One doesn't need to know the overall crack spread, because Tesoro posts the weekly regional margins at their refineries right on their website.
Go to the Tesoro Corp. website, then click on the "Investor" section, then click on "Industry Statistics", and finally you can click on two icons worth noting. The first icon is entitled "Tesoro Index" which breaks down the spreads on each of their refining . Finally, you can click on the icon "Retail Margin Indicator" which beaks down the net fuel margins being earned at their owned locations.
By way of example, a review of this data for January 9th, indicates that TSO reported margins of $5.64 per barrel in California, $6.48 per barrel in their Northwest refineries and $4.80 per barrel in the mid-continent.
The retail margins were reported to be a whopping $.86 per gallon of gasoline sold for the most recently reported week. That is great stuff, but we have to bear in mind that TSO only derives about 15% of their EBITDA from retail......most of their refined product is sold outside of their owned/operated system; an overwhelming percentage of their product output only earns the refining margins.
Most juniors are probably surveying the markets rather covetously; wishing that they could take $10-$20 million or so of cash and using it towards a transformative purchase of producing wells. Sadly for most, the question is not one of expansion, but of survival. At sub $50 crude, most of the oil business in the United States is bankrupt, even if they are unwilling to admit as much.
Spindletop finds itself in a almost a unique position in the junior sector. With an estimated $10 million of net liquidity sitting on the books that is not needed to fund day to day operations and a very lean overhead,, the company could readily purchase a smallish producing field somewhere. $10 million probably can buy what might have cost $40 million just a year ago and would be transformational for this company.
I'd be keeping a real close eye on this company. Management is very reticent about their business intentions. If they ever do make some accretive purchases, it is typically buried in footnotes of a quarterly report. So, by all means, read the quarterly reports.
Tesoro only sells about 32% of its refined product via retail outlets. In the last quarter retail made up a little less than 18% of operating profits. So, there is no possible way for retail margins to come remotely close to making up shortfalls in refining margins, in the current environment.
Where TSO makes really good money is during periods of modestly falling to stable oil prices and increasing demand. During those periods, they can increase refinery utilization and still get some benefits from retail spreads.
Tesoro reports refining margins weekly on their website. For the week ended December 12th, they had fallen to $5.07 per barrel in California, $5.97 in the northwest and $9.08 in mid-continent. Sequentially, margins are tracking now at about roughly 1/2 of what was earned in the 3rd quarter.
Should this persist, Tesoro will be generating the lowest refining margins, in this quarter, than for all of 2014. That's NOT good at all for those TSO longs who are extrapolating a continuation of the 3rd quarter, or anything like it.
There is always a bit of risk with refiners on their inbound supplies that can result in hits on margins; this is particularly acute with foreign crude. if you recall, Tesoro got hit once already in the last four quarters on some foreign crude that was processed at an actual loss, by the time it reached their California refineries
On the plus side, retail margins are tracking about 40% higher than they were in the 3rd quarter.
The big winners in the massive crude drop are the gas station retailers, not necessarily the refiners. However, the windfall type profits being earned at the pumps typically don't persist, once pricing settles out.
A few years back, Mount Kellet bought an enormous position in a smallish mining company, Baja Minerals. They attempted to take control of that firm; then it was made public that there were huge cost overruns. Baja needed secondary financing and Mount Kellet then sent in one of their people. After a couple of months, Mount Kellet realized that the cause was lost. They sold off their entire position for a few pennies per share, having lost several hundreds of millions of dollars.
There are those in the markets that don't think much about the investing prowess of the folks at Mount Kellet. Being a private equity guy doesn't make one a great turnaround specialist. Most importantly, Mount Kellet does not have the ability to drive up the price of oil.
Let us not forget, EXXI is paying more than $12.30 per barrel, just in INTEREST charges on their level of production. Put another way, the interest expense that EXXI is presently paying exceeds 20% of the current price of WTI.
If a high yield bond manager is now sitting on the board of directors, it should be self-obvious that senior and junior debt holders want someone to protect and oversee their interests. These interests do not necessarily run tandem with the interests of common shareholders.
It doesn't look like EXXI management may be calling the shots for much longer. Certainly they didn't put out a public call for independent directors; these appear to be external appointees.
It might be that debt-holders are concerned about a possible sweetheart sale of the "best-of-a-bad-bunch" of producing oil assets, at pennies on the dollar. Bondholders won't hesitate to block a sale of such to cronies that might only loosely be defined as third parties.
Alternatively, the combination of the two new appointees, with their fields of expertise, might be interested in cramming down some sort of toxic, death-spiral type, convertible high yield bonds to get whole, on this debacle, in any potential restructuring.
$3.8+ billion in total debts and rising while the company (self-admittedly in the most recent presentation) remains free cash flow negative....supported by a layer of just $230 million in common shares, suggests that few in the markets have confidence this WON'T be a workout.
It is a stretch for management to continue to talk about selling 6,000-7,000 boepd of production and bundling up some undersea pipelines for sale at anything other than fire sale prices. Even more ludicrous is for them to imply that they can get something remotely close to the record high prices paid for their disasterous buy of EPL earlier in 2014. Most preposterous of all is a view that bondholders will even assent to permit EXXI to sell off collateral, at some loss, which will reduce asset protection.
Bondholders should, in all likelihood, just be watching the common equity wind down towards a massive consolidation. That might not be in the best interests of shareholders, but bondholders do have first claim on assets.
KSU and most of the other class 1 rails got hit by fears that rail shipments of crude oil, frac sands and various oil supplies will drop due to the pullback in oil prices.
KSU doesn't move nearly as much crude by rail or oil related supplies as many of the larger class 1 rails, the pullback is probably more a knee jerk reaction. Automotive transport from Mexico continues to grow to the point that any reduction in crude shipping by rail will only reduce a portion of the forward expected growth in volumes. Crude oil shipments are nicely profitable however, so margin expansion may not grow as rapidly as was previously anticipated.
In all likelihood, you may have snagged a bit of a bargain. relatively speaking.
Per the 10-q filed for the period ended Sep. 30th, 2014.
Note 19 — Subsequent Events
"In October 2014 and in November 2014, we monetized certain WTI put contracts and certain Brent swap contracts related to calendar year 2015 and realized $21.3 million and $7.5 million, respectively."
Aside from the interest coverage covenants contained on the long term debts, does not the $748 million drawn on the (formerly EPL) revolving line of credit on September 30th (plus whatever has been added to it since that time), not stick out as a potential concern?
Financial covenants on the revolving credit facility stand right out, in bold print, in the EXXI 10-K. "The borrowing base under our revolving credit facility may be reduced in the future if commodity prices decline'. Bankers have the right to change that borrowing base 2X annually at their discretion (unilaterally).....at least that's what one might take when reading through the most recent 10-K filing, exhibit 10.25, at the SEC.
Section 2.8.12 "Discretionary Determination of the EPL Borrowing Base by the Lenders. In addition to the foregoing scheduled annual and semi-annual determinations of the EPL Borrowing Base, the Required Lenders shall have the right to redetermine the EPL Borrowing Base at their sole discretion at any time and from time to time but not more often than two (2) times every calendar year."
So, If the lenders want to reduce the line below current levels of indebtedness, it appears that they can do so shortly. The fact that the line was recently redetermined on September 9th, 2014 doesn't preclude a nervous lender from reopening the file to protect their interest.
An inability to roll over long term debts is just one of the reasons that a chapter 11 can occur. Another, equally plausible scenario is that a company, whose short term liabilities greatly exceed short term assets, finds its line of credit cut and has no access to further debt financing or equity placement ability.
You might be right on the BK call, although that discussion probably won't be talked about in any seriousness on this bull-board. Like the Simon and Garfunkel song; "a man hears what he wants to hear and disregards the rest".
The tone of the OPEC meeting was that a floor price in the $60s for crude was being talked about.
If EXXI was adequately hedged; that would be one thing. The September's 10-q disclosure that some of their downside protection hedges were closed off, just after the end of the quarter, may have left a lot of current production fully exposed to the subsequent precipitous drop.
There is a persistent myth on this board about the effectiveness of EXXI hedging policies. For example, in the last quarter ended Sep 30th, WTI crude averaged $96.87 whereas EXXI only received a net of $74.84 per boe, a discount of more than 22% off of WTI.
If the company was truly an excellent hedger, would not the prices received be higher than average WTI, roughly equivalent to WTI....or at least remotely close? As natural gas revenues were less than 10% of total revenues, the ngl portion of the hedges certainly didn't skew reported prices at the magnitude indicated.
As to survival; In that last quarter, EXXI had net operating income of just $9.49 per boe. For the quarter to date, WTI has now averaged $80.50. If EXXI only was earning $9.49 per boe and crude prices are down more than $16.50 since the end of the quarter, the firm should now clearly be running substantially in the red.
It should also be noted; EXXI remarked that they had closed off a bunch of their crude puts and spreads subsequent to the end of the last quarter. This was mentioned as a subsequent event, in the last 10-Q. That bet clearly backfired; crude prices have continued to fall since the end of the quarter.
The surmised purpose of the Saudi's refusal to cut crude supplies would logically be to drive all marginal production out of business. Based upon the reported average cost of production for the last several yeas, EXXI is clearly one of those marginal producers.
The fact that Ken Kam actually published a positive article on the stock, some months back was as clear a SELL signal as one gets in the market these days.
His fund, MOFQX, tends to languish in the bottom 99% of all mutual funds in its category for EVERY possible duration of time. On occasion, it is actually the worst fund in its class. Some (sadly) have nicknamed it the "Falling Knives Fund".
While he probably should not be in business; there is one benefit to reading his calls. To recover money lost on his Solazyme buy recommendation, just wait for Ken's next "buy" recommendation and short that stock.
The question that one might logically ask, based upon this premise, "is Ken's abdication on SOLA a contrarian buy signal?" Probably not. He doesn't know what to buy, but sometime after Ken admits defeat, his picks do go to zero.
there should be several billion of choice (highly accretive) drop down purchases that TLLP will have access to in the coming years. Keep any eye out for possible news, in the months ahead.
Given that crude prices are below $80, and that Venezuela is likely having some serious hard currency reserve issues, we might be hearing some news prior to year end.
Costco US is the single largest client of Amex, according to industry sources; about 8% of Amex revenues come from the U.S business of Costco. What Amex gets is the whole pie, processing, credit card issuance and interest income on balances. MasterCard, for its part, would only get the processing income and possible some cross border fees on any winning bid.
In terms of revenues, the Costco USA processing stream generates about $.25 per share, net, to Amex in annual profits. In dollar terms, that is an estimated $258 million per year. Over and above that, Amex earned fees on outstanding interest balances estimated to be worth about $230 million per year.
Whatever firm wins the processing, be it either a Visa branded partner or a Mastercard branded partner, the terms will, no doubt, be less generous than Amex had previously received. If a MasterCard branded issuer, such as Capital One, gets the deal, then MA will pick up the network and interchange fees while Capital One (or whatever provider issues the cards) would earn the lions share of the income..
An estimated $40 billion of potential credit card sales run through the Costco system, on the MasterCard network, could increase MasterCard's net processed volumes by about 1.2%, in the first full year after a switch. Maybe.....$50 million of incremental profit in the first full year after the switch.
Visa's and its card issuing partners will certainly fight hard to get the Costco account. While MasterCard should have the edge in this bid, it is not a given.
As per the 10-Q, EXXI received $74.84 per boe of production in the last quarter. Their operating expenses totaled $65.35 per boe in that quarter, leaving a net operating income of $9.49 per boe.
Interest expense, per boe in that quarter, totaled $12.29 per barrel.
Crude oil averaged $96.87 per barrel for the last quarter. For the current quarter, crude prices have averaged $83.07 US.
Interestingly, the current quarter's drop in crude prices now exceeds what EXXI earned in net operating income, per barrel, during the last quarter.
There are those that talk about the fact that a lot of their production was hedged at relatively attractive prices. However, the footnotes in the 10-Q indicate that a bunch of those hedges were closed out early in October and November. EXXI indicated some profits on those hedges (the puts); but that begs the question, "what will the average price basket now be for the balance of the hedged production" ?
The fact that the interest expense now surpasses operating income is sobering, indeed. The very high cost of extracting crude from these fields is every bit as troubling as the debt.