Skip to content

(B)(N) The Permian (Oil) Basin

March 17, 2014
West Texas Permian Oil Field

West Texas Permian Oil Field

Drama. The deep-drillers in the Permian Basin have found new oil at 2000 to 3000 metres and, wouldn’t you know it, instead of being a cause for rejoicing, it’s a cause of grief – too much oil, too little pipe and not enough refinery space at about 400,000 barrels a day (The Street, March 13, 2014, Jim Cramer: Trading a Glut in Oil).

And unlike Las Vegas, what happens in Texas doesn’t stay in Texas; all but the tailings and the landscape goes to Wall Street and that hasn’t been much – $5 billion last year and up +16% but waning now (down 6%) and most of the gain ($4 billion) was in Marathon Oil which has already been drummed out of the Perpetual Bond™. Please see the fundamentals below.

Exhibit 1: The Permian Oil Basin – Fundamentals – March 2014

The Permian Oil Basin - Fundamentals - March 2014

The Permian Oil Basin – Fundamentals – March 2014

(B)(N) The Permian Oil Basin - Risk Price Chart - March 2014

(B)(N) The Permian Oil Basin – Risk Price Chart – March 2014

These companies are trading at “fair value” which is the price of risk but the dividend yield of 2.3% last year doesn’t cover the losses so far this year.

However, the aggregate gain was +16% plus dividends last year for those who got in on-time and although Marathon has already dropped out, HollyFrontier and Alon USA Energy are still in the play and their web-sites are inspiring but there isn’t one for Wall Street which only plays for money. Please see Exhibit 4 and 5 below.

Exhibit 2: (B)(N) The Permian Oil Basin – Prices & Portfolio – March 2014

(B)(N) The Permian Oil Basin - Prices & Portfolio - March 2014

(B)(N) The Permian Oil Basin – Prices & Portfolio – March 2014

Exhibit 3: (B)(N) The Permian Oil Basin – Portfolio & Cash Flow Summary – March 2014

(B)(N) The Permian Oil Basin - Portfolio & Cash Flow Summary - March 2014

(B)(N) The Permian Oil Basin – Portfolio & Cash Flow Summary – March 2014

Exhibit 4: HFC (B)(N) HollyFrontier Corporation – Risk Price Chart – March 2014

(B)(N) HFC HollyFrontier Corporation

(B)(N) HFC HollyFrontier Corporation

No matter how exciting the Permian Basin and US oil is, at the end of day for investors, it’s not about the company, it’s about the stock.

The stock was eligible for inclusion in the Perpetual Bond™ at $38 in 2012 and stayed in until it breached the stop/loss at $45 a year later and we bought-in again at the same price in July last year; it’s currently trading at $50 and above the price of risk, the Risk Price (SF), of $42 with a stop/loss at $45.

Early risers might have picked it up for a lot less – even $10 three years ago – and good for them but now if they knew the price of risk, they might keep their good fortune – after all, it’s just a stock and it doesn’t become money until it’s sold; our estimate of the downside due to the demonstrated price volatility is minus ($4) in the next quarter. Please see Exhibit 2 above for more details.

Exhibit 5: (B)(N) ALJ Alon USA Energy Incorporated – Risk Price Chart – March 2014

(B)(N) ALJ Alon USA Energy Corporation

(B)(N) ALJ Alon USA Energy Corporation

Alon USA Energy has been an even rougher ride and we too were drummed out at $18 last year but it’s eligible for the Perpetual Bond™ now; however, the stop/loss price at $13 is just below the current stock price of $16 and our estimate of the downside in the stock price due to the demonstrated volatility is minus ($3) in the next quarter.

Please see Exhibit 2 above for more details.

And for more information on “risk management” and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary.

And for more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in AmericaBig OilShopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

No comments yet

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s

%d bloggers like this: