Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Matching production with demand.
It is a good thing when you need to increase production to meet demand, that also implies that you can raise prices if you don't increase production; but make more money whatever you choose to do.
It is a BAD thing when you have to cut production because no one wants to buy what you are producing and it would just sit around, unsold.
I find it hard to believe that you really believe these are positive developments, especially since 235 people are now out of a job and may never work in the coal industry again with the way things are going.
Louis J. Desy Jr.
Disclosure: I own BTU put options.
Probably means that BK if not this week, then 4/15
I do not think you understand what the recent reports and filings mean. Shorts are not in any trouble and just need to wait a few more weeks.
1: BTU laid off 235 workers because of a lack of demand for coal. This hurts BTU since in order to avoid BK, they need every dollar of revenue possible, but instead are making less in the weeks just gone by and will make even less without those 235 workers. While some people can do the job of another worker, there is no way production will stay the same with 235 less people on the job.
2: The A/R borrowing was reduced. It means that either the receivables are not there to borrow against or something else caused the borrowing base to get reduced from $275 million to $180 million. That is less cash that BTU can get or access. This is not a positive development.
3: The Bowie deal being extended. While the deal is not dead yet, there was mention of allowing non-cash items as part of the deal, implying that the Bowie deal will not be all cash, which is what BTU needs.
The buyer had months to get financing and has been unable to do so or does not want to do so. With demand down there is no incentive for anyone to finish the deal, plus it looks like it would be harder to get financing. If no one would finance the deal when coal demand and prices were a little higher a few months ago, why would anyone finance the purchase now, especially since it looks like BTU will go bankruptcy shortly and may have to sell off more assets in a Chap 11 reorg plan?
My answer would be no one.
4: There still is no word on what is going on with the 90 day deadline on the 'going concern' language. I am expecting that BTU must have or will be getting a waiver in a matter of hours since to not do so will trigger cross defaults on a number of borrowings.
In early March when BTU ran to to $5 or $6, I thought that they made a chance to survive and was not even really following the company much. It was only when they didn't make the March 15 bond payment that I started to look more at BTU.
Louis J. Desy Jr.
Disclosure: I own put options on BTU.
Bowie deal, A/R Agreement, and 90 day deadline
1: 8K for Bowie Deal extension, filed March 31, 2016:
http://www.sec.gov/Archives/edgar/data/1064728/000106472816000171/peabodyenergy-8xk033016.htm
The deal has been extended, but now may include 'non-cash' as part of the deal.
I do not think this is going to help at all. Even if Bowie wanted and could still do the deal, they probably could get a much lower price by waiting to buy the assets in bankruptcy, even if they end up paying a termination fee.
There is another problem in that even if a deal gets done, it looks like something else besides cash would be used to pay for it. This does not help BTU since they need cash to keep operating.
2: 8K from announcement about charges to a receivables backed credit line:
http://www.sec.gov/Archives/edgar/data/1064728/000106472816000169/peabodyenergy8-kmarch2016.htm
Peabody Energy Takes Steps to Avoid Bankruptcy Filing:
http://realmoney.thestreet.com/articles/03/31/2016/peabody-energy-takes-steps-avoid-bankruptcy-filing?puc=yahoo&cm_ven=YAHOO
While it was extended for two years, the maximum amount was reduced from $275 million to $180 million. There are already $170 million in letters of credit open against it, so most of it has been used already.
3: There has been no mention on what is going on with the 90 day deadline from Dec 31, 2015 that was triggered by the going concern language in the 10K report. At this point I expect there will be some kind of waiver or extension announced tomorrow morning with the filing of a 8K report.
Louis J. Desy Jr.
Disclosure: I own put options on BTU.
Peabody confirms 235 positions being eliminated.
The prior posting has the press release from the company itself. They confirm 235 positions to be eliminated. This reduction would fit the narrative that there is a surplus of coal on the market and/or prices are too low to mine it at a profit.
Louis J. Desy Jr.
Article source
The author, assuming he is following some kind of journalistic method, does claim to have seen the source document himself, which was a letter sent to the employees by the company. I see no reason that the article is not true. In any case, the reporter also give an email and phone number so if anyone doubts his story he can be contacted.
Louis J. Desy Jr.
Possible layoffs this week at WY mine
There was a story initially released late yesterday and updated about 4pm EDT today.
North Antelope Rochelle on edge, as Peabody Energy informs some not to report to work:
http://trib.com/business/energy/north-antelope-rochelle-on-edge-as-peabody-energy-informs-some/article_5feaf853-e95c-5981-a52c-9042fdb21cca.html
From the story:
Do you have a link?
Something may be happening after hours. Yahoo shows the stock up 8% to $2.65, but it could be just be caused by the thin volume in the after hours trading.
Louis J. Desy Jr.
Volume and price looks like no BK this week
It is 3:30pm and the volume and price on the stock does not seem to indicate any filing this week.
Some traders believe that knowledge of an event like a filing would 'leak out' or other people would start to realize that it was about to happen, causing volume to rise and the shares to decline in advance of an official PR release.
I do not think it is going to happen this week but I am going to buy some April 1, 2016 put options anyways, just in case it does happen.
Louis J. Desy Jr.
Disclosure: I own BTU put options.
Clean up costs
The problem is that if the fall below certain financial factors, the bonds they have posted probably can require additional collateral to be posted.
I do not think this is a problem because I am expecting other deadlines will force a filing long before clean up costs or the posting of additional collateral for the bonds to cover future possible clean up costs would become a problem for them.
Louis J. Desy Jr.
Disclosure: I own BTU put options.
Last a year and half?
You believe that they will make the March 2016 payments then prior to the 30 day deadline?.
That would somewhat unusual since I am not aware of any other company that ever made the payments after deciding not to do so.
What about the 90 day deadline? Part of those a financial ratios that there is no way they can meet and there are 'cross default' conditions that will be triggered.
So far the volume and price in the shares seem to indicate no BK filing this week.
Louis J. Desy Jr.
Disclosure: I own BTU put options.
Predicting the date for BK for BTU
It is language from their own 10K report that states that are in default of the bond and credit line covenants. The dates I am citing to are the periods of the ending of the 30 day grace period on the missed interest payments and the 90 day period of the 'going concern' language.
At the end of those time periods, the credit line and/or bond holders would be able to declare the company in default and the amounts owed due immediately, with some borrowing having cross defaults language that would trigger other defaults on other bonds or borrowings.
The end of the 30 day period is April 15, 2016.
The end of the 90 day period is March 31, 2016.
While it is possible that the lender on each date may hold off or waive the conditions, there have already been news reports that the first lien bond holders have been pressuring BTU to file for Chapter 11, so it can be reasonably assumed that those people will not allow any waivers for any reason.
Even if BTU somehow manages to make a sale today or tomorrow, the 90 day period is also triggered by falling below certain ratios in the fiscal year, which BTU has no way to fix in time.
The 'fantasy' that BTU is somehow going to make it, has no basis in reality or the facts. Even the sale of some mines is not enough to bring the financial ratios back into line.
BTU is losing all kinds of money every month, and will continue to lose money every month, for months into the future.
Even without the impairments and interest expense, BTU still loses money every month because coal prices are too low.
As more evidence that the prices of coal are not going to recover coal rail traffic is down.
Rail Traffic Volumes Tumble As Coal Stockpiles Soar At Record Rate:
http://www.zerohedge.com/news/2016-03-29/rail-traffic-volumes-tumble-coal-stockpiles-soar-record-rate
According to the article, coal stockpiles are up and rail traffic for coal transport is down.
BTU has clearly signaled that they are going to file by drawing down the entire credit line weeks ago, and the bond holders have been pressuring BTU to file; which means as soon as the bond holders can force bankruptcy onto BTU, they will.
So what does that mean? It means that at the end of the 30 day or 90 day period, they will have that opportunity and do it as soon as the clock strikes 12:01am for the day; and if BTU has not filed BK by then, they will force it on BTU.
While I do think that coal prices will recover someday, it will be far too late to save BTU.
If someone wants to make money buying the BTU shares, I would recommend waiting until the crash when the BK filing is announced, buy some shares, then dump all the shares when the retail market runs the stock up when the DIP financing is announced. I would not hold the shares after that since the shares will probably get cancelled in the filing.
Louis J. Desy Jr.
Disclosure: I own BTU put options and may buy more.
Weekly 4 week moving average of coal shipments by rail:
Watch for weakness on 03-30-2016 in the stock
I noted that the stock seemed to have a wide swing on the day of March 2, $2.26 to $2.54 as the trading range on Tuesday, March 29, 2016.
I also noticed that after hours the stock was down to $2.22 in the after hours trading.
While it could be normal volitility in the stock, I think that this might be the start of people dumping the shares in advance of a March 31, 2016 bankruptcy filing.
If this is what is happening, I expect the stock will be down another 5% or so on Wednesday, and then crash when the filing is announced prior to the opening of the markets on Thursday, March 31, 2016.
Louis J. Desy Jr.
Disclosure: I own BTU put options.
They may file on March 31, 2016
I took more of a look at the 10K report to see if it was three months or 90 days from the end of the fiscal year. It is 90 days, which would move the default date up to March 31, 2016; not three months for April 1, 2016.
Dec 31, 2015 10K report
http://www.sec.gov/Archives/edgar/data/1064728/000106472816000157/btu-20151231x10k.htm
Louis J. Desy Jr.
Why trading for $0.30?
One of the reasons is that there was a big run up after the DIP financing was announced. Most of the retail market thinks that meant the company and the existing common shares were 'saved'; when in fact they were now even further away from any recovery for the common shares.
Louis J. Desy Jr.
They may file BK on April 1, 2016
I reread the 10K report for Dec 31, 2015. It looks like the 'going concern' language and EBITDA falling below minimum required amounts, may mean that BTU will default on March 31, 2016.
While there is a 30 day grace period on paying interest that was due on March 15, 2016 to April 15, 2016; it looks like the bank line will be in default on March 31, 2016 and that will trigger a cross default on other debt series.
10K for period ending 12-31-2015:
http://www.sec.gov/Archives/edgar/data/1064728/000106472816000157/btu-20151231x10k.htm
While it is possible that BTU cold get a waiver, there were earlier reports that some of the bond holders wanted BTU to file BK, so they would probably not give any kind of a waiver.
Louis J. Desy Jr.
Disclosure: I own BTU put options, and may buy 04/01/2016 puts.
Bigger firms can buy lower in BK
There is no need to any large firm to buy them prior to them filing bankruptcy.
Even XOM, I think, noe realizes the mistake by making large purchases when prices were high, and did the bond offering to pick up scraps in BK sales, or even after BK.
I think one recent, Dune Energy, DUNRQ, had $250 million in assets on the books, only sell for something like $9 or couldn't sell.
I think some sales may take place after a reorg, since the post reorg company will be still losing money and the sale can go through without the delays of the court process.
Louis J. Desy Jr.
Favorable terms
Well they can get really favorable terms if they wait until after the bankruptcy filing. Then all of the assets will be up for sale.
Louis J. Desy Jr.
Doing a deal
It is like asking someone out on a date. If they want to go out with you, they will make sure to arrange it as soon as possible.
Where someones is taking forever to tell you when they are available, or never arrange any time; it means it is never going to happen.
The deals have been going on for months. It is not going to happen.
Louis J. Desy Jr.
No deals probable with the way things are
There is no reason for anyone to buy any coal properties outside of bankruptcy with the way things are. Any buyer that has the cash or already has financing, can just wait a few months for a bankruptcy and make the purchase for less than a regular sale.
While it would help things if the Bowie deal got done, it looks like it has been discussed for months and is not getting done. There was one comment in a recent seekingalpha.com article on BTU that mentioned one sale for a mine for only $20 million could not be completed; either the buyers didn't have the cash or couldn't get financing.
I don't expect any of these deals to get done unless the company is in bankruptcy. With sellers in dire need of cash, and buyers having no inventive to make the purchase, since then they will have a mine that is operating at a loss, there is no rush to buy.
I also expect that no one can get financing for an asset that is operating at a loss. What banker, in their right mind, would extend a loan on something that was losing money month after month? It would be a stupid loan.
Louis J. Desy Jr.
I thought they were going to make it
I thought once they got up to $1 in assets, that TPLM would be able to weather any downturn.
I was wrong and shocked at how fast it all faded away.
Louis J. Desy Jr.
It looks like it is all over
I went to look at the last 10K/Q report. According to that report, equity was negative by $106 million. With the resignation of the CFO, it looks like it is all over for the company.
10Q report for period ending October 31, 2015:
http://www.sec.gov/Archives/edgar/data/1281922/000155837015002809/tpc-20151031x10q.htm
We can only assume that they lost even more money in the time since that report and are even worse off.
I expect Chapter 11 bankruptcy before the end of April 2016, and for the common shares to be wiped out.
Louis J. Desy Jr.
CFO left March 21, 2016
Form 8-K for TRIANGLE PETROLEUM CORP March 24, 2016:
https://biz.yahoo.com/e/160324/tplm8-k.html
The CFO resigned and they hired advisors to explore their options.
This does not look good.
Louis J. Desy Jr.
Positive article about coal demand today
It looks like the jump is on a positive articles about demand for coal rising in Vietnam, plus another positive article elsewhere about the Philippines.
The only problem is that this year looks like at most maybe another 10MM metric tons; and the prices range from $9/mt to $38/mt, depending on the kind of coal bought.
I also ran across an article about a large coal producer in Poland that is getting a government support in order to stay in business.
While I think this all helps in the long term, like years, it does not look like enough help to stop BTU from filing on April 15, 2016 for Chapter 11.
Bright News In Dark Times For The Coal Sector:
https://finance.yahoo.com/news/bright-news-dark-times-coal-171218434.html
orget China And India… This Nation Could Change Global Coal
http://piercepoints.com/mining-energy-investment-coal-philippines-india-china-demand-power/
Poland to buy coal from stockpiles to help mines -PM (from Dec 2015):
http://www.reuters.com/article/poland-coal-idUSL8N13T2YO20151204
Louis J. Desy Jr.
Disclosure: I own BTU put options.
Unfortunately yes.
While I can't tell exactly, I assume the company must be bad off if they need a DIP financing for the small amount of $20 million. It sounds like they have run out of all of their cash and have no other way to continue operations.
Louis J. Desy Jr.
EOX asset listing and value
I saw that on their statements, but I think the problem is that is the book value, and market value is a lot less.
If you look at the filing, you will see a block were they list the value of the assets and value of the liabilities in ranges on the initial filing pages, were value is the current market value. In that part of the filing, assets are $50 million or less, while liabilities are $100 million or more.
When there is a summary of the full schedules filed, it should be clearer, since that will have a one page summary of all assets and all liabilities.
Louis J. Desy Jr.
They just filed BK on March 23, 2016
Emerald Oil, Inc. Announces Fast Track Restructuring and Files Voluntary Chapter 11 to Implement 363 Sale:
March 23, 2016
http://ir.emeraldoil.com/company-news/detail/1001
They just filed for Chapter 11. They got 20 million DIP financing.
It looks like the equity is wiped out. The petition lists, with a check box, assets of $10 million to $50 million while liabilities are listed at over $100 million.\
Link to filing petition:
https://dr201.s3.amazonaws.com/emerald/VoluntaryPetitions/16-10704.pdf
Link to case information:
https://www.donlinrecano.com/Clients/emerald/VoluntaryPetitions
Louis J. Desy Jr.
PPT or computer buying?
There are some people that believe the 3:30pm ramp up is because of computer trading or a working group that is commonly called PPT (Plunge Protection Team).
Initially, when I saw references to stuff like that I thought people were joking, but there have been a few studies done that show if you buy at 3:30pm, and then went short at 3:45pm on the market, that your returns would far out pace buying or selling at other times of the day.
While it is not clear what exactly is going on, it is clear that something is going on at times, since some stocks or markets will have a sudden rise or fall with nothing in the news to explain why it is happening.
Louis J. Desy Jr.
CHK issued 17.2 million shares for debt
It looks like on Friday that CHK issued an additional 17.2 million shares for bonds/debt of $105 million in bonds.
Another writer seems to think that the exchange allowed them to be made mostly whole if they sold off the shares into the open market:
http://seekingalpha.com/article/3959916-chesapeake-riskless-trade-everybody-loves?auth_param=1assr:1bevvij:26196d187a4bc7a36401a39391ffbca8&uprof=45#alt2
8K report on exchanging shares for bonds:
http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=11268618-841-5048&type=sect&TabIndex=2&dcn=0000895126-16-000401&nav=1&src=Yahoo
The amount of shares is 2.6% of the outstanding amount.
While this helps CHK survive, they will need to do a lot more to make it.
I think the main motivation is to get the bond/debt holders to recover in full and leave the retail market stuck with worthless common shares. i.e. This is starting to look like the typical penny stock 'pump and dump' where convertible debt are exchanged for truckloads of shares, that are then sold into the retail market, after which the stock crashes since the company has no value.
Louis J. Desy Jr.
When the shares will be cancelled
I expect the shares will be cancelled before year end 2016.
Once the reorganization plan is approve by the court, it is 8 or 10 days before the court will issue the order setting the effective date. The reason for this delay is because it is the amount of time someone can file an appeal to the court order on the plan.
Once the appeal deadline passes for the plan, then the court will issues an order setting the 'effective date'. The instant that happens, the stock will be delisted, stock trading, and all of the shares cancelled. While this usually happens outside of normal trading hours, there have been a few times where the order issues in the middle of the day, and the stock is halted to never trade again.
This is what happened with RSHCQ last year. They filed Chapter 11 early in the year, and before the year was finished, the shares were halted, delisted and cancelled. Over there, they was a more complicated case since there was a few other court actions going on surrounding issues about the credit default swaps and the dealers; but the shares still got cancelled within the year.
I expect the timeline for MHRCQ will be shorter since they do not have those issues.
While there is a shareholder lawsuit, I do not see what good that will do. The shares are wiped out and equity is millions negative.
The rise in oil prices will not change much of anything since any benefit from the rise in assets will go to the higher priority classes and not the common shares.
Louis J. Desy Jr.
Opinions
Well, the 'fairy tale' that people are promoting that BTU is someone going to make it it just as much an opinion, and a far worse opinion, since none of the facts or the progression of the company so far, support such an outcome.
Even if coal prices went up 100% from current levels, BTU would just be a 'zombie' since everything would be needed to cover the debt and leave nothing left over for the common shares.
The only way BTU is going to be ok is if a miracle happens, and the price of coal rises enough to save the company. The only way that even has a chance to happen is if the price of oil and gas rise enough so that coal become competitive again.
CHK, a large producer of NG (largest in the country?), is one the edge of bankrupty. The only way they were able to pay off at maturity a $500 million bond offering was buy borrowing against the credit line, which I was surprised the bank allowed them to do, since now when CHK goes bankrupt the bank will be stuck with all kinds of CHK loans.
If anyone really thought that BTU was going to recover, they would be better off buying the bonds. The bonds are higher in priority and have a much better payoff with at least a x10 if the bonds paid off at maturity.
The common shares would not have such a rise since so much of the gross margins would go to the bonds that there would be little to nothing left over.
Of course, the problem is that except for the secured bank line and the first lien bonds, no one is going to be expected to recover anything. The junior bonds and common shares will probably receive warrants in a Chapter 11 plan that will never have any value.
One interesting trade people can prepare for, is that after BTU files Chapter 11, they can expect a spike when the muppets rush into the stock after the DIP financing gets annouced. This trade is a high risk because if you time it wrong you will get stuck with worthless shares, plus you have to count on the retail market to be so stupid that they do not understand how DIP financing works in a bankruptcy. i.e. That the DIP financing is higher in priority than the common and any recover for the common is now further away.
Louis J. Desy Jr.
Disclosure: I own BTU puts and expect to buy more in the days up to April 1 and April 15, 2016.
It is an opinion? Not really.
It is a conclusion based upon the facts.
The facts all show and point to a chapter 11 filing on or before the opening of the market on April 15, 2016. Unless something incredible happens, like the price of coal skyrocketing in spite of a number of other companies in bankruptcy or on the verge of bankruptcy, BTU is dead.
On or before April 15, 2016; it will become a fact.
It is clear based on the facts so far, the 'going concern' language in the 10K report, the drawing down of the remainder of the credit line, the missed interest payments on March 15, 2016, and the 30 day grace period; that BTU will have to file Chapter 11 bankruptcy prior to the opening of the market on April 15, 2016.
BTU may not even make it to April 15, 2016 because of the requirements on or before April 1, 2016 that it would be required to post additional collateral or be in default on some contracts that it can't or won't post.
A few months ago I thought that BTU might 'weather the storm' and make it, but after the 10K report came out, they drew down the remainder of the credit line, couldn't sell the mine for sale, and missed the interest payments, it is clear that BTU is not going to make it.
I had initially bought June 2016 put options because I have expected they would make it at least to near the end of the 2nd quarter but was wrong about the amount of time it will take.
Louis J. Desy Jr.
Disclosure: I own put options.
It is not an opinion, its facts
There is no way the company makes it past April 15, 2016. Even if the sale of the mines go through, I would expect there to be a write off on the sale (sale will be for less than what it is carried for on the books), making it impossible to bring the financial ratios back in line with covenants. i.e. BTU will still be in violation of the covenants.
If BTU does not file for bankruptcy, then the first lien bondholders will, and take over the company. The bond holders have made no secret about the fact that they want the company to file for Chapter 11, and there are several reports in the press stating that is what they want the company to do.
What incentive is there for the first lien bondholders to do otherwise?
Even if you think coal prices will go up within a matter of weeks (which I do not think anyone believes is going to happen) and 'save the company', why wouldn't the first lien bondholders exercise their rights and take everything over now? There is no reason for them to not do so, and there is no way for BTU to avoid that outcome.
Louis J. Desy Jr.
Disclosure: I own BTU put options and expect to buy more in the days prior to April 1 and 15, 2016
Expect BK on April 1 or 15, 2016
I think there is a chance that the filing may be as early as April 1. On April 1 there is some borrowing base that is redetermined or something with the credit line. While it kind of does not matter, since BTU drew the remainder down in Feb 2016, it could trigger additional collateral calls on some of the contracts. If that happens, BTU may have to file on April 1 and not even make it to the end of the 30 day grace period.
I expect that no matter what happens, when the 30 day grace period runs out on April 14, BTU will have to file Chapter 11 before the opening of the market on April 15. The first lien holders already have been pressuring BTU to file, and end up taking over the company. Why would they agree to anything else?
The only way for BTU to avoid filing for bankruptcy would be to make the missed interest payments AND come back into line on the covenants.
Even if BTU uses its cash to make the missed bond payments, there is no way to get their financials back into line on the covenants; meaning the bond holders can still force the bankruptcy.
Peabody says in filing facing pressure from lenders on debt
https://eresearch.fidelity.com/eresearch/evaluate/news/basicNewsStory.jhtml?symbols=BTU&pageno=&storyid=201603011455RTRSNEWSCOMBINED_L2N1682AF_1&provider=RTRSNEWS&product=COMBINED&
Louis J. Desy Jr.
Disclosure: I own BTU puts.
Drew down credit line on February 12, 2016
I found a SEC report making the reference.
8K report from Feb 12, 2016:
http://ih.advfn.com/p.php?pid=nmona&article=70453328
Drawing down the rest of the credit line
http://ih.advfn.com/p.php?pid=nmona&article=70784801
$BTU bk coming? Probably
They just missed interest payments, recently drew down all of the available credit on their credit line, and the 10K has 'going concern' language in it.
I expect on or before the 30 day grace period ends(April 16, 2016) for making the interest payment that BTU will file for chapter 11 bankruptcy.
The way the bonds are trading, it looks like most classes do not expect to recover much, if anything.
Louis J. Desy Jr.
Disclosure: I own BTU Apr 22 2016 $2 puts and BTU Jun 2016 $0.50 puts.
DIP financing bounce and Q4 2015 results
http://ih.advfn.com/p.php?pid=nmona&article=70771451
On March 11, the company filed a statement 8K about DIP financing. A lot of times, when a company annouces the DIP (Debtor In Possession) financing, the stock jumps because a lot of the retail market 'thinks the company is saved' and the existing common shares are going to have a better chance now.
What most (all?) of them do not understand, is that the DIP financing has super priority status in order of the classes, so the existing common shares are now at the end of an even longer line for any recovery in the bankruptcy process.
https://finance.yahoo.com/q/bs?s=SFYWQ
https://finance.yahoo.com/q/is?s=SFYWQ&annual
Even worse, is that it looks like the company took a $1.5 billion write off in 2015, making equity negative by about $852 million. As a result, the equity has all been wiped out and the existing common shares are dead.
There is nothing left for them to recover on.
Louis J. Desy Jr.
Revisions to oil reserves
There have been accusations of a number of OPEC countries 'misreporting' oil reserves for a while and jacking up the number. I can't remember the source, (I think it might be the book 'Oil's Endless Bid) but the reason or motivation to misreport is that sometime in the mid 1980s or 1990s, OPEC changed the formula for production quotas. One of the big factors was total reserves, so if a country reported a larger reserve, it got a higher portion of the quota.
Saudi Arabia is rumored to have increased its reserves by 100% after the change in the formula, and there are rumors that at a number of fields the percentage of water is 50% to 55% (the amount of water coming out of the well with the oil; the water is partly already there and additional water is forced down into the well to get more oil out.)
I think a big thing to watch into the summer are the storage reports for Cushing, OK; to see if storage fills up or not. Right now they are still on track for storage being operationally full on June 16, 2016. (80% of capacity, while not 100%, the 20% is needed so you can move different blends around in the systems).
as long as Cushing does not fill up, then CHK might have a chance, but if Cushing fills up, then CHK is dead. At that point oil and has prices would have to crash since they would need to get rid of the stuff at any price to free up room for current production.
Louis J. Desy Jr.
Oil well reductions
This will help a little to get prices up, but it is only a handful of wells in one state. The real problem is that Russia, Iran and Saudi Arabia are 'at each others throats' and trying to punish each other.
The swing producer, Saudi Arabia, has the choice of flooding the market with oil or not and driving companies like CHK out of business plus all of the other shale producers.
At the moment, there is not reason for them to stop when they are so close to one of their objectives, bankrupt the shale producers plus the banks that financed them; meaning that those entities will not be around to finance new drilling when they let prices rise.
If this was just supply and demand, enough supply would have been taken off of the market a while ago and prices would have risen. instead Saudi Arabia wants to drive companies like CHK out of business.
Louis J. Desy Jr.
Problems with server
I was not able to review most of the boards that I follow because of problems with the servers on iHub.
The reasons given for rally appeared to be for three reasons:
1: Short covering. I do not think that was the reason, since any retail would have to short at $5/share or higher, and the stock only just got back to that level before falling again.
2: Oil prices up. Oil did get as high as $38/barrel and I think the muppets started to pile in, thinking that the company will recover.
3: Former CEO died and people think the company will not suffer any consequences for the price fixing. While the company may not have an fines or penalties from the price fixing by government action, the owners of the rights are still going to have to be compensated for what they were cheated out of, if they sue. The CEO dying does not change any of that.
The problem is that even if the company somehow survives to when oil prices recover, the company will probably be nothing but a 'zombie'.
There is a preferred series above the common shares worth about $3 billion, implying that the company needs to somehow make a yearly profit of at least $150 million in order for the common shares to be considered worth anything, if you apply a multiple of x20 to earnings. The problem is that the company is expected to lose money into 2017 with prices as low as they are.
The company has suffered so many losses so far, plus lost assets from the expiration of leases that were not drilled, that at best, the company will be able to keep current on their debt. At some point, even if the company makes it through the current crisis, the next downturn would finish off the company.
Louis J. Desy Jr.