In 1859, just before the Civil War broke out, Edwin Drake, near Titusville, Pennsylvania, drilled the world’s first commercially successful oil well. Soon, several hastily thrown together companies were drilling all over western Pennsylvania. Some of the wells on hitting pressurized pockets, spewed spectacular gushers of oil, equipment and sometimes even men up into the air. Pollution was not a consideration in the last decades of the 19th century.
Then, in 1878, while drilling for oil east of Pittsburgh, Michael and Obadiah Haymaker struck commercial quantities of natural gas. Obadiah was later shot dead defending his property. Out of these rough origins the Equitable Gas company was formed in 1888. Rapidly growing industries in nearby Pittsburgh provided a ready market. Equitable Gas grew over the years and was renamed Equitable Resources in 1984. The company name was changed to EQT Corporation (EQT) in February 2009.
EQT is now an integrated energy company, one of the largest in the Appalachian area, with growing reserves and some 10,450 miles of gathering lines. The company operates in Pennsylvania, West Virginia, eastern Kentucky, and southwestern Virginia. 2007 revenues were $1.58 billion. EQT operates in two segments, Equitable Supply and Equitable Utilities. The supply segment develops, produces, and sells natural gas, crude oil, and natural gas liquids while the utility segment distributes natural gas to some 270,000 residential and 18,600 commercial and industrial customers.
Natural gas is produced from trapped gas in shale and coal beds in the Appalachian area. EQT anticipates significant growth in gas production from its Devonian age shale (ocean sediments laid down some 400 million years ago, now at depths of 2,500 to 7,500 feet in the area). Devonian shale underlies much of the northern Appalachian area. Especially promising is the deep lying Marcellus shale beds.
EQT’s current capitalization is around $4.1 billion, the stock price, at 31, is down considerably from the 52 week high of 76. EQT, with its utility component, may provide some buffering from the price volatility of natural gas. The dividend is 2.9% and seems to be well covered. The website www.eqt.com talkes about the Marcellus shale promise, has a section on investor information and will give you a link to recent annual reports.
EQT is increasingly using new technology, such as horizontal drilling, to develop reserves. In the 2007 annual report they say “At year end, proved reserves increased by 7% to 2.7 Tcfe.”. The company, as they explore the high pressure, deeper Marcellus shale, anticipates even greater growth of reserves and production in 2008. Cabot Oil (COG), Chesapeake Energy (CHK) and Range Resources (RRC) also drill the Marcellus shale with its exciting potential.
Natural gas is currently priced just over $4 per 1000 cubic feet, well down from its high over $12 in late June, 2008. At these prices, not unexpectedly, exploration and drilling is slowing dramatically. EQT, like Chesapeake, XTO and many others have found abundant reserves in the US shale. The cost of tapping these reserves continues to drop and promises a greatly expanded use of natural gas here in the US.
A few years ago, the thinking was the US needed large LNG ports to import natural gas for our needs. Thanks to domestic discoveries the last few years using new technology, such as horizontal drilling, that is no longer the case. The US can achieve energy independence in gas if not oil.
Thursday, February 26, 2009
Tuesday, February 24, 2009
Real Estate Values and Taxes in Central Florida
In Hernando County, Florida real estate values are now only about half of what they were some 3 years ago. A few days ago I spoke to an long time real estate agent from ERA Pearson Realty in Spring Hill. She tells me my house in Spring Hill, which was valued at just under $200,000 three years ago by the website www.zillow.com, will now fetch only about $110,000 –if I’m lucky. I did some quick checking on my own and yes, it is not difficult at all, to find houses for sale at 1/2 of what they were 3 years ago.
Does this mean our property taxes will, or should, go down some 40-50%? If so, and It seems quite obvious they should, what does that do to Hernando counties’ Tax base? If the county tax appraiser does not drastically reduce assessments, property owners will flood his office with requests for lower appraisals. They will have lots of evidence to back up their claims.
Even worse, the property value decline, both nation wide and here, shows no sign of bottoming. We can wish and hope, but wishing and hoping leads only to denial. We are paying dearly for the exuberance of a few years back.
This all makes for some rather sobering thoughts on how the county is going to cope in the coming few years with the apparently much lowered tax collections. Wall Street has crashed 50%. Real Estate has crashed 50%. Are state and local governments like Hernando County ready for their turn?
Does this mean our property taxes will, or should, go down some 40-50%? If so, and It seems quite obvious they should, what does that do to Hernando counties’ Tax base? If the county tax appraiser does not drastically reduce assessments, property owners will flood his office with requests for lower appraisals. They will have lots of evidence to back up their claims.
Even worse, the property value decline, both nation wide and here, shows no sign of bottoming. We can wish and hope, but wishing and hoping leads only to denial. We are paying dearly for the exuberance of a few years back.
This all makes for some rather sobering thoughts on how the county is going to cope in the coming few years with the apparently much lowered tax collections. Wall Street has crashed 50%. Real Estate has crashed 50%. Are state and local governments like Hernando County ready for their turn?
Monday, February 16, 2009
SandRidge Energy, Debt and Natural Gas
A few years ago we drove to Big Bend National Park (a stunningly beautiful place) through the wild, arid terrain of west Texas. En route I noticed operating oil and gas wells as we neared the park.
At the the time I didn’t know it, but this is a prime drilling area for SandRidge Energy (SD), operating from their Fort Stockton field office. SandRidge is drilling and producing in the Pinon field in the heart of the geological formation known as the West Texas Overthrust (WTO).
SandRidge Energy is headquartered in Oklahoma City, its current capitalization is around $1.3 billion. The company focuses on exploration and production, but also gathers, treats, processes and distributes natural gas and oil. Gas constitutes some 86% of reserves. The bulk of activity is in the WTO area, though the company does oil and gas drilling elsewhere in the US. Sand Ridge also gathers and sells CO2 - which is abundant in WTO gas deposits, for re-injection into wells to increase production. A major competitor is the much larger Apache Corp (APA). SandRidge was formerly known as Riata Energy and changed its name to SandRidge Energy in 2006. The website is www.sandridgeenergy.com
The WTO, according to the company’s annual report, is relatively unexplored due to difficult terrain, complex geology and a lack of infrastructure in the area. SandRidge is hoping the geologically complex WTO has abundant undiscovered gas reserves and is concentrating its exploration efforts in the area.
According to its 2007 Annual Report, SandRidge had total estimated net proved reserves of 1,516.2 billion cubic feet equivalent as of December 31, 2007, up from 300 bcfe in 2005. Recent natural gas prices are around $4.5 per 1000 cubic feet, so reserves, as of December 31, 2007, currently have an in ground value of $8.2 billion. Compare the $8,2 billion reserve figure to the current market cap of $1.3 billion. SandRidge also has leases or interests in approximately 822,287 natural gas and oil acres. Data for 2008 should be coming out soon. It will be interesting to see how much reserves have increased over the last year.
Thanks to new technology such as horizontal drilling and 3-D seismic mapping, gas reserves, unlike oil, have increased significantly in the US and elsewhere over the last few years. This increase has given prognosticators, such as T. Boone PIckens, the promise of potential OPEC independence. But, the infrastructure for expanding the use of this new-found supply of cheap, clean burning fuel is only just starting. Using natural natural gas to fuel vehicles, for example, is in its infancy. The promise is there but so far it is just a promise.
SandRidge’s common stock, at 7.9, is down 88% from its 52 week high of 69. The stock may make a good re-inflation bet. The main attraction to investing in this company seems to be its reserves and ability to grow reserves.
SandRidge, however, has close to $2 billion dollars in debt and only $898,000 in cash. Also, Levered Free Cash Flow is a negative $1.5 billion (see Yahoo Finance). Most of the debt was incurred in the 2006 acquisition of NEG oil and Gas. Declining gas prices and low cash on hand is not good in today’s credit environment.
Eventually, oil and gas prices will rebound. Any investment in a company with substantial reserves and high potential growth may be rewarding. In the mean time though, I would keep a close eye on the liquidity situation. SandRidge could also be a potential take over target.
At the the time I didn’t know it, but this is a prime drilling area for SandRidge Energy (SD), operating from their Fort Stockton field office. SandRidge is drilling and producing in the Pinon field in the heart of the geological formation known as the West Texas Overthrust (WTO).
SandRidge Energy is headquartered in Oklahoma City, its current capitalization is around $1.3 billion. The company focuses on exploration and production, but also gathers, treats, processes and distributes natural gas and oil. Gas constitutes some 86% of reserves. The bulk of activity is in the WTO area, though the company does oil and gas drilling elsewhere in the US. Sand Ridge also gathers and sells CO2 - which is abundant in WTO gas deposits, for re-injection into wells to increase production. A major competitor is the much larger Apache Corp (APA). SandRidge was formerly known as Riata Energy and changed its name to SandRidge Energy in 2006. The website is www.sandridgeenergy.com
The WTO, according to the company’s annual report, is relatively unexplored due to difficult terrain, complex geology and a lack of infrastructure in the area. SandRidge is hoping the geologically complex WTO has abundant undiscovered gas reserves and is concentrating its exploration efforts in the area.
According to its 2007 Annual Report, SandRidge had total estimated net proved reserves of 1,516.2 billion cubic feet equivalent as of December 31, 2007, up from 300 bcfe in 2005. Recent natural gas prices are around $4.5 per 1000 cubic feet, so reserves, as of December 31, 2007, currently have an in ground value of $8.2 billion. Compare the $8,2 billion reserve figure to the current market cap of $1.3 billion. SandRidge also has leases or interests in approximately 822,287 natural gas and oil acres. Data for 2008 should be coming out soon. It will be interesting to see how much reserves have increased over the last year.
Thanks to new technology such as horizontal drilling and 3-D seismic mapping, gas reserves, unlike oil, have increased significantly in the US and elsewhere over the last few years. This increase has given prognosticators, such as T. Boone PIckens, the promise of potential OPEC independence. But, the infrastructure for expanding the use of this new-found supply of cheap, clean burning fuel is only just starting. Using natural natural gas to fuel vehicles, for example, is in its infancy. The promise is there but so far it is just a promise.
SandRidge’s common stock, at 7.9, is down 88% from its 52 week high of 69. The stock may make a good re-inflation bet. The main attraction to investing in this company seems to be its reserves and ability to grow reserves.
SandRidge, however, has close to $2 billion dollars in debt and only $898,000 in cash. Also, Levered Free Cash Flow is a negative $1.5 billion (see Yahoo Finance). Most of the debt was incurred in the 2006 acquisition of NEG oil and Gas. Declining gas prices and low cash on hand is not good in today’s credit environment.
Eventually, oil and gas prices will rebound. Any investment in a company with substantial reserves and high potential growth may be rewarding. In the mean time though, I would keep a close eye on the liquidity situation. SandRidge could also be a potential take over target.
Tuesday, February 10, 2009
Geithner's Rescue, Trying Again
Today, Treasury Secretary Timothy Geithner unveiled his $2 trillion rescue program and the Senate passed a $838 billion bailout bill. All this was a big flop on Wall Street and the DJI was off 382 points, or 4.6%, to close at 7,889.
Apparently, bank shareholders don’t want to be rescued Geithner’s way. A look at the megabanks showed Bank of America (BAC) down 19.3%, to 5.56, JP Morgan Chase down 9.8% to 24.62 and Citigroup (C) was down 15.2% to 3.35.
Regional banks were hit even worse. Regions Financial (RF) was down 30.2% to 3.24, SunTrust was down 27.2% to 9.06, Fifth Third (FITB) was down 24.2% to 2.19 and Zions was down 19.5% to 11.95.
Of the 25 bank stocks I track, none were up and 20 were down over 10%. Want a “good” bank stock? Here is one: People’s United Financial (PBCT). Apparently this bank has avoided the mistakes of the large banks. There are undoubtedly other good ones out there, we just don’t hear much about them.
This imploding of our banking system seems unstoppable. Since almost all of us have accounts at these banks it is a cause for grave concern. Are our deposits at risk? The FDIC says no. Hopefully the FDIC is right.
The general rational given by commentators for today’s decline was that Geithner was too vague and his plan lacks specifics. What we need is a clear course of action as to how we are going to deal with the toxic assets on bank balance sheets. Until the US government and banks are courageous enough to face up to the losses, we will be stuck in this downward spiral.
Apparently, bank shareholders don’t want to be rescued Geithner’s way. A look at the megabanks showed Bank of America (BAC) down 19.3%, to 5.56, JP Morgan Chase down 9.8% to 24.62 and Citigroup (C) was down 15.2% to 3.35.
Regional banks were hit even worse. Regions Financial (RF) was down 30.2% to 3.24, SunTrust was down 27.2% to 9.06, Fifth Third (FITB) was down 24.2% to 2.19 and Zions was down 19.5% to 11.95.
Of the 25 bank stocks I track, none were up and 20 were down over 10%. Want a “good” bank stock? Here is one: People’s United Financial (PBCT). Apparently this bank has avoided the mistakes of the large banks. There are undoubtedly other good ones out there, we just don’t hear much about them.
This imploding of our banking system seems unstoppable. Since almost all of us have accounts at these banks it is a cause for grave concern. Are our deposits at risk? The FDIC says no. Hopefully the FDIC is right.
The general rational given by commentators for today’s decline was that Geithner was too vague and his plan lacks specifics. What we need is a clear course of action as to how we are going to deal with the toxic assets on bank balance sheets. Until the US government and banks are courageous enough to face up to the losses, we will be stuck in this downward spiral.
Thursday, February 5, 2009
Key Reasons to be a Dollar Bull
Bailout news and fear of a growing money supply drives the dollar lower and real assets, such as precious metals and oil, higher. Talk of a bust in treasury markets, and coming inflation, is rampant. It certainly is possible that inflation may resurface at some time in the future, driving the dollar lower. That, however, is not the current reality. Since mid December the dollar has steadily tracked higher, Click here to see the chart of UUP. Following are some reasons to be bullish on the dollar:
Deflation Despite dire predictions of hyper-inflation due to bailouts and other rescue attempts, that is not happening now. Prices of most assets continue to decline, real estate, commodities, autos, consumer goods etc. Yes, the US government could print lots of money, but there are many constraints. Congress, foreign (Chinese) treasury redemption concerns and popular opinion are but a few. Washington cannot and will not pay off everyone’s bad debts, they can’t afford it. It will be interesting to see the congressional reaction when the US automakers show up in a month or two asking for more money, as they most surely will.
Least ugly belle at the ball It is true the US has major economic problems. Worldwide, however, the situation is even worse. The perception is that the US led the world into the recession and now will lead the world out. The unrest in Greece may be just a harbinger of things to come. Excepting the Japanese Yen, the US Dollar is among the strongest worldwide.
Euro problems The European union (and the Euro) have problems with the PIGS (Portugal, Italy, Greece and Spain) who are in a weaker situation than the Germans and the Dutch. Eastern European members are hurting badly. There is some question as to if the Euro can survive this crisis.
US Bailouts stalling Washington is running out of the will to do bailouts. Even now, Obama’s stimulus bill is running into strong headwinds in a squabbling congress. Something will probably be passed, but government wheels turn slow, and it will be too little, too late, for many companies. Without bailout money bankruptcies will rise, weeding out the inefficient. This is bullish for the dollar and best for the US in the long run.
Deleveraging Global deleveraging of dollar-based credit is sending dollars back to the US.
In order to resolve the economic crisis Washington has to pick between two extremes. The US government can monetize the debt (The Zimbabwe Solution) or take a path such as the Japanese took in the 1990s, keeping zombie corporations and banks alive (The Japanese Solution). My guess is we will be closer to the Japanese solution than the Zimbabwe solution and the dollar will continue to strengthen.
Deflation Despite dire predictions of hyper-inflation due to bailouts and other rescue attempts, that is not happening now. Prices of most assets continue to decline, real estate, commodities, autos, consumer goods etc. Yes, the US government could print lots of money, but there are many constraints. Congress, foreign (Chinese) treasury redemption concerns and popular opinion are but a few. Washington cannot and will not pay off everyone’s bad debts, they can’t afford it. It will be interesting to see the congressional reaction when the US automakers show up in a month or two asking for more money, as they most surely will.
Least ugly belle at the ball It is true the US has major economic problems. Worldwide, however, the situation is even worse. The perception is that the US led the world into the recession and now will lead the world out. The unrest in Greece may be just a harbinger of things to come. Excepting the Japanese Yen, the US Dollar is among the strongest worldwide.
Euro problems The European union (and the Euro) have problems with the PIGS (Portugal, Italy, Greece and Spain) who are in a weaker situation than the Germans and the Dutch. Eastern European members are hurting badly. There is some question as to if the Euro can survive this crisis.
US Bailouts stalling Washington is running out of the will to do bailouts. Even now, Obama’s stimulus bill is running into strong headwinds in a squabbling congress. Something will probably be passed, but government wheels turn slow, and it will be too little, too late, for many companies. Without bailout money bankruptcies will rise, weeding out the inefficient. This is bullish for the dollar and best for the US in the long run.
Deleveraging Global deleveraging of dollar-based credit is sending dollars back to the US.
In order to resolve the economic crisis Washington has to pick between two extremes. The US government can monetize the debt (The Zimbabwe Solution) or take a path such as the Japanese took in the 1990s, keeping zombie corporations and banks alive (The Japanese Solution). My guess is we will be closer to the Japanese solution than the Zimbabwe solution and the dollar will continue to strengthen.
Tuesday, February 3, 2009
Residential Real Estate in Central Florida
I own a rental property in zip code 34608 — about 30 miles north of Tampa, Florida. I have kept track of the property value closely for several years. As you can imagine, the swings have been quite dramatic.
The website www.zillow.com provides a convenient way of tracking the price of most homes in the US. Go there and check your property out, if you wish. According to Zillow, the value of my 10 year old, 1600 square feet, 3 bedroom/2 bath/2 car garage home, in Spring Hill, Florida was about $120,000 in January 2004. In June of 2006 it peaked at $196,000. Since then it has been in a steady fall and is now worth $137,000, a decline of approximately 30%.
Since this area of Florida participated in the boom of 2005 and 2006, the 30% decline is, not surprisingly, more than the national average. At this point, it looks like the decline will continue. However, if someone is interested, I will sell the house for $130,000. Rent is around $900/month, good tenants. Once the government gets serious about printing money (The Zimbabwe Solution) real things such as my house will strongly appreciate in value.
The website www.zillow.com provides a convenient way of tracking the price of most homes in the US. Go there and check your property out, if you wish. According to Zillow, the value of my 10 year old, 1600 square feet, 3 bedroom/2 bath/2 car garage home, in Spring Hill, Florida was about $120,000 in January 2004. In June of 2006 it peaked at $196,000. Since then it has been in a steady fall and is now worth $137,000, a decline of approximately 30%.
Since this area of Florida participated in the boom of 2005 and 2006, the 30% decline is, not surprisingly, more than the national average. At this point, it looks like the decline will continue. However, if someone is interested, I will sell the house for $130,000. Rent is around $900/month, good tenants. Once the government gets serious about printing money (The Zimbabwe Solution) real things such as my house will strongly appreciate in value.
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