Introducing the CVI - Punch Card Portfolio Newsletter

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Thursday, October 27, 2011

Economic Growth in 3rd Quarter

I wish I had kept a list in September of all of the talking heads on television who stated as though it were fact that the American economy was back in recession. 

Why is it so hard to say I don't know when asked a question?


http://www.washingtonpost.com/business/economy/us-economy-grows-nearly-twice-as-fast-in-3rd-quarter/2011/10/27/gIQANfoyLM_story.html

Wednesday, October 26, 2011

Tilson - Now Long Netflix

Tilson Video – Now Long Netflix And Explaining Why

Marc Faber - Money Printing Only Delaying the Inevitable

Marc Faber - Money Printing In Europe/USA Postponing the Inevitable

Tilson Discussing His Current Portfolio

Whitney Tilson Discussing His Top Holdings

Goldman Could Get Windfall Buying MF Global

http://www.bloomberg.com/news/2011-10-26/goldman-sachs-may-make-windfall-profit-if-it-buys-mf-global-bove-says.html

Westfire Operations Update

WestFire Energy Ltd. ("WestFire" or the "Company") (TSX:WFE) is pleased to provide an operational update on its third quarter 2011 activities.


Drilling

The three months since acquiring Orion Oil and Gas Corporation ("Orion") effective June 30, 2011 have been the most active for WestFire in its history. The Company continues to be one of the most active drillers in Alberta during the first nine months of 2011 ranking in the top twenty as identified in the Daily Oil Bulletin. A total of 53 (44.8 net) development wells were drilled consisting of 50 (42.0 net) oil wells and three (2.8 net) gas wells for a 100 percent success rate. The majority of the wells, or 43 (35.0 net) horizontal oil wells, targeted the Viking light oil resource play. Seventeen (16.0 net) wells were drilled at Redwater while six (6.0 net) were drilled at Provost and 20 (13.0 net) wells were drilled in west central Saskatchewan. Of the wells drilled in west central Saskatchewan 14 (7.0 net) were drilled by a joint venture partner at no cost to WestFire.

In addition to its Viking horizontal drilling program, WestFire drilled two (1.8 net) Beaverhill Lake liquids-rich natural gas wells at Kaybob South, three (3.0 net) vertical heavy oil wells at Lloydminster and five (5.0 net) Viking vertical wells to delineate future horizontal drilling potential.

Drilling activities ceased at the end of the third quarter. Two drilling rigs will resume operations on the Viking play at Redwater in November and will continue drilling into 2012.

Viking Oil Resource Play

Production during the third quarter from the Viking drilling program has exceeded expectations. In January 2011, total Viking production averaged approximately 1,000 barrels of oil equivalent per day ("boepd") which represented 32 percent of total Company production. Currently, field-reported Viking production is over 3,300 boepd and accounts for 38 percent of WestFire's total production.

At Redwater, the latest four horizontal Viking oil wells placed on production have initial average rates of approximately 125 boepd with decline rates that are lower than both internal and independent engineering type curves. Meanwhile, the initial average rate of the five most recent horizontal Viking oil wells at Provost is approximately 45 boepd at restricted rates. And at west central Saskatchewan, the initial average rate is 40 gross (20 net) boepd from 11 horizontal Viking oil wells.

Robust production growth, in combination with improved initial rates exhibiting less decline, confirms WestFire's belief that its extensive prospective land holdings on the Viking play will underpin future corporate growth.

Kaybob South

During the quarter the Kaybob South area experienced intermittent production outages caused by forest fires and flooding due to heavy rains. After these curtailments several of the wells did not come back on production at previous rates. Two (1.8 net) gas wells were drilled that did not meet expectations. As a result, the production over the quarter was off by approximately 500 boepd.

WestFire has embarked on a complete technical overhaul of the property including geosciences, engineering and production operations. The Company has utilized this approach successfully in the Viking and will implement the same process at Kaybob South. New technologies will be investigated to optimize and expedite the recovery of the liquids-rich natural gas reserves.

As further technical understanding is gained on this complex reservoir, the Company plans to redirect capital previously allocated to Kaybob South towards continued drilling on the Viking light oil resource play.

Production

The oil weighting of the Company has continued to grow from 60 percent in January to its current 68 percent. This increase is significant given the higher gas weighting of the Company resulting from the Orion acquisition. Overall production for the third quarter of 2011 is estimated to be 8,550 boepd prior to an adjustment for an over-accrual on second quarter Orion volumes. When the over-accrual is accounted for, the reported volumes are estimated to be 8,450 boepd.

WestFire expects to release unaudited financial and operating results on November 10 at which time production guidance will be updated.

Population boom heralds big economic shifts

GAME CHANGER


Still, the rapid economic re-emergence of China and India, both with populations of well over 1 billion, is changing the equation.

The failure of the cost of oil and many other commodities to fall farther than they have despite stagnation in the West is a harbinger of the wrenching changes to prices and consumption patterns that rapid growth in emerging economies will bring about.

"When you've got China, India and Brazil that are so big and are growing so fast, you're going to get a major reorganization, if not disruption, of the world economic order," said Professor Lawrence Haddad, director of the Institute of Development Studies at the University of Sussex in England.

"We're going to go through a massive adjustment in the next 15 to 20 years. We're just beginning to see it," he said.

Some countries are introducing carbon taxes to reflect the non-renewability of fossil fuels and induce consumers to change the way they behave. The fact that water is largely free for most farmers, who use 70-80 percent of the world's water, leads to enormous waste, Buiter added.

"Either prices or policies will have to change. One way or another we will have to ration these things," he said. "Technical change can't do it all for us. We can choose: we can either have physical rationing, which is difficult and inefficient, or price rationing of some kind."

To grasp the scale of the behavioral changes that policymakers will have to bring about, Lester Brown, president of the Earth Policy Institute, an environmental organization in Washington, has estimated the impact on the world's natural resources if, as he projects, China's per capita gross domestic product (measured at purchasing power parity) catches up with that of the United States by 2035 - and if Chinese were to spend their income more or less as Americans do.

China would use four-fifths of the world's paper and 70 percent of the world's current grain output. Were China to have three cars for every four people, as the United States does, China would be consuming nearly all today's oil production.

http://ca.news.yahoo.com/population-boom-heralds-big-global-economic-shifts-115833332.html

Cheniere Energy Up 70% on $8 billion LNG deal

http://www.reuters.com/article/2011/10/26/us-lng-cheniere-idUSTRE79P3DO20111026

Tuesday, October 25, 2011

JP Morgan Funds - A time to buy housing

JP Morgan Funds – Housing, A Time To Buy

Tilson - Gave up on his Netflix Short Too Soon

http://blogs.wsj.com/overheard/2011/10/25/whitney-tilsons-long-lost-netflix-short/?mod=yahoo_hs

First Interview With Rajaratnam

First Interview with Galleon Insider Trader Raj Rajaratnam

Interview With Donald Yacktman

Interview With Donald Yacktman – Performance In Top 5% of Managers Over Past 10 Years

The Trouble at Fairholme

The Trouble at Fairholme

Charlie Munger - EU Leaders are Way Behind the Curve

http://www.bloomberg.com/news/2011-10-24/berkshire-s-munger-says-leaders-way-behind-the-curve-on-european-crisis.html

Lengthy Interview with Tom Russo

http://www.valuewalk.com/interviews/exclusive-interview-famous-investor-tom-russo/

Trapeze Asset Management Quarterly Report

Always a good read.  They have certainly been sitting on some of these positions for a long time with limited success though.

Trapeze Asset Management - Quarterly Report

Wednesday, October 19, 2011

Einhorn 108 Page Short Thesis On Green Mountain

Value Investing Congress 2011: David Einhorn’s Full Presentation on GreenMountain

Fairholme Co-Manager Quits !

Fairholme Fund Co-Manager Fernandez Quits

Rio Tinto Tops Cameco Offer for Hathor

Hathor to be acquired by Rio Tinto for $4.15, topping the Cameco offer:

http://www.newswire.ca/en/story/861385/rio-tinto-makes-recommended-all-cash-offer-of-c-4-15-per-share-for-hathor-exploration


This was certainly my best idea of the year, in at $2.60, out at $4 or so.

http://www.gurufocus.com/news/134720/hathor-exploration--how-long-until-it-is-acquired

Chevron Looking For Resource Play Acquisitions in the $5 billion range

I've got seven of them in the Punch Card Portfolio.  Would happily sell any at a nice premium.

http://www.marketwatch.com/story/chevron-considering-acquisitions-analyst-says-2011-10-19

Value Investing Congress Recap

Tilson recommends Berkshire and an Ackman position......didn't see those coming !

http://www.marketfolly.com/2011/10/value-investing-congress-slideshow.html

More M&A to Come in the Bakken ?

http://www.bloomberg.com/news/2011-10-19/bakken-shale-oil-turns-oasis-into-target-as-fracking-costs-slide-real-m-a.html

Monday, October 17, 2011

A little more on the Statoil/Brigham Deal

10X 2012 EBITA

http://www.forbes.com/sites/christopherhelman/2011/10/17/norways-oil-giant-to-buy-into-north-dakotas-bakken-for-4-4b/

Kovitz Investment Management Quarterly Report

Kovitz Investment Management – Why We Are Comfortable Being Uncomfortable

Best part is the quote at the end, reminds me of someone:

“The trouble with the world is that the stupid are cocksure and the intelligent full of doubt.”


– Bertrand Russell

Compare BEXP Price With Petrobakken Valuation

http://seekingalpha.com/article/299950-petrobakken-may-have-300-upside-based-on-brigham-s-acquisition

I'd like to say BEXP deserves a big premium to PBN because of its acreage position, but then I think of PBN's position in the Bakken, Cardium, Nordegg, Montney, Duvernay, Swan Hills, Horn River.

Nice to see Mr. Market paying no attention. 

Unconventional Oil Producer Brigham Exploration Gets Taken Out

$4.7 billion for 21,000 boe per day of current production.

Now I remember why the Punch Card Portfolio is holding 8 separate unconventional oil producers.

http://www.statoil.com/en/NewsAndMedia/News/2011/Pages/XXX16Oct2011.aspx

The Brigham Board of Directors has unanimously recommended to its shareholders that they accept the offer. Ben "Bud" M. Brigham, Chairman, President and CEO and the other executive officers and directors of Brigham, who collectively own approximately 2.5% of the outstanding shares, have agreed to tender all of their shares.


The total equity value is approximately USD 4.4 billion, reflecting an enterprise value of approximately USD 4.7 billion, based on June 30, 2011 net debt.

Brigham, based in Austin, Texas, has over 100 employees in Austin and North Dakota and a strong position in the attractive Bakken and Three Forks tight oil plays in the Williston Basin in North Dakota and Montana.

"The US unconventional plays hold a substantial resource base and represent an increasingly important part of future energy supplies. Statoil has step by step developed industrial capabilities through early entrance into Marcellus and Eagle Ford. Entering the Bakken and Three Forks tight oil plays and taking on operatorship represents a new significant step for Statoil. We are positioning ourselves as a leading player in the fast growing US onshore oil and gas industry, in line with the strategic direction we have set out," says Helge Lund, President and CEO of Statoil.

The transaction will provide Statoil with more than 375,000 net acres in the Williston Basin, which holds potential for oil production from the Bakken and Three Forks formations. Brigham also holds interests in 40,000 net acres in other areas. At this early stage of development the risked resource base is estimated at 300-500 million barrels of oil equivalent (boe), equity. Current equity production is approximately 21,000 boe per day, and the acreage has potential to ramp up to 60,000-100,000 boe per day equity production over a five year period.

Wednesday, October 12, 2011

Interview With SkyWest CEO

Note to subscribers.

I spoke this afternoon with Skywest CEO Larry Urichuk on the merger announced yesterday:

http://www.marketwire.com/press-release/marquee-petroleum-and-skywest-energy-announce-business-combination-tsx-venture-skw-1571210.htm

Details of the conversation will be included in the Sunday newsletter.

Einhorn Ups His Bet on Gold Equities

Two of David Einhorn’s Largest Positions Now Involve Gold

Jim Chanos Betting Against All Chinese Banks

Jim Chanos Betting Against All Large Chinese Banks

Was there forced selling from John Paulson?

Did Forced Selling from John Paulson Drive Down Citigroup, Transocean and Capital One?

Oilweek - Western Canada's Hottest Oil Plays

http://www.oilweek.com/articles.asp?ID=868

Even with the prospect of wildly fluctuating oil prices in the future, oil is decidedly where many producers want to be at a time when vast stores of shale gas in North America continue to depress natural gas prices.


Murray Nunns, president and chief executive officer of Penn West Exploration, whose career spans 30 years in oil and gas, provides some of the context for today´s Canadian oilpatch activity.

"Oil development largely stopped in Alberta in the 1980s," he says. "Why did it stop? Number one was oil prices. The cost structure was high in Canada. The resource was difficult to access and the royalty structure was high on the front end when the production volumes were high, and dropped as the volumes decreased. Well, if you´re trying to repay capital investments, that´s about the worst possible scenario."

Today, by contrast, Alberta has a five per cent upfront royalty on the first 50,000, 60,000 or 70,000 barrels, depending on well specifics, and Saskatchewan has a zero per cent royalty on the first 38,000 barrels, allowing producers to pay out their wells quickly. Horizontal multi-frac technology has driven down costs structures, ("You can drill 12 or 14 vertical wells or you can drill one horizontal well with 14 fracs," Nunn says. "That´s about a 70 per cent reduction in costs."), oil prices are strong and regulatory provisions for the down-spacing of wells round out the list of key factors that launched today´s light oil boom.

WHAT´S OLD IS NEW

In Alberta, oil well completions at the end of July rose to a 30-year high. Many of the traditional oil plays that put Alberta on the world map are seeing new drilling along their edges in tighter rock that didn´t readily surrender its cache of oil to older technology.

So not surprisingly, four out of Oilweek´s Top Five plays are oily: the Cardium, Beaverhill Lake, Saskatchewan´s Viking and Manitoba´s Spearfish.

Each play differs in its stage of development and how it fits into a company´s strategy. The Viking is well-mapped and pulls in small companies content to drill relatively shallow and relatively inexpensive wells. They are rewarded with modest production with good netbacks.

The same can be said of the Manitoba Spearfish, except it´s a bit deeper and more expensive to drill.

The Cardium is a deep and expensive to drill. Beaverhill Lake is even deeper, but both yield bigger volume wells. Penn West is "on the cusp of development" in the Cardium after more than a year of technical assessment work. Beaverhill Lake is still in predevelopment. These are impact plays for companies with deeper pockets such as Penn West, Crescent Point Energy Corp. and many others. Bread-and-butter Viking and Spearfish assets may also make up part of their diet, but it´s these deeper plays that will provide the meat-and-potatoes for growth.

For all the attention oil is getting, natural gas production is by no means dead in the Western Canadian Sedimentary Basin. Northeastern British Columbia´s Montney, traditionally among the top three most economic gas plays in North America, continues to turn out strong production, helped in parts by a natural gas liquids (NGLs) boost to its economics.

So the Montney rounds out this year´s Top Five.

The greater vision, as floated at shale gas conferences over the years, of a natural gas-fired economy in North America may well be around the corner. Natural gas-powered generation is a less carbon-intensive fuel source for power generation and its plants are cheaper to build. So utilities across North America are increasingly turning to natural gas turbines for additional capacity as well as end-of-life coal plant replacements.

In some jurisdictions such as California and Texas, natural gas-powered transportation is gaining as a clean-fuel alternative. In Canada, despite the best efforts of an association representing a well-established natural gas vehicle service and supply industry as well as Encana Corporation´s promotion of the concept, a natural gas highway infrastructure, which essential to wider natural gas vehicle adoption, is still a way off. In any case, natural gas as a transportation fuel is not expected to account for anything but a slim fraction of the demand for natural gas in the future.

Nonetheless, anticipating a day when natural gas prices will stabilize to more sustainable levels than they are now, producers with deep pockets, such as ExxonMobil Corporation., are taking advantage of counter-cyclical acquisitions in the Marcellus and Haynesville shale gas basins. Rather than following the crowd into oil and liquids-rich assets such as the Eagle Ford in southern Texas, where producers are paying up to $20,000 per acre, they know natural gas´s fortunes will inevitably come around. And when it does, this strategy will pay handsome dividends.

Go to link at top for the rest of the article

Canaccord Genuity Presentations

http://www.wsw.com/webcast/canaccord5/

Wednesday, October 5, 2011

Transcript of Buffett Being Interviewed By Carol Loomis

LLOYD BLANKFEIN: Now, I have the privilege of introducing Warren Buffett, who will be interviewed by Carol Loomis, Fortune's senior editor at large.


Now, what can I say about Warren that hasn't already been said? We all know about his uncanny timing, his brilliant sayings, his investing discipline, and his uncommonly common logic.

Do his disciples, he's a rock star. Just head out to Omaha for his annual meeting to see for yourself, or hang our dinner table and watch all the pictures go off on all these cell phones.

To policy makers, he's a source of wise counsel. They even like to name policy proposals after him.

To CEOs, he's either salvation, a once-in-a-lifetime opportunity, the most patient investor in the world, or all three. To me, he's been a friend, a supporter, and a constant reminder of the value of not buying into the prevailing sentiment, no matter how positive or negative it gets.

Warren has principles, and they aren't hard to figure out. The difference is he always lives by them. I know the Buffett Rule is being talked and written about a lot these days, but I like to think there already was a Buffett Rule. It says: Stick to what you're good at, keep a lot of cash on hand, and answer the phone when it rings. (Laughter.) Warren, keep taking my calls.

Please join me in welcoming Warren Buffett and his good friend, Carol Loomis, to the stage. (Applause.)

CAROL LOOMIS: Good morning. Warren, here we are for a fourth year in a row. The first year was financial panic, the next year seemed to be apparent recovery. The third year was political upheaval, and now we're in the state of uncertainty about the economy and really worrying about jobs.

Now, Berkshire Hathaway (BRKA) as a conglomerate is such a mirror of the economy. Let me ask about it first. You've got railroads, utilities, insurance, jewelry retailers, See's Candy, Dairy Queen, Business Wire, and then a whole slew of companies that are tied in one way or another to housing, Shaw Carpet, Acme Brick, Benjamin Moore Paints, Johns Manville, Clayton.

When you survey how these businesses are doing, what does the picture say to you about the economy?

Link to entire transcript:
 

Interview With Petrobank's Head of Heavy Oil Completed

Note to subscribers.  I just completed a chat with the head of Petrobank's heavy oil unit.

I will include full details in the Sunday newsletter.

One comment.  While the stock market action is frantic, the business is unchanged.

Same long term goals, same long term plan.

Ignore the daily noise, focus on the underlying business.

Michael Lewis on Charlie Rose

Michael Lewis on Charlie Rose - How Kyle Bass Turned Him on to the European Crisis

An index investment that could be a multi-bagger in two years?

S&P/TSX Venture Composite – A Diversified Path to Multi-bagger Returns?

Why Tilson Has No Interest in Going to Cash Today

Why Whitney Tilson Has No Interested in Going to Cash Today

Goldman Sees WTI at $109 - Spread With Brent Narrowing

Yes please, says my portfolio of Canadian oil producers:

U.S. crude oil futures will hit $109 a barrel in 2012 as new pipelines, rail lines and other infrastructure help relieve bottlenecks at a central gathering hub in Oklahoma and carry more oil from Canada and the northern U.S. to refiners on the Gulf Coast and elsewhere, according to a Goldman Sachs forecast.


The prediction represents a drop from the investment bank’s previous forecast of $123.50 a barrel and reflects the increasingly anxious outlook for the global economic recovery. The bank also trimmed its 2012 Brent price estimate to $120 a barrel from $130 amid growing fears of a European financial crisis.


http://fuelfix.com/blog/2011/10/04/goldman-sachs-u-s-crude-prices-at-109-in-2012/

Tuesday, October 4, 2011

Is Petrobakken in Play?

Writing helps my thought process, also leads to information finding me.

So I write.....


http://seekingalpha.com/article/297554-is-petrobakken-in-play

Canadian Energy stocks already near 2009 lows

http://www.theglobeandmail.com/globe-investor/markets/markets-blog/market-view-video/video-energy-stocks-repeat-bear-market/article2190520/

Warren Buffett on Charlie Rose

Warren Buffett - September 30, 2011 Interview on Charlie Rose

Petrobakken CFO Interview

http://www.bnn.ca/News/2011/10/3/Petrobakken-warns-dividend-could-be-altered.aspx

CIBC on Petrobakken

PetroBakken Energy Ltd. (CIBC)Operational Update Shows Production Growing To +43,000 Boe/dPetroBakken provided on operational update indicating volumes had grownto over 43,000 Boe/d by the end of Sept., up from ~41,000 Boe/d in earlySept., ~38,000 Boe/d in Aug., and ~35,000 Boe/d in Q2. PBN appears ontrack to meet exit guidance of 46-49,000 Boe/d.PBN has ~3,000 Boe/d behind pipe, 18 rigs running, and expects to tie-inan another 75 wells by year-end. We believe that (contrary to popularbelief) PetroBakken’s well productivity in Cardium is 20-30% better thanaverage (see Exhibit 2) and will support near-term growth.The company also acknowledged that it engaged a financial advisor in earlyQ2 to pursue alternatives to increase liquidity, and stated it would consideroptions such as modifying its dividend, modifying its spending, and assetsales to address concerns over its debt.We view the production growth as positive, as is the acknowledgement thatsteps are being taken to address PBN’s debt and imbalance of outflows vs.inflows. We view the stock as grossly undervalued at current levels, andreiterate our Sector Outperformer rating and $21 price target.

Monday, October 3, 2011

Bids on Petrobakken Properties Were Due Two Weeks Ago?

If anyone has a copy of Mr. Wright's letter and would be kind enough to send it to me I promise to keep it off the internet and your name anonymous.


http://www.theglobeandmail.com/globe-investor/petrobakken-eyes-steps-to-shore-up-balance-sheet/article2189173/

Mr. Wright’s letter said BMO’s report, written by analyst Jim Byrne, “takes an assumed fantasy position of what we would look like if we failed to meet our production targets, continued spending capital without any positive result and took no strategic action over the next year and a half in the face of a looming debt conversion.” The Globe and Mail obtained the letter from two sources -- one institutional fund manager and one investment banker -- and Mr. Wright confirmed he wrote it. A similar but more casual version was sent to employees, he said.


PetroBakken is trying to sell itself or assets, two industry sources said. Bids were due about two weeks ago, they said. Mr. Wright would not discuss the validity of the sources’ claims. He said he wrote the letter in response to questions from shareholders and analysts following BMO’s report and it is not “hinting” at anything.

Bill Gross - Six Packing

Bill Gross – Six Packin

North Dakota - Housing shortage, no unemployment

American Oil Guru Who Has Created a Housing Shortage in North Dakota

Robert Shiller - The Great Debt Scare

Robert Shiller – The Great Debt Scare

Petrobakken up to 43,000 barrels per day at Sep 30

Update from the company:

Production at the end of September exceeded 43,000 barrels of oil equivalent per day ("boepd") (87% light oil and NGLs), a 22% increase over second quarter 2011 production levels, based on field estimates. Our Bakken business unit production is again over 20,000 boepd while our Cardium business unit production now exceeds 14,000 boepd, with the remainder of the production generated by our southeast Saskatchewan Conventional and AB/BC business units. We estimate that we have approximately 3,000 boepd of additional productive capacity currently down due to well maintenance, site access constraints (primarily related to flooding originating in the second quarter) and facility maintenance.


For the rest of it:

http://finance.yahoo.com/news/PetroBakken-Provides-ccn-235397289.html?x=0&.v=1

Sunday, October 2, 2011

CVI - Punch Card Portfolio - Issue #4

The weekly newsletter was just sent to subscribers.

A note to subscribers, I am expecting a call from the head of Petrobank's heavy oil unit on Monday.  If anyone has any questions you would like to ask please let me know.

I'll report back on the conversation in the newsletter next week.