For Investors Only -- July 14, 2014; For Second Consecutive Year, ND Is #1 In Beer Consumption (Per Capita); Early Morning Trading On A Big Day For Bakken Investors

Updates

Later, 10:20 p.m. PDT: trading at new highs today -- BAX, KOG, WLL.

Original Post

The big story today, of course, is the news that Whiting will buy KOG. A reader with mineral rights asked my thoughts on what this might mean for mineral owners. My response to that question and what it might mean to investors.

Disclaimer: this is not an investment site. Do not make any investment decisions based on what you read here or what you think you may have read here.

Some random thoughts:

• I won't hazard a guess how it will affect investors (shares in either company). I wouldn't be surprised if someone else (XOM, CLR) comes in with a higher bid. WLL is NOT paying a premium for KOG based on share prices of either company on Friday. [That will change if WLL's share price appreciates, which appears to be happening as we speak -- up 6% in early morning trading on first trading day after the announcement.]
• I think the consensus for many years was that KOG was setting itself up to be sold. It was just a matter of time. Mineral acres in the Bakken seemed to have plateaued in value; perhaps KOG saw that, and felt this was "as good as it was going to get." 
• Whiting is more interesting. I also thought there were reports over the past two years that WLL would accept a buyout if there was a suitor. The only buyers able to buy a Whiting would have been one of the majors (XOM, COP, CVX) and generally the majors don't want to be nuisanced by small players. Perhaps WLL realized it was too small for XOM, COP, CVX, but too big for anyone else. So, it had to acquire significantly more acreage, making it a much bigger company, to capture the attn of XOM, COP, or CVX. Whiting buying KOG seems to have surprised everyone. It would not have been a surprise had it been CLR buying KOG, on the other hand; not a surprise, but simply audacious.
• The Whiting CEO, James Volker, has been around for a long, long time. He is 67 years old; has been with the company 14 years, I believe. Was this his swan song? One last deal before he retired? 
• For mineral owners, it will guarantee deep pockets for continued drilling; whether or not much changes in the big scheme of things? I don't think so. I am probably way wrong on this, but I get the feeling that North Dakota is willing to let oil production plateau for awhile, while they put in the infrastructure: to reduce flaring, improve pipelines, manage the negative publicity surrounding CBR, etc.

Don suggested, and I had forgotten, it was getting to the point, in the eyes of some, that KOG wold soon have to raise more money to drill at the rate it projected. Issuing more shares was not a good option. KOG has done that, almost once too often. Don is much more savvy than I on these things, but I assume this was only one piece of all that went into this deal between WLL and KOG.

It will be interesting to see what Zeits, Filloon, others have to say.

********************************
Early Morning Trading

WLL is surging on the announcement: up 6% in early morning trading.

KOG appears to be tracking WLL. Each KOG share will be worth 0.177 share of WLL when the deal closes by the end of the year.

How is this announcement affecting other Bakken players:

• WLL: up 6.2%
• KOG: up 4.6%
• TPLM: up 4.2%
• HES: up 1%
• CLR: down slightly; flat
• OAS: up 0.5%
• AMZG: up 3.3%
• HK: up 2.2%
• MDU: down 0.7%

Remember: some of these companies have had significant pullbacks over the past week or so.

AAPL is surging -- hits a new high, $96.67. Remember, this follows a 7-1 split, so the $1.42 jump today represents almost a $10 jump today. I still think a lot of this has to do with a lot of shorts being squeezed. Whatever it is, it's nice for those holding AAPL (I don't invest or trade in AAPL; never have, never will. I simply missed this one twenty years ago. Memo to self: place sad face here.)

UNP is up almost 1% trading near its all-time high.

BRK-B (another railroad company) is up about 0.3% -- almost a new high.

I don't follow banks, but the headlines say banks are surging due to "Citi deal." I don't follow that. BK is up about 0.3% and trading near all-time highs.

Other shale players:

• SD: up 0.3%; seems to be treading in a narrow trading range
• EOG: up about 1.2%; near it's all-time high

Pipelines (remember, the market is surging today):

• EPD: down about 0.4%
• EEP: down about 0.1%
• ENB: up about 0.45%
• OKE: up about 0.3%
• KMI: up over 1.2%

*********************************

For Beer Drinkers Only

The Dickinson Press is reporting:

North Dakota is the No. 1 state for beer consumption per capita, a recent report shows. Residents drank 43.3 gallons of beer on average in 2013, topping the ranking for the second straight year.

*********************************

For Floor Traders Only

I won't be adding this to my "Big Stories" site (at least not yet) but it begs the question: is this part of the tectonic change I perceive in America -- the "traditional" middle class and upper middle class being squeezed?

This is the top story over at Yahoo!Finance at the moment:

UBS AG's trading floor in Stamford, CT, once teemed with traders occupying a space equal to two football fields. The Guinness World Records recognized it as the biggest such facility on the planet. And the Swiss bank used it to showcase its Wall Street credentials.

Stu Taylor, a former UBS managing director in trading who now runs trading-technology company Algomi Ltd., remembers when guests were brought around the gallery regularly. "It was very much a showpiece," he said.

Today, there are virtually no traders shouting into their phones or staring at terminals. UBS's cavernous floor is taken up mostly by back-office, legal and technology staffers, according to people familiar with the bank.

A spokeswoman for UBS said the trading floor was built for 1,400 traders, but wouldn't disclose the number of employees at the facility.

Out here in California, on the surface, things look really, really good. But just beneath the surface, I'm not convinced everything is so hunkey-dory. Two things that one can't fail to notice almost immediately: the number of cars parked in driveways and on the streets in residential neighborhoods; and the price of gasoline, now pretty much averaging $5.00/gallon. Yes, I know, it's probably closer to $4.39 or $4.59 for the least expensive grade, but for all practical purposes, we're looking at $5-gasoline. In some locations is it well above $5.00. I mentioned that the other day: $5.29/gallon for unleaded regular, 87-octane-rated at Needles. Our younger daughter and her husband drove in last night from Portland, OR, and mentioned they saw highest-price gasoline ever somewhere along I-5 in the Sacramento area. They didn't mention the price but I assume it was about $5.50/gallon.

Back to the cars in driveways and on the streets. In middle class neighborhoods, houses were built for two-car households; now it appears it is not uncommon to see three-, four-, and five-car households. These are all sedans, pick-ups, SUVs, not recreational off-road vehicles. Local folks probably noticed this some time ago, but are now finally talking about it: multiple generations of same family living in three-bedroom homes. Across the street is a typical example, noted by many: grandparents, young adult children (both working), and elementary school children living in a small three-bedroom house, probably 1,500 square feet. Four cars. My brother-in-law lives in middle class neighborhood where townhouses are now going for $750,000 -- in Williston they would be $350,000 houses; in Williston, before the boom, they would have been $100,000 houses. His house and his neighbor's house share one wall. The neighbors are renting. The landlord is probably unaware of living situation: the landlord thinks a nice young couple moved in. In fact, there are three families living in the house: the parents and two of their adult children, both married. The parents and one son/wife life in the house; the second son/wife live in the garage. There are eight adults altogether in the house. The homeowners' association allows only two cars per townhouse to be parked in the complex. It took six months to a year to finally get the family to play by the rules; they now park six of their eight cars on a street outside the complex. A very, very nice family; all/most work at Disneyland (security guards, operating rides, etc; none professional as far as we know). No judgement. Simply a new phenomenon.


Earlier this month, my brother-in-law/wife took a vacation with close family friends to Yosemite Park. The family had two college students who both live at home because they cannot afford the cost of the dorm experience; at Yosemite, no dining out -- bought groceries to make meals in room, etc., again to save costs. Everything suggests the middle class / upper middle class are getting pinched.

On the surface things look really, really good out here, but one just gets the feeling it's not all it seems.

One thing to consider: city governments depend on property taxes. Three families in one home: three families using city services, roads, and schools. One homeowner paying property taxes. Just an observation.

And that $5.00/gasoline: that takes a lot of money out of retailers' pockets when folks are paying $50 - $100 at the pump each time they fill up.