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biaggio

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Posts posted by biaggio

  1. Cloud,

    ...

    Re Incorporation:

    A corporation is one of the worse vehicles to use for investing. Canada has special legislation pertaining to investment holding corporations. One of the things covered is that you cannot claim capital gains - it's all income. Furthermore, I don't think you're going to find an FI in Canada who will extend credit with no collateral to further leverage leveraged investments. But if you're hell-bent on levering up so much then why bother with lines of credit? You can just trade CFDs.

     

    rb

     

    rb, Never considered that investing within a corporation is  one of the worst vehicles to use for investing.

     

    what do you think of investing within a professional corporation (income generated from professional services) or an active business that is incorporated- example investing the rental income from property held inside of a corporation. Income is taxed at at the low small business rate. Generally investments would be buy and hold until capital is needed 10-20 years down the road i.e. no trading, strict buy and hold.

     

  2. kevin4u2, thanks for the info.

     

    I am looking at this area because of the recent depressed pricing. I get the feeling that  I should probably be avoiding this.

     

    So basically we should look at 2 basic things when looking at reserve reports:

     

    - Proven reserves

     

    - Capex spent vs how much 1P reserves are added--to see that they are spending money intelligently.

     

    One should pretty much ignore, or take it with a grain of salt everything else which requires various predictions/estimates.

     

    Looking at LTS, they have ~ 79 m barrels of proven producing oil with a F+D cost ~ $31 per barrel= $2.4b --> would others like CPG be willing to pay this instead of doing their own F&D (CPG historic F&D cost ~$24 ...but that was the past)

    vs LTS current EV=$2.3 b.

    All the other land , probable barrels are free options. At $4 per share, LTS is a better bargain then at $9 if oil prices cooperate.

     

    I can t see it going to zero. (It could be my blindness). If oil prices continue to be depressed or decrease more, they could cut the dividend to zero, cut their capital spending, and cut their operating costs...yes the share price would suffer.

     

    Who knows what oil prices will do. They might be up to $100 again. Its possible that prices will stay around $80...I would expect LTS and other companies to adjust to this if they want to survive. Just speculating.

     

    Again I appreciate all the healthy skeptism.

     

    kevin 4u2, ItsAValueTrap, is there a price or valuation where these types of properties would be considered for your portfolio.

  3. LTS is crap.  I completely changed my mind after reading the last reserve report that came out in Mar/Apr.

     

     

    Kevin I really respect your opinion. You are of the same opinion as value trap, another knowledgable poster here

     

    I am just wondering how you go about looking at these reserve reports?

     

    For others here, here is a report on reserves starting at the bottom of page 14.

     

    http://www.lightstreamresources.com/files/pdf/investor-relations/2013/2013%20Annual%20Information%20Form.pdf

     

    It seems that reserves are estimated by Sproule, who seems to evaluate most O&G properties that I have looked at.  Maybe thats my problem I am looking at the wrong properties. Are these professional engineering groups in collusion with management similar to the financial auditor pre 2008.

     

    With the way things are working out I am really doubting myself. I have a very small 1% position but was thinking of adding.

     

    The whole reserve report seems to have a lot of estimates. Estimate for future prices, operating cost, etc...I understand how the NPV number can be BS .

     

    How accurate are the estimate of actual reserves in barrels of oil. i.e. if they say that they "probably" have 176 million of barrels of oil in reserve, do we care if its 125 or 200 million barrels....Ok I care, I would rather it be 200  but if you're buying all 178 million barrels for $2.26B ($1.5B in Debt + the rest in equity), that works out to ~$13 per barrel..that seems inexpensive. If they end up having 125 million barrels then that ends up being $18 per barrel...still ok assuming that they can still turn a profit

     

    I had assumed that the estimates were roughly accurate +/- 20%.

     

    The way I see it they are too good to be true. Yet I want them to be true. I really appreciate Kevin4u2 and value trap introducing some skeptism.

     

    Hoping to learn something. Hoping not to lose money.

  4. I don't know about LEG as compared to others

     

    LEG is smaller, less debt, probably more growth(i.e. easier to grow), low cost, does not have past management baggage but I think its reflected in the price difference versus the others. No dividend. Everything has been clobbered.

     

    Could be because I hold LTS, PWT that I like them vs LEG-- they seem to have a sustainable dividend + seem very cheap:

     

                          LTS              PWT              LEG

     

    net back        50                39                  57

     

    2P                178              625                117.2

     

    estBBL/d    40,000            103,000          23,000

     

    Debt              1.5B              2.4B              0.815B

     

    #shares        200m            495m              199.7

     

    EV                $2.42B          $5.75B            $1.93B

     

    EV/2p          $13.6                $9                    $16.5

     

    EV/1000bbl/d  $60              $56                $84

     

    Capex        500,000            820m            390

     

    CF/S (2013)  $3.43          $2.17                $1.51

     

    Div                $0.48          $0.56                  0

     

    Div yield          10              8.3                    0

     

    Share Price    $4.60            $6.77                $5.59

     

    Price/CF        1.34x            3x                  3.7x

     

    Above retrieved from their most recent investor presentation. They could be wrong.

     

    The question is why might the market be right  i.e. why are we wrong? I am willing to suffer in the short run.

     

    Does anyone else other Canadian oil & gas companies to compare to those above?

     

    "Be wary of the high cost associated with a low price" to quote one of the other posters on another thread + my new mantra.

     

    Numbers seem to good to be true, 1.3x for LTS??? vs a property they sold recently for 6.5x.

     

     

  5.  

    If they are not generating distributable cash flow after their capex, and opex, then the value of the business is zero.  The land is worthless if you cannot generate distributable cash.  Therefore the PPE, and the company are worth zero.  Subject to someone else coming along who thinks they can improve the situation, of course. 

     

    My simplified take on the situation.  Dave Roberts seems to grasp this.  Rick George certainly does and he has spent 8 million on stock at higher prices than today.

     

    This makes sense to me.

     

    I feel like there is a good chance that George + Roberts can turn this around.

     

    I would like to see Roberts step in and buy some stock after latest sell off

     

    Like Cardboard or Alert said the new management is looking to do straight forward engineering not something high risk/highly technical. The assets are decent from what I understand, it was management that was the issue - hopefully these new guys will make it happen.

     

    Alert, I hope Cardboard triples his money from 11. Not unrealistic I hope.

  6. "Sure, but who am I?

     

    I was the idiot who bought an initial position in the $11 range and then doubled down at what looked like the low before the last few days…" Cardboard

     

    Don t be too hard on yourself

     

    Even the best stock pickers are only right 2 of 3 times. In the short run outcomes are mostly luck, good or bad.

     

    Hopefully you have helped some of the rest of us (and you 2) make a decent return over the next 3 years.

     

    I think you gave us decent info in your posts--thanks

  7. I like to think the remaining inventory (acres proven with infrastructure) and production as the assets they are building using the cash flow.

     

    To make a extreme case, if they don't drill any new wells, cap exp will be lower, FCF will jump, but the production will drop 20-30% annually until it stops.

     

    So although you wont see any FCF all the way to 2018, the future production stream (higher #) will be a much more valuable than current.

     

    I am ok if they grow their inventory + production by spending the netback.

     

    To grasp the economic value of the company I guess I am trying to separate the capex into maintenance capex + growth capex in order to justify future share price.

     

    In other words if they produce a barrel of oil and net back $45 as in their presentation. They can spend say $20 on replacing the barrel they just used up and the other $25 on increasing their inventory. production and infrastructure => does this seem reasonable?

     

    If this is how it works then I can see why you would want to pay 5X operating cash flow because you spend half on maintenance and other half on growth projects (exploration, infrastructure)

     

    Oil and gas has to be a great business because many have made great fortunes from it. I would like to feel I am getting a great deal.

  8. Myth + Alert

     

    My concern would be how much is left over after replacing production drop. Would PWT be using up all the EBIT to pay for the DA of EBITDA i.e. is there something left over for shareholders.

     

    If there is not much left i.e. your spending all your fund from operation to replace the production drop, then PWT not worth as much as I thought .

     

    I like that they have a large inventory. (a hidden asset perhaps?)

     

    Can they turn it into cash in your opinion?

     

    I would not mind at all if they did not pay any of it as a dividend.

     

    If they can derive $45 from a barrel of oil i.e. netback. (would this not be funds from operation)

     

    Then they spend $20 to replace that barrel (finding and developing cost)

     

    Is there not $25 left available for dividend, debt repayment, acquisition, buyback, etc

     

    I am just trying to understand the economics of this industry. Sorry I don t mean to be obstinate.

     

  9. Thanks Myth for reply

     

    If you take a net back of $45 per barrel then subtract $20 per barrel to replace the barrel you sold for net back of $45, would what is left or $25 per barrel be FCF or cash available for dividends ,growth , debt payments or share buy backs?

     

    Otherwise No FCF = bad business and perhaps would be better off elsewhere

     

     

  10. I was impressed with Roberts. He seems to say all the right things (i.e focusing on free cash flow, investing capital in projects with highest IRR, not worried about just growing unprofitable daily volume to satisfy some folks in the market.) Don t know his track record,  I hope he can execute what he says

     

    I have recently bought a small starter position

     

    Plan to add more if I see Roberts, or Rick George buying. It seems that the sell off in last couple days related to projected decrease in daily volume-volume decrease is as per there plan just coming a little sooner.

     

    Personally I have not done well in cyclicals or resource sector. Probably because I don't know what I'm doing. Have been enlightened by posters here and other threads

     

    Myth, Cardboard or others I would appreciate what you think of the following:

     

    Projecting 5 years down the road.

     

    They are projecting  125,000 barrels per day with $45 net back---that works out to netback of  $2.05 B => $4.21 per share.

     

    If you subtract Finding and development cost of $15-20/barrel, does that give you a reasonable estimate of FCF ---is this right?

     

    I am getting a FCF/S=$2.34-$2.80 in 2018

     

    If you give it a multiple of 10--> $23-28 share price + ~7% dividend while you wait at current price which works out to 30-35% per year return.

     

    It seems like a decent bet

     

  11. Warren on wisdom of hindsight, selling, and buy and hold:

    I probably came back on

    that September day from unsuccessfully trying to sell some

    prospect and decided - despite my already having more than 50% of

    my net worth in GEICO - to load up further.  In any event, I

    accumulated 350 shares of GEICO during the year, at a cost of

    $10,282.  At yearend, this holding was worth $13,125, more than

    65% of my net worth.

    Alas, I sold my entire GEICO position in 1952 for $15,259,

    primarily to switch into Western Insurance Securities.  This act

    of infidelity can partially be excused by the fact that Western

    was selling for slightly more than one times its current earnings,

    a p/e ratio that for some reason caught my eye.  But in the next

    20 years, the GEICO stock I sold grew in value to about $1.3

    million, which taught me a lesson about the inadvisability of

    selling a stake in an identifiably-wonderful company.

     

    It would be interesting to know if GEICO was overvalued, as KO was in the late 1990s, at any point during those next 20 years after Warren sold GEICO.

     

    Thanks for posting quote from WEB.

     

    I think that even if GEICO was overvalued, it was small enough to scale + grow over 100X over 20 years

    =you can afford to overpay. i.e. if you overpay by 3-4 x intrinsic value and you make 20 x (by IV growing 100 fold over 20 years) that is still very good.

     

    The problem with KO is size. How big can it get. You re potential upside is limited.

  12. Inspired by a lecture from Charlie Munger, http://ycombinator.com/munger.html, I thought it may be useful to have a discussion on probabilities. Specifically, attempting to quantify the probabilities of some future events, as well as explaining the thinking process behind the estimation. I'd like to stick to events that are both important and knowable. Consider first the questions Warren asked of Charlie during the Berkshire meeting this year:

     

    What is the probability that inflation runs at 5% or higher in the next 10 years?

     

    What is the probability that the US dollar is the world reserve currency in 20 years?

     

    Of course, answering these questions cannot be done with precision.

     

    Bird,I don t know if these things are knowable. I don t think anyone knows, so it is probably not that important.

     

    This concept of expected valuation/probability is new to me.

     

    Obviously putting a probability on an outcome is more of an art + guess. Other outcomes may be a lot easier -example; probability that coke will continue to grow earning by x % and will be a great business in 10 years (because everybody knows this,it may not be very important either for the sake of making money, but to realize this)

     

    For the sake of (me) learning and discussion:

     

     

      In the case of inflation being >5% 

        my possible out comes would be i >5%  or ii <5%

     

      Seeing that I have no idea and have no insight I would use (what was recommended in book Thinking, Fast and Slow) the base rate as the most likely.

     

    http://4.bp.blogspot.com/-NQAuKUEl4Y0/T3EjXaTS-2I/AAAAAAAABUQ/k21b2SrBnZQ/s1600/U.S.+Yearly+Inflation+Since+1900.jpg

     

    it appears that inflation was >5% twelve times over last 100 years

     

    So I think that a probability of inflation <5% of 88% is as good as any

     

    Therefore probability of inflation >5% is ~ 12% is as good as any, possible but not likely.

     

    The second question re US dollar being a world currency:

     

    Possible outcomes- yes or No

     

    The base rate in my mind would be continuing the status quo especially seeing I have no special insight. If I had special insight or fact then I would adjust my guess accordingly.

     

    Intuitively I think it is likely and probable that US dollar will still be the reserve currency.

     

    I think its possible but unlikely that some other currency or basket of currency/commodities will be the reserve currency

     

    When I think that something is probable, I think that it is at least 51% probable. In this case  I would guess that there would be more  certainty and while it is probably not 100%, over short period of time like 20 years I will guestimate it at 95-99%.

     

    Bird, it may be more instructive to look at how we could use probability, mathematical/expected valuation in some stocks that have recently been discussed and are popular here- say BAC or MBIA or SHLD.

     

     

     

  13. Is there a reason data roma and whale wisdom have different data for Berkowitz?  (And is this an issue for others)?

     

     

    http://whalewisdom.com/filer/fairholme-capital-management-llc

     

    http://www.dataroma.com/m/holdings.php?m=fairx

     

    They appear not to be updated---date says Feb 28

     

    Why not just set up your own RSS and save in favourites, then you ll have from original filing

     

    e.g. feed://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001056831&type=&dateb=&owner=exclude&count=40&output=atom

     

    I spent a few minutes last night settting up several, for some of the funds recommended in one of the other threads (I think it was the "13F" thread)

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