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I think its likely that Compton will have to massively dilute shareholders again to deal with their bond issue. I wouldn't be surprised if they did this sooner than later at a discount to face value, despite the bonds having four years until maturity.

 

I think that natural gas is likely to go A LOT lower in the next month due to the storage situation in North America. The last two storage injections coming in below "consensus" is likely more a function of pipelines issuing Operational Flow Orders because they can't take more gas than from production being voluntarily curtailed. There has alse been a large short squeeze, apparently stemming at least in part from large players positioning themselves short of the front month contract in order to game the monthly "roll" of the UNG (the giant natural gas ETF) into the next months contract.

 

I am not an energy trader, so take this all for what its worth (about the same as what you paid for it), but the facts on the ground suggest to me that there is some serious short term pain in store for natural gas.

 

That being said I am very bullish long term and am invested in a few players who I think have a bright future, sure survival, and a lot of upside leverage.

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I like gas but Compton is too risky. Gas prices will hit $2 per a few smart gas MLP CEOs - (EVEP). You want to own a guy acquiring assets not a guy fighting to stay alive and forced to dilute. I would buy the Bonds if pressed but, US MLPs have hedged gas for the next 3 years at $7, are cheap, and yield 14% or so. You also have companies like MCF who have no debt and are low cost producers.

 

I think Compton will survive but, wont come out of this downturn better or stronger. They were over leveaged and mismanaged. Alberta gas I believe goes for a lower amount then HH due to Canada having an oversupply of gas and higher transmission costs. 

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The lack of interest on this board in Contango Oil & Gas (MCF) is surprising.  It is by far the best vehicle for investing in natural gas in the US.  Its trading around 50% of a very solid NAV +$20-$30 hidden in their Gulf leases.  I agree with Myth on MCF and EVEP/LINE.

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My problem with MCF is I dont like Gas in general. Also whats there reserve life? I also wonder about the decline rate on the well, so I worry about long term value.

 

I know they are for sure a low cost producer and have best in class Management but, the gas markets have too many variables. I dont know when the cycle will turn and it has a bad economic outlook in my opinion. This or at $2 will be the bottom but, how high or long will the top go. There are still 2000 rigs out there and the pricing on them is low, so I see several small boom bust cycles in gas due to no barriers on drilling in my opinion. Canada and the US are stuffed with gas and there are no pushes to ramp up its uses (power plants, or natural gas cars / buses). Its also tied to weather and coal prices which adds to complications. Its a wild card. One good hurricane and its up but, a cold summer / hot winter does the opposite. Everyone is waiting ready to turn on the drilling once prices go up causing them to go down.

 

Oil is much easier to understand - it is going up due to energy usage and general inflation. Its a world wide product so pricing is world wide instead of regional. Additional oil also costs more to get out of the ground. I like gas as a kicker / byproduct of oil, I like it when its hedged and the company can buy during the down side, but, I hate it when its the companies only asset during a down turn and they have to pay down debt.

 

 

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I like contango, but not excited to see continued insider selling.

 

" It is by far the best vehicle for investing in natural gas in the US"

 

Can you give some reasoning on why you believe this? I think they are a good company and debt free, but 'best vehicle'?

 

"Oil is much easier to understand "

 

I have to disagree with this statement. Natural gas in North America is a local market without externalities. The annual decline rate of existing production is know, the marginal cost of new production at different levels of demand is known, and demand is fairly simple (heating, power generation, fertilizer, industrial). Sure weather has an effect, but over time demand is fairly stable. I think oil is a lot more complicated, but admittedly I know less about it

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Re Compton:

 

Keep in mind that Suncor is in the process of putting a large number of high quality & producing gas fields on the block. Suncor will be fully aware that they will have price down to clear the inventory, & that to pay for it - buyers will have to pretty much immediately put the production on stream. With such a large supply over the near term, it will take very little to shut in a gas well.

 

Comptons game plan was to grow their production & sell to a major. They had the opportunity & turned it down, now they have gas assets that they effectively cant afford to sell, & ongoing share dilution because they left themselves in a liquidity trap.

 

They may have good assets & a strong production team, but there are a lot of others better than them with a lot less risk.

 

SD

 

   

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I like contango, but not excited to see continued insider selling.

 

" It is by far the best vehicle for investing in natural gas in the US"

 

Can you give some reasoning on why you believe this? I think they are a good company and debt free, but 'best vehicle'?

 

"Oil is much easier to understand "

 

I have to disagree with this statement. Natural gas in North America is a local market without externalities. The annual decline rate of existing production is know, the marginal cost of new production at different levels of demand is known, and demand is fairly simple (heating, power generation, fertilizer, industrial). Sure weather has an effect, but over time demand is fairly stable. I think oil is a lot more complicated, but admittedly I know less about it

 

Ken Peak's selling is supposedly for estate planning purposes, which, does make sense, since he is getting to that stage of his life. He still owns a ton of the stock... a lot of the other selling is being done by people that bought @ $80+. Don't get me wrong though- Sellers seems to be a smart guy.

 

I am sure that I am stating the obvious here; Contango is a bet on a company that can survive a long time even if they drill a lot of dry holes. In addition, they can survive, and still be profitable, even with long term low gas prices. The more levered operators on the flip side, are a bet on gas prices rising more quickly... Me personally, I am a fan of Keynes (and by extension, contango) when he said 'sometimes the markets can stay irrational longer than you can stay solvent'. With that said, I am surprised that there are not more operators that has simply 'turned the valve off', and done their part to make prices go up. In addition, if prices stay low, Contango will get a lot of good deals on leases and such.

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Oil is more complex but, its fundamentals are easier to see. The catalyst is there and easy to see is what I meant. I dont know what will drive gas prices up. Here is a summary of a call I am about to listen to. Its a presentation by the CEO of EVEP, this was taken from a Yahoo Board and I haven't confirmed it yet so ... The info relating to EVEP is all true, I will comment on the comments soon.

 

Walker was candid and interesting as always:

 

- Gas will be in the "pennies" in the next few weeks!

 

- EVEP is 90% hedged, benefit from gas going down.

 

- Never seen such disparity in gas price forecast going forward.

 

- Comfortable now with debt, will not rise to levels seen earlier this year. Prior year acquisitions were "a mistake".

 

- Currently selling at a discount to peers, doesn't keep him up at night.

 

- Won't see any drop downs right now given markets, but EVEP should participate in EV acquisitions. EV is being very aggressive right now.

 

- Drilling costs coming down radically, expect next wells could be under $2M, from $3.8M last year.

 

- Chalk wells have been paying out in months, rather than years. He was critical of initial wells there by another company, said it shows he shouldn't be involved in drilling decisions.

 

- About to announce a Marcellus deal.

 

- Just about fully hedged in oil through 2014.

 

- Hedges dropping off in price after 2012, but planning on making acquisitions to maintain distributions after 2012.

 

 

So, good stuff going forward for EVEP, but my goodness, gas prices are about to crater into the ground if Walker is right. What will that do to MLP prices? Keep your cash warm.

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You want to own a guy acquiring assets not a guy fighting to stay alive and forced to dilute.

 

Yup, I agree with this, which is why I am looking at XTO (don't yet have a position).  I really hope that the nat gas price collapses and goes to $2 because that's going to cause immense pain in the industry, which will allow companies like XTO to snap up producing assets at fire sale prices. 

 

If natural gas does indeed collapse, it would be worthwhile taking positions in companies that have natural gas as a major input for their production and that already trade at a discount to intrinsic value.  I'm thinking of fertilizer companies . . .

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The lack of interest on this board in Contango Oil & Gas (MCF) is surprising.  It is by far the best vehicle for investing in natural gas in the US.  Its trading around 50% of a very solid NAV +$20-$30 hidden in their Gulf leases.  I agree with Myth on MCF and EVEP/LINE.

 

Looks like its fair value.

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  • 2 weeks later...

it seems natural gas oct 2009 futures on nymex expired 3.95 or so last week. But surprised to see Nov 2009 futures trading at 4.80 or so this week. How come there 20% gap between these 2 contracts.. what's the missing piece here.. sorry I don't know much about futures and never traded any.. curious to know why the big jump..

 

any one please ?

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Natural Gas is in large contango.  Further contracts are priced higher than current contracts.  This is why UNG etf is getting hit on rolling over near term contracts.  MCF is presenting on thursday, and Ken Peak should give us some insight on future natural gas prices.

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  • 3 weeks later...

Im in the early stages of research but, Loews seems to be the best no risk play on Natural Gas Available. You are getting 4 billions in natural gas assets, and a set of hotels for free. The stock value is represented by DO, The Insurer, and the Pipeline company.

 

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Myth - Re: Loews

 

Don't forget their nat gas and oil E&P business - Highmount - generates about $200 million in cash per year.  Also, The company (parent) has about $2 billion in cash (net other receivables, payables and debt).

 

The insurance operation generates about $2.3 - $2.5 in investment income per year.  Thus, it will take a lot of future mistakes/cats in the insurance operations to fully eat into this income stream.  CNA is one of the most undervalued companies I can find right now.

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Loews and CNA are my biggest holdings on a combined basis. CNA is selling for below book and Loews gives you Highmount for free.

 

Should be interesting to watch everything unfold. It also looks like CNA is slowly turning around and if the CEO can pull it up then we should at least get book value for it. BWP and DO also give you natural gas exposure and the BWP GP should be worth quite a bit overtime.

 

I am also looking closer at MCF and will be buying when I free up cash. Hopefully I can get in before they announce drilling results.

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  • 3 weeks later...

I finally bought MCF but was unable to grab it prior to the announcement. I thought 1 was coming but, was moving money around at year end and was unable to buy until Tuesday.

 

Ken Peaks is very impressive and the last presentation was very helpful. They are truly the low cost producer and I like the exploration program that they have put in. The Peak ratio in the presentation was interesting.

 

Highmount at Loews has all in costs at $2.73 so they too make a very nice investment. A stub investment was mentioned and if someone has enough capital to pull it off they Get Highmount and the BWP GP for free.

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Guest Bronco

Myth - as I mentioned on this board, my biggest holding is also Loews.

 

Going through some of the conference call transcripts and financials, it appears they are interested in expanding nat gas operations as well as hotels (at the right price).  Don't know if that holds true today, but it was true at some point. 

 

Don't think they will ever sell hotels as some have suggested - at least not while Jonathon is alive.

 

Once CNA repays L - Loews will have a ton of cash again and it will be interesting to see where the money goes.  They may not always be right, but the Tisches do seem to get good bargains over the L-T.

 

CNA is ridiculous right now.  If this wasn't 90% owned, it would jump up in price or be bought out.  I don't own any now, but have naked puts at $20 and $17.50.  This couldn't be cheaper.

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Loews and CNA make up about 15% of my portfolio and I own them in equal pieces. I go back and forth on CNA but one thing everyone agrees on is it is definitely cheap.

 

The only problem I have is it has been crappy for so long. How can you not make money with a $40 Billion Dollar portfolio. Thats alot of loses for an insurance unit to eat though. I feel fairly comfortable with the balance sheet and book value and am hoping that the losses will slow or stop with the new CEO. It is about the cheapest insurer I have found though.

 

I think DO (as you said cash cow) and BWP (cash cow with built in growth) are the best assets at Loews. I think the BWP GP will be worth quite a bit once all of the expansion projects are complete and as they continue to growth the dividend. The IDRs will become very valuable once they exceed the top Dividend split. Makes it hard to be a BWP common shareholder but, is a great deal at Loews.

 

I dont mind the hotel business but, think that now is an awful time to own any hotels. This means though that its a great time to be buying. I travel for work and wouldnt stay at Loews due to them not having enough of them and them not having a decent rewards program. My main problem with the hotel assets is that I think the platform is too small. I think they should expand it or sale it to someone with some scale. They  have said they will expand the luxury line now but, want an adequate return based on todays occupency rates. I dont think they want to pay up for any type of forecast which shows imporvements.

 

The last call was very good, they basically said they wouldn't sale CNA because it was intrigue to Loews and that they would prefer and are looking to expand the hotel business. Looking at Highmount's cost structure shows me that these guys know what they are doing. I think at $4 gas it looks like they overpaid, but at $9 gas its a cash flow beast. Based on MCF the world needs around $6 gas and at that price I think its a good price considering the long reserve life. I think CNA and BWP have just been consuming alot of time and capital and now that attention and money will be spread around a bit.

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Guest Bronco

Myth - don't have much more to add, well said.

 

In terms of CNA - I agree - I need to let this new CEO do his thing.  There is certainly a margin of safety here though with the gigantic discount to BV. 

 

What is interesting about Higmount is that it was a short-term bust but I really like the L-T prospects.  These guys are so good at buying for the long-term - let's see how it plays out.  I don't believe they are operating at 100% in terms of number of wells - curious at what price they go full speed ahead.  I know they have some nice hedges though.

 

Personally, I am learning the nat gas business from an investor standpoint - but overall Loews is such a great, cheap way to play energy in a diversified manner (drilling, pipelines, E&P).

 

 

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