Friday, December 28, 2012

Apple is No Polaroid - But......

An interesting read on Apple.  I could never get my head around the sheer volume the company has to keep moving year after year.  Seems like at some point it should be hard to keep cash flow flat year on year, never mind grow.......

Warren Buffett Discusses the Fiscal Cliff With the BBC

What We Are Watching / Reading

A Conversation with Ray Dalio

Banking Guru Tom Brown of Second Curve - Likes Bank of America to Go up 50% in 2013

Wilbur Ross - Investors Can Play Emerging Markets Through Japanese Multi-Nationals

Zeke Ashton on the High-Quality Piece of Advice He Received from Michael Burry

If There Is One Stock to Focus Your Attention on for 2013, It Has to Be Berkowitz High-Conviction Bet AIG

US Oil Oversupply - On Tap for 2013

We import a lot of oil, yet we have too much of it?  20 new pipelines coming in 2013 to help ease the differentials:

Sonde Resources Gets a Partner For Africa

And takes care of that little problem they had over about that Duvernay acreage...

Thursday, December 27, 2012

1.6% Hit To Canada GDP Because of Inadequate Pipelines

Platts - Chinese Oil Demand Hits a New Record

China's apparent oil demand* rose 9.1% year over year in November to 42.96 million metric tons (mt), or an average 10.5 million barrels per day (b/d), the highest on record, a just-released Platts analysis of recent Chinese government data showed.

November apparent demand surpassed the previous record high of 9.8 million b/d in September. It was also higher than in October, when apparent demand had risen 6.6% year over year to 9.75 million b/d.

The robust growth is more evidence that China's economy is on the mend. In November last year, apparent demand grew by just 3.3% year over year to 9.62 million b/d.

Wednesday, December 26, 2012

CNBC Gets A Letter From Bernie Madoff

He shouldn't be writing letters to CNBC, he should be shovelling coal 12 hours a day with his wages going to his victims.......

Thursday, December 20, 2012

What We Are Watching / Reading

EOG's Papa Sees 4 More Years of Low Nat Gas Prices

Our latest for Seeking Alpha, catching up with how Mark Papa sees oil and gas prices for 2013:
Key Question 4 - At what price would EOG start to get interested in drilling natural gas wells again?
Papa sees a $4/mcf to $5/mcf price for natural gas over the next three to four years, after which it will rise to a $6/mcf range which is when EOG will get back in the natural gas game.

Herbalife Releases Statement About Ackman Allegations

Herbalife Chairman and CEO Michael O. Johnson responded today to questions regarding hedge fund manager William Ackman’s claims about Herbalife by saying, “The allegation that Herbalife is a pyramid scheme is bogus. Make no mistake: Today’s announcement isn’t about Herbalife’s business model. It’s about Bill Ackman’s business model.”
Here’s what we know:
  • An extraordinary number of puts on our stock are due to expire this Friday. We previously learned this activity was pegged to some kind of "significant event."
  • Mr. Ackman suddenly announced today that he will make a presentation on Herbalife on Thursday, the day before the puts expire.
  • Our CFO this morning asked Mr. Ackman to allow us to participate in his presentation. Mr. Ackman declined.
  • We have been informed that Mr. Ackman has shorted our stock for the past 7 to 9 months.
  • Our stock dropped almost 15 percent today following Mr. Ackman’s announcement.
We urge the SEC to investigate these series of events to protect the rights of investors. This appears to be yet another attempt to illegally manipulate the market by overzealous short-sellers.
We’ve been in business for 32 years. We have millions of customers worldwide. We don’t pay to recruit distributors. And just today, we announced a $100 million Herbalife manufacturing facility in North Carolina that will employ 500 people.
We have one of the greatest health nutrition product lines in the world and a direct-selling business opportunity for part-time or full-time income.
We are incredibly proud of this company.

Wednesday, December 19, 2012

Maria's Observation - Make a Deal Already

Sure, CNBC hates the "Fiscal Cliff".  Hence the ticker of doom on the bottom right corner of the screen all day telling investors that it is time for panic.

Just like the flashing red oil rig on the screen back during "America's Oil Crisis" of 2008.  Or the constant flashing tickers of all of the financial institutions with their plummeting share prices as the housing bubble burst in 2008.

Give me a break.

Gundlach Says Hold Cash

80% of your investing returns are made 20% of the time.  Gundlach says that now isn't one of those times:

What We Are Watching / Reading

EOG's Papa On Shift To Oil

Tuesday, December 18, 2012

Energy Analyst Fadel Gheit Sees Oil Dropping Next Year

How does one decide who to believe?  Just get me some more pipelines in North America!

Chris Martenson Thinks $200 Oil Is Possible

So my ideas here are that oil's an utterly non-negotiable necessity of modern life. Demand for it is going to grow further on the world stage.  New oil discoveries all have a marginal cost of production that ranges from 60 bucks on the low end per barrel to 100 dollars per barrel on the high end. What this means is that my new floor, for the price of oil, is somewhere in the vicinity of $70 to $80 a barrel. That's my low end target.

Entire article:

Is This Intellectual Property Right A Better Bet Than An Exploration Well?

I can't value it with any precision, but the risk reward profile might actually be better on the IP right.......

Top 5 Oil Finds in 2012

1 In Every 5 Hedge Funds Has Apple In Its Top 10 Holdings

Monday, December 17, 2012

Petrobank / Petrobakken Reorganization Approved

Looks like 1.1 shares of PBN for every PBG shareholder on distribution:

What We Have Been Watching / Reading

Seaway Pipeline to Expand to 850k per day Q1 2014

850k with the Seaway plus another 700k for the Keystone Gulf Coast in late 2013....that is enough to make a big difference:

A Look At Petrobakken's Undeveloped Duvernay Acreage

In light of the recent Encana / PetroChina joint venture:

Sunday, December 16, 2012

Businessweek Article From 1998 - Technology Allows For Unlimited Oil

Hard to imagine this was written when oil was $10 per barrel:

On the other hand, if you're still operating under the assumption that the earth's petroleum--or at least the cheap stuff--is about to run out, you're not going to thrive in the new oil era. Technology is making it possible to find, produce, and refine oil so efficiently that its supply, at least for practical purposes, is basically unlimited. So oil executives need to be as obsessive about cutting costs as anyone else. "You cannot count on the market to bail you out of bad decisions," Raymond said in a Dec. 2 interview.

Entire article:

Hagstrom Says Buffett Did Not Overpay With Repurchases

Imagine that, after 60 years of disciplined capital allocation Buffett is still allocating capital.........rationally

Thursday, December 13, 2012

The Bakken At Night

Encana/PetroChina Joint Venture

Canadian Value's most recent Seeking Alpha article discussing the Encana JV and what it suggests about the largest Duvernay landholder......

Canadian Oil Pricing - December (Divide by 6.29)

Selected Crude Oil Price Daily: December 2012

DateExchange RateCdn Par Edmonton*Cdn Heavy HardistyCdn Par ChicagoWTI NYMEX ChicagoBrent ChicagoCdn Heavy ChicagoBrent MontrealBrent Sarnia
$ Cdn/m3
Conversion: 1 cubic meter = 6,29 barrel
*Edmonton postings adjusted to 0,5% sulphur

Tilson Rips WSJ Article On Berkshire Buyback

From an e-mail Whitney sent to his followers:

2) David Reilly of the WSJ usually writes good stuff, but his Heard on the Street today (full text below) on Berkshire’s share buyback falls far short of his usual standard:

a) “But they should be asking why Mr. Buffett has decided to play Santa Claus. First, why pay a premium for the block of stock?” In buying back stock at a 27% discount to our estimate of IV ($131k vs. $180k), he’s not playing Santa Claus for the seller, but rather for shareholders! I’m delighted that he was able to buy back such a large block at such an attractive price.

Maybe Buffett could have squeezed the seller for a couple of percent, but I’d rather he didn’t because now set a valuable precedent: the many other big sellers in coming years (as long-time holders die) know to call Buffett first and, as long as the price is at or below 120% of book value, he’s likely to give them a fair (market) price. Berkshire could end up buying back A LOT of stock this way.

b) “the sale of 9,200 shares would be equal to about 17 days' worth of trading” This comment misses the fact that the B shares trade $400 million per DAY (and A shares can convert to B shares; just not the other way), so the block being sold represented less than THREE DAYS of trading volume (not 17). Also, the relative illiquidity of the stock cuts both ways: it makes it very hard for Buffett to buy back much of his stock in the open market, so it’s great for shareholders when he has the opportunity to buy big blocks.

c) This is just plain silly on many levels:
There is also the question of why Mr. Buffett decided to increase the price limit for repurchases. Granted, any threshold is an arbitrary measure, and Mr. Buffett has gone further than most other executives in setting such a target. Yet having done so, suddenly changing it demands an explanation.
First, adjusting the buyback limit from 110% to 120% is hardly a dramatic change that “demands an explanation”, especially when very sensible shareholder and analyst knows that Berkshire’s IV is higher than 120% of book (how much higher is open to spirited debate).

Second, as the article itself points out, Berkshire is unique in setting a specific price at which it’s willing to buy back shares, so rather than criticizing Berkshire, the author should instead be calling on other companies – which, in general, destroy value by buying back stock at peak prices – to follow Berkshire’s lead.

d) “The mystery around Berkshire's moves is even greater since the company didn't disclose the identity of the selling shareholder. That leaves open questions of the seller's connections, if any, to Mr. Buffett.” This would be a valid point if Buffett paid a premium – or wasn’t willing to buy other sellers’ shares at that price. But I’d bet my last dollar that if someone called Buffett today and wanted to sell another $1.2 billion of stock at $131,000, Buffett would grab it in a heartbeat.

e) “Also, there is the lurking question of whether the billionaire's move helped someone sell out before tax rates potentially increase in the New Year. While that is, again, unclear, it would be incongruous given Mr. Buffett's calls for the wealthy to pay more in taxes.” Oh puh-leeeeese! “Lurking question” my a**! As noted above, this was a win-win transaction: Buffett bought back his stock at a big discount and the seller got instant liquidity at the market price. But if not, the seller could have easily leaked out the stock by the end of the year, so this wasn’t a sweetheart deal.

As for this possibly being “inconcruous” because capital gains and estate taxes are almost certainly going up next year, I checked with a trusts & estates attorney (my wife!) who said that the estate is taxed according to the tax year in which the person died, NOT the year when the assets are sold. So in this case, whether the stock was sold in December or January has no impact on estate taxes.

Ah, you might say, but what about capital gains taxes? Any appreciated stock is stepped up upon the owner’s death, so that’s not an issue here either. If the seller was, in fact, Ueltschi’s estate (see below), Berkshire’s share price on Oct. 18th(the day of his death) was $135,400, so the sale at $131,000 actually triggered capital LOSSES!

More broadly, I continue to scratch my head when, every time Buffett does anything that has any tax benefit to anybody, certain people saying he’s a hypocrite or has nefarious/self-serving motives. I fail to see the hypocrisy in Buffett: i) saying that taxes on the wealthy need to be raised to help close our massive deficits; and ii) taking actions to minimize his own taxes (by, for example, giving his fortune away to charity – and making enormous efforts to encourage others to do the same).

3) So whose estate sold the stock to Berkshire? My best guess would be Albert Ueltschi’s (see below for a nice profile of him). The timing is right: he died on Oct. 18thand it takes a few months for the lawyers and heirs to sort out big estates. He sold FlightSafety to Berkshire in 1996 for $1.5 billion. He owned 37%, so that’s $555 million, and he took Berkshire stock, which then was around $33,000/share, so that’s a four-bagger since then (9.1% compounded over 16 years), so the $555 would be $2.2 billion. Which means he either sold nearly half (unlikely) or his estate only sold a bit more than half (or maybe it was some other seller).

One on One With Jamie Dimon

Watch live streaming video from dealbook at

Encana Announces Duvernay Joint Venture

PetroChina paying $9,800 per acre for liquids rich gas acreage.

Petrobakken has 131 sections in the Duvernay oil window.  That is 84,000 acres.

84,000 x $9,800 = $820 million

That is over $4 per share for an asset the market doesn't even know Petrobakken has.  That assumes that oil  property is of equal value to the liquids rich gas property.

Tuesday, December 11, 2012

Why American Oil Production Growth Will Slow

Our latest article for Seeking Alpha looks at why the amazing rate of production growth in the United States has to slow:

Bonterra Was the Mystery Bidder For Spartan

The Bonterra Offer

Bonterra Energy Corp. ("Bonterra") has made an offer to acquire all of the issued and outstanding common shares of the Company (the "Bonterra Offer"). Pursuant to the terms of the Bonterra Offer, the shareholders of Spartan will receive 0.1169 of a common share of Bonterra ("Bonterra Share") for each Spartan Share. In addition, subject to the execution of a definitive agreement and completion of the transaction, Bonterra has covenanted to increase its dividend to $0.28 from $0.26 per month commencing March, 2013. Based on a closing price of $42.46 per Bonterra Share on December 10, 2012, the Bonterra Offer represents a deemed price of $4.96 per Spartan Share. Based on a closing price of $1.62 per Pinecrest Share on December 10, 2012, this represents a 12% premium to the implied trading price of the Spartan Shares of $4.44 per share under the Pinecrest Offer. In addition, to the extent that the Bonterra Shares continue to trade at the same effective yield as they are currently trading (7.35%) following the increase in the monthly dividend to $0.28 from $0.26, this represents an incremental $0.39 of value to Spartan shareholders, for a total potential value (based on Bonterra's December 10, 2012 closing price) of $5.35 per Spartan Share. This amount represents a 20% premium over the current implied trading price of the Spartan Shares under the Pinecrest Offer.

Spartan has carefully reviewed, in consultation with its financial, strategic and legal advisors, the terms of the Bonterra Offer, including the consideration payable to the Spartan shareholders, and has taken the time necessary to conduct due diligence on Bonterra in order to satisfy itself of the nature of the Bonterra Offer. The Board of Directors of Spartan has determined, after receiving the advice of its financial advisors and legal counsel, that the Bonterra Offer represents a "Superior Proposal" as defined in the Pinecrest Arrangement Agreement.

Pursuant to the Pinecrest Arrangement Agreement, Spartan has provided Pinecrest with a notice of the Superior Proposal. Under the terms of the Pinecrest Arrangement Agreement, Spartan has agreed to negotiate in good faith with Pinecrest for a period of three business days ending on Thursday, December 13, 2012, to make such adjustments in the terms and conditions of the Pinecrest Offer as would enable Spartan to proceed with the Pinecrest Offer, as amended, rather than the Bonterra Offer. Pinecrest is under no obligation to make any amendments to the current Pinecrest Offer, in which case Spartan intends to accept the Bonterra Offer. Under this scenario, Pinecrest would be entitled to a $12.5 million non-completion fee payable by Spartan.

Exxon's Outlook On Energy Through 2040

x Om 2013 Energy Out Look

CAPP Investment Symposium Dec 10 to 12

3 Days of Energy Company presentations - Happy Listening

Monday, December 10, 2012

Stratfor - Saudi Arabia's Economic Challenge

Stratfor explains how Saudi Arabia’s difficulty in maintaining its territory and the need to export its natural resources will continue to be a challenge.

Enbridge CEO Talking Pipes

What We Are Watching / Reading

Charlie Munger on the Psychology of Human Misjudgment - Speech at Harvard University

Index Fund Guru Jack Bogle – Speculation Is More of a Threat Than the Fiscal Cliff

Mohnish Pabrai and Guy Spier - Japan Investing Summit

GE's Immelt - NAFTA Can Become Energy Independent

Immelt thinks unconventional energy production is a game changer....

Unsolicited Takeover For Spartan Oil

Someone trying to grab before it merges with Pinecrest?  Someone interested in the Cardium and Bakken?

One wonders........

Sunday, December 9, 2012

Prem Watsa's Surprising Admiration for Sandridge Management

In our latest Seeking Alpha article we take a look at Watsa, his long connection to Buffett and why that makes his admiration for Sandridge management confusing:

Thursday, December 6, 2012

What We Are Watching/Reading

Besides watching Arcan's stock price going up 20% today and wondering what is going on:

Real Estate Guru Sam Zell Discusses the Outlook for the American Economy and His Recent Mega-Deal

Wilbur Ross - I

MGT Capital Investments Inc - An Interesting Bet on a Gaming Patent

Jim Chanos – Recaps His Career as a Short-Seller, What He Is Shorting Today

Stock to Watch - Novus Energy on the Block

The Globe and Mail on Novus which is the largest position in my newsletter portfolio (no secrets given away, we bought quite a while ago):

Continental Resources - Doesn't Look Undervalued

I had a quick look at Continental Resources one of the Bakken pioneers (along with EOG).  I love the company and think that investors will do fine from this point, but it trades at a huge premium to the Canadian unconventional producers that I own.

Here is my Seeking Alpha article:

Tuesday, December 4, 2012

Petrobakken At Bank of America Leveraged Finance Conference

CEO Wright is the speaker:

Painted Pony Makes a Montney Acquisition

Painted Pony Petroleum Ltd. (“Painted Pony” or the “Company”) is pleased to announce that it has entered into a purchase and sale agreement with an independent oil and gas producer (the “Vendor”) to acquire certain assets and lands in the Kobes area adjacent to Painted Pony’s core Montney project in Northeast British Columbia (“BC”) (the “Kobes Assets”) for $108 million, before closing adjustments and related costs (the “Acquisition”).

Novus Appoints Financial Advisors In Value Realization Process

It appears that Novus which is by far the largest position in the portfolio we run for my subscription newsletter will have some sort of value realization event in the coming months.

Novus was an exercise in patience as the stock price declined significantly this year to what we thought were absurd levels around $0.60.  At that time we sucked it up, revisited the intrinsic value of the company and took a very large position.

There is a big disconnect folks between what these smaller unconventional oil companies are worth to other oil companies, and what Mr. Market thinks they are worth.  My portfolio is loaded with them and I expect several others are going to get taken out at large premium, or heaven forbid Mr. Market will start to value them appropriately.

Here is the Novus news:

The Oil Market is Tighter Than You Would Think

Monday, December 3, 2012

What We Are Watching/Reading

For Buffett, the Long Run Still Trumps the Quick Return

Value Investing Author Professor Aswath Damadoran Discussing Facebook Valuation


Interview with Vincent Daniel - General Partner at Seawolf Capital

Two Hours with Charlie Munger - Ross School of Business

Donald Coxe - Staying Bullish On Agriculture

Goldman Sachs Top Ten Market Themes for 2013

The Future Of Global Energy Security Rests On Iraq

My latest Seeking Alpha article looking at some pretty ambitious assumptions that the IEA makes about Iraq production:

What I believe has been missed by most of the media is that according to the IEA, for the world to keep daily oil supply and demand in balance through 2035 we are completely reliant on one country. That country is Iraq. Here is what the IEA is assuming about that troubled country's oil production

Link to the entire article: