Headline Story Over At WSJ: For Tesla, The Forecast Is Partly Cloudy; We've Seen This Movie Before; Losses Are Horrendous -- July 10, 2016

Link here. It looks like we've seen this movie before.

Mr. Musk said that bringing electric cars, solar panels and battery storage under one corporate roof would produce operational synergies and create “the potential for Tesla to be a $1 trillion market cap company.”

That’s about 32 times Tesla’s current valuation.

Neither company (Tesla nor SolcarCity), though aided considerably by government renewable-energy subsidies, has ever recorded an annual profit.

Last year Tesla lost $889 million—nearly three times as much as in 2014—while SolarCity’s loss doubled to $769 million. Investors may be feeling déjà vu as a shadow has fallen over the solar industry.

In April, the renewable-energy conglomerate SunEdison filed for chapter 11 bankruptcy following an Icarus-like fall. A year ago, former CEO Ahmad Chatila predicted that his company would be worth $350 billion by 2020—about 35 times its market capitalization at the time. Nine months later, the stock price had plunged by 99%, to 21 cents per share.

SunEdison’s stock first began to tumble last July when Mr. Chatila proposed paying $2.2 billion for the rooftop-solar installer Vivint Solar (the deal was scrapped in March), which activist investors lambasted as overpriced. It soon became clear that SunEdison’s growth, enabled by debt and complicated financial engineering, was unsustainable. 

Notwithstanding Mr. Chatila’s sunny forecasts, the company had failed to earn a profit in five years. An internal probe in April faulted a lack of accounting controls and an “overly optimistic culture and its tone at the top.” The Tesla-SolarCity deal is an all-stock exchange, but the SunEdison fiasco is a flashing yellow light.

Much more at the link. Meanwhile, the AP is reporting that MuskMelon has "another secret masterplan."

Tesla Motors CEO Elon Musk, under pressure after a fatal crash involving one of his electric cars, went on Twitter Sunday to say he's working on another "Top Secret Tesla Masterplan." He said he hoped to publish details this week.

The tantalizing message echoes an August 2006 blog post, titled "The Secret Tesla Motors Master Plan (just between you and me)," in which Musk unveiled the cars that became the Tesla Model S four-door family car and the Tesla 3 sports sedan.

About the time we start hearing "secret plans" about anything, it seems it is just a matter of time before the house of cards starts to fall. 

Easier/Cheaper To Buy Than To Build -- Southern Buys Half Of Kinder System In Latest Gas Expansion -- Bloomberg -- July 10, 2016

Also at the WSJ. 

From Bloomberg. Data points:

• Southern Natural Gas pipeline, built, owned, operated by KMI
• 7,600 mile pipeline
• connects natural gas supply basins in TX, LA, MS, AL, and GOM to markets in southestern US
• KMI will continue to operate
• Southern will own half
• Southern's share valued at almost $1.5 billion

Why?

With demand for electricity declining and natural gas taking market share from coal, Atlanta-based Southern was among the first utility owners to seek growth by buying a gas transporter.

Duke Energy Corp. and Dominion Resources Inc. followed suit.

Southern last month received regulatory clearance for its $8 billion takeover of natural-gas distributor AGL Resources Inc.

I use a $1 million / mile to build pipeline from scratch.

7,600 / 2 = 3,800 = $3.8 billion. Southern got it for less than $1.5 billion. 

Denbury Sells Its Remaining Non-Core Williston Basin Acreage -- July 10, 2016

From Seeking Alpha. Data points:

• Denbury sold its remaining non-core Williston Basin assets for $58 million
• averaged around 1,350 boepd; 96% oil
• around $43,000 / flowing bbl
• well above what Pioneer Natural Resources paid for its Midland Basin acquisition  ($35,000 per flowing barrel; but Midland was only 70% oil)

I don't know how much acreage this amounts to.

The last data point I had for DNR was that DNR sold most of its acreage in the Williston Basin to XOM back in September, 2012, for $1.6 billion. That deal was said to include 196,000 acres in the Bakken; prior to that deal, some said DNR had about 200,000 to 260,000 acres in the Bakken. At about $5,000/acre, $58 million = 12,000 acres, so unless we get the acreage numbers, it's anyone's guess what the actual amount of acreage was. The buyer was not identified.

We'll watch the NDIC daily activity report to see to whom the wells were transferred. 

Update On The Dakota Access Pipeline -- Local Interest -- Dickinson Press - July 10, 2016

From The Dickinson Press. Data points (numbers rounded):

• farmers are starting to receive "mailbox money" for the pipeline
• the South Dakota portion of the project is expected to cost $820 million (almost a billion dollars)
• the South Dakota portion will generate an estimated $40 million for the state during the construction
• after completion, the "pipeline" will pay annual property tax payments to each traversed county
• the company will pay an estimated $15 million in property tax payments to South Dakota counties in its first year in service
• even farmers who objected to the pipeline are cashing their "mailbox money" checks rather than sending them back to the pipeline company in protest

This Is Not Good: Underwater Oil-Well Bolts Are Failing -- July 10, 2016

From The Wall Street Journal: Underwater oil-well bolts are failing, causing alarm.

General Electric Co. , oil drillers and U.S. regulators are scrambling to determine why massive bolts used to connect subsea oil equipment keep failing, prompting costly shutdowns and raising safety concerns about hundreds of wells in the Gulf of Mexico.

Safety regulators at the Department of the Interior began investigating the matter in 2013, after a GE oil-exploration equipment business issued a global recall for faulty bolts on one of its components. The bolts have corroded and sometimes snapped, raising the possibility of a major oil leak.

But the U.S. investigation and two recent bolt failures convinced regulators and industry officials that the problem goes beyond GE and its blowout preventers—safety gear used to halt oil-and-gas flow during a well emergency.

Flaws also have been found in bolts made by GE’s two main competitors for blowout preventers— National Oilwell Varco Inc. and the Cameron unit of Schlumberger Ltd. —and in bolts used in other areas on subsea wells, said Interior Department officials. 

Those commenting are probably correct on the cause. Off-shore wind turbines? Same problem?

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

Some Folks "Invested" In Money Market Accounts Ten Years Ago; Others Did Not

From Investopedia: behind Exxon's 51.2% rise in ten years. Misleading headline, to say the least. Fundamentals:

Exxon Mobil reported net income of $16.2 billion in 2015 on total revenues of $269 billion. This represented a year-over-year decline of 34.7% on the top line, bringing the 10-year average growth rate to -3.2%. 

Sharp declines were also experienced in 2009 when oil prices dropped. Earnings growth rates were even more volatile, with large fixed costs creating operating leverage. 

Exxon Mobil's dividend steadily rose over the 10-year period from 2006 to 2016, with management explicitly focusing on dividend growth as a priority through lean times. 

To counteract the 2014 and 2015 price drop, the company shed operating and capital expenses.