Introducing the CVI - Punch Card Portfolio Newsletter

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Wednesday, September 29, 2010

Tilson Out With More Comments on InterOil (IOC)

Better than anything on TV.  Still no position, but have zero interest in being long this thing.

http://www.gurufocus.com/news.php?id=108287

Has Buffett gone bonkers ?

Interesting article on the derivative positions.

http://www.gurufocus.com/news.php?id=108078

ATP Monetizes Titan (Finally) - Look at all that liquidity (finally) !

Things are getting better.  Big well at Mirage is next, then the moratorium ending, then the next Gomez well, then the second Mirage well, then the Entrada reserve additions, then the ........

http://www.gurufocus.com/news.php?id=108122

Passport Capital on Petrobank Energy

I like Passport, didn't know they owned Petrobank previously.  Older interview confirms what I've been thinking.

http://www.gurufocus.com/news.php?id=108064

Trade of the decade will be shorting bonds ?

Per Seabreeze partners

http://www.gurufocus.com/news.php?id=107966

Sardar Biglari video interview on aggressive franchise growth plan

Not just a capital allocator

http://www.gurufocus.com/news.php?author=CanadianValue

Monday, September 27, 2010

Allen Knowles Petrobank Analyst - Interview

AK: Well, Petrobank does have an oil sands project, but it also has an oil sands technology, which is why it’s more complicated than the other companies mentioned. The company’s oil sands technology is in the pilot stage now, but all indications are that that pilot is working. The oil is upgraded in situ in this process, so instead of producing 9- or 10-degree oil, it produces 20- to 21-degree oil—a significant advantage; and capital costs are a third to a quarter of competing projects. This is a new technology and it is getting a lot of attention now, especially in the lower oil price environment. And Petrobank owns the technology; the company has already signed two contracts for joint venture agreements with third parties to use this technology in their fields. It’s not just an oil sands technology, by the way; you can use this technology in any heavy oil field.




TER: That is quite an advantage.



AK: It is very significant, and it provides the company leverage against the technology in the future. The value of the technology for the company increases as more and more companies do a joint venture with them, and the technology becomes more proven. So far Petrobank’s deal has been to retain a 50% working interest in, and a 10% override on, the other company’s project. The benefit of that, of course—it adds to the company’s growth. The other benefit is that it also recovers 70% of the oil in place in the reservoir, and a competing or just a standard expectation is somewhere between 25% and 40%, depending on the project. So they get almost twice as much oil out of the ground from their well than a competing project would get from their well.



TER: That is substantial. That’s amazing. So, it’s still officially in pilot, and they’re actually going out and doing these joint ventures? You mentioned that they had two that they’re doing.



AK: Yes its still is a pilot project. But the pilot has produced above expectations, and it has upgraded the oil. I guess now you really want to see that pilot kept on stream for an extended period of time, say six months, at least. But so far, it has been very positive; Petrobank has signed two projects—one with Duvernay Oil, which was recently taken over by Shell, and another with a company in Canada called True Energy Trust (TSX: T.TUI.UN, Stock Forum). It has signed confidentiality agreements with most South American state oil companies—and there’s a huge amount of heavy oil in South America; and it has ongoing negotiations with other companies besides the state oil companies in South America.



TER: Is this technology capital intensive, meaning to replicate it across several wells, it’s hundreds of thousands of dollars, or is it like pure technology where it’s highly leverageable?



AK: Like I was saying, the technology is actually cheaper; for instance, the estimates are that this will cost $20,000 per producing barrel to put a project together, and it likely will be less, whereas your average SAGD (steam assisted gravity drainage) project is $60,000 per producing barrel. So, it’s a third, and if you add an upgrader, you can get into the $80–$100,000 per producing barrel. And so you’re comparing $20,000 versus those higher numbers, depending on the project.



TER: Wow, these guys could make it just on the technology.



AK: They could. They have this Bakken play in Saskatchewan that I mentioned to you, which by itself probably justifies the current share price because in this market where everyone is beaten up, and the market is not paying for anything unless you actually have it physically in hand, you have it on production. So, our view is this technology is not in the share price at all right now.

Two Analyst Notes on the Titan Monetization

"Howard Weil - September 27, 2010


ATPG $12.51 (MP): Announces Monetization of ATP Titan Platform

Quick Take: An event that has been anticipated for months has finally occurred as ATP created a wholly owned subsidiary, ATP Titan LLC, in which the Company contributed the Titan platform and related assets. The Company will be able to borrow a total of $350mm against the Titan to fund continued development of GOM and North Sea assets. While we currently didn't estimate a cash shortfall until possibly the mid-late 2011 timeframe, we believe this transaction was necessary to ease concerns over potential capital needs for development/infrastructure funding and we expect the stock to respond positively with this news.



Deal Terms: ATP entered into an exclusive platform use agreement with the LLC and secured a $350mm term loan facility with CLG Energy Finance LLC (affiliate of Beal Bank Nevada). ATP will have immediate access to $150mm at closing and the ability to draw an additional $100mm when the second well at Telemark begins producing, which is expected within the next 3 - 4 weeks at a rate of 7,000 - 10,000 boe/d. The remaining $100mm may be requested once the third and fourth Telemark wells come online, however both completions are currently delayed due to the deepwater GOM moratorium. ATP is required to reduce the principal by 8% in year one, 9% in year two and 10% thereafter until maturity in September 2017. Payments bear annual rate of LIBOR (floor of 0.75%) +8% and the Company does not guarantee the debt of the LLC.



Pritchard Capital Partners - September 27, 2010

ATPG ($12.51-B-$18) - Monetizes the ATP Titan

Formed a 100% owned subsidiary, ATP Titan LLC.

Secured a $350 million term loan facility from CLG Energy Finance, LLC.

Received a $150 million at closing, remainder when future Telemark wells on production.



ATPG - Monetizes the ATP Titan, Strengthens Balance Sheet - Announced it has entered into an agreement to monetize the ATP Titan with CLG Energy Finance, LLC, an affiliate of Beal Bank Nevada. ATPG contributed its ownership of the ATP Titan and related assets to the subsidiary, ATP Titan LLC and secured a $350 mm term loan from CLG. The subsidiary was funded $150 mm at closing with an additional draw of $100 mm when ATPG begins production from the 2nd Telemark well, which is expected any day. An additional $100 mm in equal draws may be requested by ATPG as it brings the 3rd and 4th Telemark wells on production, which we expect in 2011. The terms of the loan call for principals reductions of 8% in the first year, 9% during the second year and then 10% until maturity in September 2017. ATPG does not guarantee the debt of the subsidiary, and holds a 100% ownership in the subsidiary and will remain the operator and continue to hold a 100% WI in the Telemark Hub and its oil and gas reserves The initial $150 mm will be used to continue development of its properties in the GOM, North Sea and for other corporate purposes. We expect the stock to react favorably to today's news. ATPG's development model using the most modern, state-of-the art equipment better positions it in our view to get back to deepwater drilling faster than other more exploration-oriented companies once the GOM moratorium starts lifting."

Monday, September 13, 2010

Analysis of Transocean

Grey Owl Capital compares BP impact on Transocean to the salad oil impact on AXP when Buffett stepped in and put 40% of his partners money into the stock

http://www.gurufocus.com/news.php?id=106947

10 Things the Crowd Currently Believes and How to Act on It

Some interesting thoughts from East Coast Asset Management

http://www.gurufocus.com/news.php?id=106910

Sunday, September 12, 2010

Passport Capital - Reasons They Own Gold

I'm a big fan of Burbank and his firm.  Don't always agree with the thinking, but I appreciate the thought that goes into his decision making.  And what he has accomplished in 10 years is unbelieveable

http://www.gurufocus.com/news.php?id=106876

Michael Lewis - Vanity Fair Article on Greece

Great reading. 

http://www.gurufocus.com/news.php?id=106875

Tuesday, September 7, 2010

Stonegate Agricom CEO - Video on BNN

Very nice play on growing need for fertilizer.  I've reduced my position which I got in at $.62 as we have had a quick ride up to $.90 on the Potash bid.  I think this is an excellent long term investment and I will likely re-enter if the price declines or if it stays here and ST keeps progressing with their projects.

http://vod.bnn.ca/Video/342670

Michael Burry Investing in Farmland

To be honest, I don't know if this guy is a little lucky or just that smart.  Worth paying attention to though and doing your own thinking.  If anyone reading my little blog wants to give me a couple of million to manage please feel free.  My IQ is at least 8% of Mr. Burry's !  Ok, maybe more like 4%.

http://www.gurufocus.com/news.php?id=106355

Monday, September 6, 2010

Saturday, September 4, 2010

Wednesday, September 1, 2010

Thoughts on ATP Short Interest

Found this in the comment section of one of my articles.  Interesting math on just how much of the short interest could be tied to those long the convertible prefs and the high yield debt.  The Titan SPV deal could encourage some of the bondholders to cover as any liquidity concerns would be addressed.

"Keep in mind that a fair amount of the shorts are tied to arbitrage strategies and are not direct directional shorts based on the demise of the company.


For example, the 8% convertible preferred converts into 6.3mm shares. An examination of the holders shows that about 40% of the prefs are held by institutional investors that do not hedge. If the remaining shares are held by hedge funds who hedge their positions 90%, that implies 3.5mm shares used to hedge the converts.
These guys are agnostic to direction and make their return off of funding and leverage.
Another source will be the 11 7/8% bonds which were issued days before the BP disaster. Those bonds were trading north of par with the stock above 20. Some relative value bond traders use a combination of stock and options to hedge their "capital structure" risk. That bond ($1,500 mm) represents the bulk of the enterprise value of the firm. The equity portion only represents around 600million.
Again by example, if we assume 40% of the bonds (600mm) are held by capital structure arbitrageurs, and 25% of that principal risk is hedged with equities, then that implies that another $150mm of stock is sold short. At $12/share, that implies another 12.5 million shares sold short.
So adding the two together we come up with 16mm of 20mm shares are tied to arb strategies and are not directional in nature.
It is difficult to make inferences regarding short covering without understanding this segment of the market and its impact on short interest. Yes, ultimately those shares will need to be covered, especially if the bonds start to get better due to improving fundamentals. But then again, the stock should go up if the fundamentals warrant it.

Consolidation Likely Amongst Offshore Drillers

Comments by billionaire owner of Seadrill sparks a rally in Transocean.  Other opportunities likely better

http://www.gurufocus.com/news.php?id=105994