth, What do you and others who know a good deal about what goes on in the oil patch think about the new developments at Petrobank? They appear to have all but thrown in the towel on their THAI process and injected steam down into their wells. Presto! They are now producing 650 Bbls of oil per day and 1700 Bbls of liquids plus they are merging with Touchstone 60% 40% with Petrobank getting the majority of stock after the merger. Touchstone is producing about 1600 Bbls of oil per day in Trinidad with the prospect of bringing in new wells at a cost of about $25,000/barrel per day of production. Plus, Petrobank still has about half the cash pile it started with a year and four months ago before wasting almost half it's cash on THAI, plus no debt. I'm currently long PBG, having bought when they announced they would stop spending on THAI if they couldn't get it to work by mid 2014. They're up ~20% since I bought, but they're still trading below NCAV (pre-deal), the touchstone assets appear to be worth at least what they paid for them, so at the current price you're essentially getting the Canadian heavy oil operations for free. With around 80MMbbl of contingent resource, that could double the value of the company, especially considering their existing Kerrobert wells/facility could be modified for SAGD. Definitely still has E&P risk, but its cheap so you don't need much to go right. I don't know much about Trinidad, but the quick metrics looked reasonable to me.

Disagree. The cost of building an upgrader in N. Alberta is astronomical. I've done the math, and you can rail dilbit to the US and rail diluent back to Canada, and pay for the transportation forever (even using a very low discount rate) with the capital savings from not building an upgrader here and building your coking capacity in the US instead. Also, if the pipelines don't get built (and my sources are cautiously confident on Northern Gateway getting cabinet approval) then the producers will build unit train rail capacity at site. This will eliminate the need for diluent, as the bitumen can be transported undiluted by rail (it doesn't need to flow). This eliminates the cost of securing diluent supply, but locks you into rail transport. Even at a low utility-like cost of capital, upgrading at site in Alberta is not economic, which is why the producers aren't building new ones. Of course, if the government subsidizes it enough, someone will build it. (eg Value Creation in Redwater)

I've discussed this with people whose job it is to evaluate oilsands technology, and the general consensus is that it's unlikely to be economic. Maybe they're one breakthrough away from hitting the big time, but I seriously doubt it. A lot of smart people are working on this, and they don't think Ivanhoe has it figured out. You didn't ask this, but I've looked into their land in Alberta, and my opinion is that it has no value whatsoever at any time in the forseeable future. It is too deep to mine, and too shallow with insufficient caprock for SAGD or other in-situ processes. The regulator is cracking down on these shallow projects, which will at least stop them from dumping more money down an unproductive hole. If the company just had the project I'd short them, but the technology adds a "lottery ticket" like aspect to the stock, which makes it too risky for me to short. Even if it doesn't work if they convince a major to pilot it somewhere the stock will pop.

Calgary, Canada

Did he teach your spouse that too? 8)

Some great blogs that I follow have already been mentioned (oddballstocks, shadow stocks). I didn't see www.otcadventures.com on the list, it's a good one. I am very interested in Canadian small/micro caps. I agree there's a lot of crap, but that also means most people don't bother looking at them, so there are some gems too. A few blogs I've gotten ideas from in the past. http://safetyinvalue.blogspot.ca/ Canadian micro-caps, net-nets http://pettycash.wordpress.com/ Good mix of investment ideas and commentary http://harvestinvestor.blogspot.ca/ Not frequently updated, but have gotten a few ideas from here None of these do daily posts by any means, but it only takes a few good ideas a year. I try and follow as many sources as I can...

There is essentially only one possible buyer for penn west, it's CNQ. The big international companies wouldn't be interested, and the only other Canadians who would buy their assets are too small to swallow pen west. And CNQ never puts companies in play. If pen west sells its because they want to. Unless a financial buyer or private equity gets interested...

Well, we're past the deadline and the three month extension. Would you mind sharing the name of the company and the outcome? Enquiring minds want to know...

I did buy the calls in Canada, I'm not sure if they're available elsewhere. The high dividend depresses the price of the calls.

I kind of like it, although I haven't done too deep a dive on their assets. Basically, they're trading well below their 2P valuation, and they're highly levered (debt to market cap ~2:1) so if they trade at 2P NAV discounted at 10% it'd be about a double from here. There is definite execution risk. I'm long via 2016 out of the money calls, which is a very high leverage way to play this, so its a relatively small position. Goodwill write down doesn't matter imho, and they got an excellent price on the assets they sold, so I'm encouraged by that. Also, royalty assets are the new black in the Canadian oil patch, all my friends who wanted to ask about my companies oil sands assets a few years ago now ask about our fee land assets. So they shouldn't have a hard time selling the next piece of their divestiture program. I also find the reduction in capex encouraging, if I had a spare billion dollars it'd be tempting to buy this and liquidate it piecemeal and/or let the assets produce out in harvest mode.

http://www.berkshirehathaway.com/2013ar/2013ar.pdf Full report is out.

Yes!!! Gold in the women's yesterday, and up 1-0

There are two types of regulatory risk, imo. Project regulatory risk is easier to estimate for someone with domain knowledge. As an example AOS.TO was an easy short a few years ago, because their main project had no chance of being approved for a number of critical reasons (depth of resource, pressure required, proximity to an airport, etc). Macro regulation changes are harder for me to quantify, because they depend on politics. I have occassionally run sensitivities in a model on how much I would expect a given price/tax for CO2 to affect different producers as part of a downside valuation, but I have a hard time predicting actual changes in regulation. If gov'ts worldwide started taxing all petroleum products at $2 per gallon for environmental reasons, that would destroy most O&G economics due to demand destruction. I have no good way of accounting for that, so I usually just put it in my "only buy things with a margin of safety" bucket.

Yours Truly, I have more or less done that for years. We financed a major home reno from a Heloc, and other life related items rather than increasing the mortgage. Then I deduct the interest against investment gains. After the market run up the Heloc is empty, and I am paying whatever advances the bank allows me on the mortgage each year. If there is a major market downturn I can borrow the money back instantly to invest. Of note: we got the Heloc in winter 2010, a year after the meltdown. The drawback is the flexible interest rates (its 3.75%) but it looks like the BofCan wont raise rates until the Fed does, and judging by the "disinflation" numbers that isn't happening soon. From what I understand, if you use your HELOC to invest, you cannot use it at the same time for other stuff like home reno. Or I should say, you can do that, but you won't be allowed to deduct your interest. You can deduct interest only if your HELOC is use as an investment vehicle only. Am I right on this? You can only deduct the portion of the interest used for investments. So if you have a 100k heloc and 50k is stocks and 50k is a new kitchen, you can only deduct interest on half. The proportion holds for the life of the loan too, so you can't pay back 50k and then start deducting it all. I assume the Uccmal actually sold investments to pay for the renos, then borrowed money on the HELOC to buy new investments, thus making the interest tax deductible. Interest on debt for home renos isn't tax deductible in Canada, whether borrowed on a heloc or any other way.

It's more like adding a bond position. Assuming you have enough equity in your house that returning it to the bank isn't likely, or you have a recourse mortgage (in Canada) then any downside from owning the house you already have. A house with a mortgage is more like owning real estate equity and owing debt. Since owing debt is equivalent to being short a bond, paying it off is equivalent to buying a bond.

I think the facts of the situation matter. I recently sold a couple of rental condos I bought out of foreclosure in 2009 in Canada. My IRR on them is in Packer/Ericopoly range, and I'm taking the money and putting it against my personal residence mortgage, where the before tax IRR will be <5%. Mortgage interest in Canada is not tax deductible on a personal residence, and my mortgage only has 2 years left until renewal, so those arguments don't apply here, but do in the US. My wife will sleep better with less personal debt, and that's a good investment, imo. We also have undeployed cash in our brokerage accounts, so adding more to them without high conviction ideas doesn't seem likely to be a winning strategy. If it was still 2009 where I was buying bargains left right and center on margin my opinions would probably be different. If you have tax deductible long term debt and high conviction ideas, I'd use the high conviction ideas. Otherwise, I'd pay down the debt.

Looks like a great find! Any thoughts on the quality of the management? G&A consistently at 3.5MM per year seems pretty high for a company that has as its business renting out real estate anad collecting ~15-16MM of rent per year.