Cleaning Out The In Box -- August 4, 2018

Too many soybeans? The North Dakota solution -- process soybeans into "renewable" diesel and ship it to California where there's a huge market. Now that the Chinese have imposed a new tariff on US soybeans, what's not to like? Making America great again. From what I can tell, everybody wins on this one. From The Billings Gazette -- the Andeavor Dickinson Refinery would like to build a pilot project at the existing refinery that processes vegetable oil and Bakken crude to create a 5% renewable diesel blend.

Too much sand? The Texas solution -- put it back into the ground as fracking sand. From Fox Business (no link; google app won't link Fox Business) --

A Houston-based supplier of sand for West Texas oil drillers has hit financial pay dirt by mining and processing the sand virtually next door to its customers.

Hi-Crush Partners, a master limited partnership, had been shipping sand from Wisconsin to oil drillers in the Permian Basin of West Texas, but now operates a facility in the basin, thus enabling it to slash transportation costs and sell the commodity for far less than some rivals.

A Hi-Crush facility in Kermit, Texas – after just one year of operating – has been able to significantly cut expenses and create a viable billion-dollar sand mining operation.

Another natural gas pipeline from the Permian proposed. From The Houston Chronicle --

• the Whistler Pipeline
• Targa to partnership with Florida's NextEra Energy, Ohio's MPLX, and some private equity investors
• 600 mile natural gas pipeline system from the Permian to the coast
• Targa is "now looking to compete with Houston's Kinder Morgan, others building thes new pipelines
• MPLX is the pipeline arm of Marathon Petroleum, not to be confused with Marathon Oil

Big oil wins again -- in the court of common sense. I think this is the third "case" that has been tossed in the past few months. The other two were court cases; this one is a SEC investigation. From ABC News, the SEC drops investigation into Exxon climate change response. This is probably one case the Justice Department won't pursue:

The government has dropped a two-year investigation into how Exxon Mobil Corp. factors climate-change regulations into its calculations of the value of its assets.

The Securities and Exchange Commission informed the energy giant in a letter dated Thursday that it would not recommend an enforcement action against the company at this time.

Exxon Mobil cooperated with the inquiry, producing more than 4.2 million pages of documents.

Russia: old news, FWIW, from oilprice --

Russia reverses almost all its oil production cuts.

At 11.215 million bpd, Russia’s oil production last month was very close to the post-Soviet record-high of October 2016, the month used as a baseline for the production cuts.

Russia’s July oil production surged by 148,000 bpd from June.

So, for round numbers, the three big producers -- the US, Saudi Arabia, and Russia -- are each at about 11 million bopd. Nice easy number to remember.

Bait and switch: Xcel Energy's plan for Colorado -- op-ed at Colorado Politics --

• 15 years ago, Xcel's customers invested $190 million "to drastically improve" the environmental performance of a couple of coal-fired utility plants
• at the time, Xcel said the improvements would keep the units running through 2035
• apparently 2035 came sooner than expected
• Xcel now wants to close those coal-fired utility plants
• replace them with wind energy
• cost to Colorado consumers? At least $287 million. Upfront. Again. Like the $190 million.
• savings to Colorado consumers: no sooner than 2046 -- if ever
• other data points from the article:
• Colorado is one 21 states in which consumers have no choice in electricity provide -- so as Xcel increases its asset base, any operational costs it incurs are passed on to ratepayers
• the company's executive compensation is tied to stock performance

My hunch and comment:

• it will go through without a hitch
• the investor class will continue to do well
• the increased monthly cost to Colorado consumers will be nominal
• what's not to like?

Residential electricity rates by state (updated August 1, 2018): Colorado still has low-cost electricity.

Algore was not lying: carbon taxes will cool the earth -- IceAgeNow. Details:

• Australian carbon tax
• will cost $160 billion
• if works as planned, after ten years, the carbon tax will cool earth's temperature by 1/20,000th of one degree
• plus or minus 1/10,000th degree, I suppose

GIGO.

From the linked article:

The predicted global warming for the next decade is .17 of one degree. Just to stop that 0.17 of a degree rise, we would need to spend $77,000 for every man, woman or child on earth.

Looks like Australia has it all figured out.

Exxon's energy projections through 2040: link here --

Week 31: July 29, 2018 - August 4, 2018

This was the week that Apple hit a market cap of $1 trillion.

Without question, the data point of the week, if not the year?

The pipeline bottlenecks in North America are really causing a problem for western Canada and west Texas (the Permian). The largest crude oil producer in Canada has had to curtail production in Alberta because of the pipeline constraints. COP has temporarily exited the Permian. EOG, at the end of the week, said it would be cutting back on efforts in the Permian. Remember: it was the former CEO of EOG who suggested the Bakken play is coming to an end, as far as excitement / growth is concerned.

It's probably not a surprise that "pipelines" are "beating estimates." Link here.

It's hard to believe, it didn't feel like it, but apparently Brent crude had its biggest monthly drop in two years.

I think there were not less than three graphics that will compete for "graphic of the year":

• natural gas fill breaks through 5-year minimum
• the "Tesla" graph
• the "Saudi" graph

Operations
Bruin reports a record 30-day IP; also linked above

MRO reports another "record" IP
Update of CLR's incredible Whitman wells in Oakdale oil field 

Re-fracking
QEP re-fracks MHA wells in Deep Water Creek
QEP begins major refrack program in the Bakken

Pipelines
Could there be another "Bakken" pipeline to the Gulf Coast

Bakken economy
NOG announced its largest acquisition in history 
Whiting buys more Bakken acreage
Northstar Center Center foreclosure

Earnings
EOG

Commentary
The Bakken is looking pretty good;
"Permania" vs "Steady Eddy"
Contenders for top non-operating company in the Bakken, 2018
Contenders for top story of the year, 2018
Running out of locations in the Bakken?
Top ten oil blogs

Did Apple Just Save Warren Buffett's Broad Posterior? -- August 4, 2018

Updates

August 6, 2018: more to follow. Apparently Berkshire Hathaway bought an additional 15 million shares of AAPL in 2Q18. We'll learn more later, but if accurate, BRK owns about 240 (previously announced) + 15 million (today's announcement) = 255 million shares. Outstanding AAPL shares, 4.83 billion. 240 million / 4,830 million = just barely 5% of the Apple corporation. At 5% and 10% -- SEC beneficial ownership rules kick in. My calculations suggest BRK is just under the threshold but if Apple continues buybacks -- which it will -- it will push BRK over the 5% threshold.


August 4, 2018: press release from Berkshire Hathaway, 2Q18 earnings, August 4, 2018:

" ... investment gains/losses in 2018 include a gain of approximately $4.5 billion in the second quarter ..."

This would include "paper gains" from equity in shares of publicly traded companies -- which would have both losses and gains -- and would include Berkshire's AAPL shares.

August 4, 2018: from The WSJ -- Berkshire Hathaway profit surges; change in accounting rule and robust insurance underwriting boosts 2Q18 performance.

Wow, this is so incredibly interesting. I don't anything about this; I'm way in front of my headlights but in the original post I discussed the affect the value of Berkshire's AAPL shares affected his revenues and earnings. I had no idea there was a rule change ... from the linked article:

Berkshire’s earnings are especially volatile due to an accounting rule that went into effect this year requiring companies to include unrealized investment gains or losses in their net income. Berkshire holds large stock investments, and their quarterly changes in value can have a big effect on Berkshire’s net income. 

"... unrealized investment gains or losses ... " sounds like "paper profits" -- see original post below -- my thoughts and my calculations.

From the article:

• operating earnings: rose to $6.9 billion from $4.12 billion the year prior
• operating earnings are more reflective of Berkshire's performance, according to Buffett (see the operating earnings in the original post)

But now, the "stuff" in The WSJ that fits my narrative below (wow, this is great):

• Berkshire's largest stock holding: Apple
• this past week Apple became the first US-listed company to surpass $1 trillion in stock-market value
• but then, nothing more about the impact Apple had on Berkshire's profits
• I guess the WSJ writer assumed readers could figure it out; below, my calculations

Original Post  

 

I don't have time to complete this post but I want bragging rights, so I will post this now for the date-time stamp -- and get back to it later. 

From SeekingAlpha:

• Berkshire Hathaway Q2 revenue of $62.2B exceeds consensus by $261M. Q2 revenue rose 8.6% from Q2 2017
• at June 30, 2018, book value per class A equivalent share was $217,677, exceeding consensus of $215,29
• operating earnings jumped 67% to $6.89B from $4.12B Y/Y; by segment:
• insurance-underwriting: $943M vs loss of $22M
• insurance-investment income $1.14B vs $965M.
• railroad, utilities, and energy $1.89B vs. $1.47B
• other businesses: $2.57B vs. $1.99B
• other: $348M vs loss of $276M
• Q2 net earnings of $12.0B, or $4.87 per class B equivalent share, up from $4.26B, or $1.73, a year earlier
• Q2 EPS for class A equivalent shares of $7,301 vs. $2,592 Y/Y
• Q2 2018 includes a gain of about $4.5B for unrealized gains losses of equity security investments in Q2; as of 2018, GAAP requires including changes in unrealized gains/losses of equity security investments
• insurance float (net liabilities assumed under insurance contracts) was about $116B at June 20, 2018, up $2b since year-end 2017

From MarketWatch:

Count Warren Buffett as one of the Apple Inc. investors cheering Wednesday as the tech giant’s shares jumped almost 6% a day after posting a positive earnings report and outlook. 

That’s because the billionaire chairman of Berkshire Hathaway Inc. BRK.B,  likely made more than $2.6 billion in a single day as Apple shares spiked. 

As of the end of March, Berkshire Hathaway held 239.6 million Apple shares AAPL. Assuming it hasn’t sold any — Berkshire has been loading up on Apple, buying 75 million shares in the first quarter alone — that’s a profit of about $8 billion in four months, and a $48 billion overall stake in Apple.

In May, Buffett — who’s worth about $84 billion himself — told CNBC that he’s a big fan of the Cupertino, Calif., tech giant.

Quick: what important data point was missing in the MarketWatch story above?

From CNBC, May 3, 2018:

• Berkshire Hathaway bought 75 million AAPL shares in 1Q18
• already had 165 million shares
• the most he paid for AAPL shares in 1Q18: $166; could have been significantly less
• highest per share value of AAPL in 1Q18: $170
• value of BRK's AAPL share at end of 1Q18: 240 million x $165 = $37 billion
• prior to run-up in AAPL share price this past week, AAPL peaked at around $190, 2Q18
• value of BKR's AAPL before recent run-up, 2Q18: 240 million x $190 = $45.6 billion
• dividends, 2Q18: $0.73 x 240 million shares = $175 million 

Back to earnings:

• Berkshire Hathaway Q2 revenue of $62.2B exceeds consensus by $261M
• $261 million / $62.2 billion = 0.4 percent
• I would say a 0.4% beat is exactly in-line, especially when considering a company of this size and with so much "hidden"
• anything less than revenues of $61.939 billion would have been a miss in revenues forecast
• back to AAPL:
• $62.2 billion - $175 million in AAPL dividends = $62.025 billion
• share price: $190 - $166 = $24; $24 x 240 million shares = a paper gain of $5.760 billion
• $62.025 billion - $5.760 billion = $56.265 billion  -- which is significantly lower $61.939 billion
• bottom line: one can't say what Berkshire might have done with cash / holdings if it didn't have AAPL, but in my mind, clearly, AAPL saved Berkshire's bacon in 2Q18

Answer to above question: 

• what important data point was missing in the MarketWatch story above? Hint: it almost equals what Berkshire pulls in from its insurance-underwriting. Answer: annual AAPL dividends -- about $700 million / year -- compare with operating earnings from quarter insurance underwriting earnings

Comment:

• folks can debate the financial contribution AAPL made to Berkshire Hathaway
• not discussed, is the change in Buffett's thinking about tech investing that AAPL may have generated
• up until now, Buffett like regional newspapers and IBM for his technology and information services

Sefolosha -- Really, Really Cool -- The Naming Of This Well -- August 4, 2018

With regard to the well and the pad, see this post.

With regard to the name of the well --

The Sefolosha well and (now) pad were named for a Swiss basketball player who was picked up by the NBA's Philadelphia 76ers in 2006. He was promptly traded to the Chicago Bulls, and then in 2009, traded to the Oklahoma City Thunder. Sefolosha was selected to the All-NBA Defensive Second Team for the 2009–10 NBA season.

In 2013, Thabo Sefolosha was labelled the best Swiss basketball player of all-time by Swiss newspaper Freiburger Nachrichten.

Next up:  Timothé Luwawu-Cabarrot. LOL.