1/9/2011
First let me harp on oil & energy for a moment. Oil is not going anywhere anytime soon. Most of the worlds energy needs are currently satisfied by hydrocarbons and at best we're simply conserving them now rather than replacing them with alternatives. Indeed the demand for oil keeps increasing despite our "best" efforts and the pace of increased supply/output is struggling to meet it. The international Energy Agency believes there will be 1.8% compounded growth in oil demand yearly meaning it is expected to grow more than 40% over the next 20 years while output is expected to decline.
Most alternatives simply will not work, and I will enumerate them for you here.
Hydrogen is not energy dense enough to be a mobile fuel source, not to mention how difficult it is to store. There's this thing called hydrogen drift where, since it's the smallest atom in the universe, it just exits through anything trying to contain it. This not only weakens and eventually breaks the container (which would cause you to lose ALL your hydrogen) but this process is continual and likely impossible to prevent due to the laws of physics. Worse hydrogen drift increases as the pressure of the gas is increased, making energy density all but an impossibility. So all storage of hydrogen is lossy and costly, it is not energy dense enough to power things which are mobile. It is prohibitively inefficient to transport by any means, and unless generated on demand on site or used in a fusion reaction it's basically useless as a fuel source. While the hydrogen fuel cell may reach 98% it still can't beat the 30% internal combustion engine efficiency when compared well to wheel (from creation/extraction until converted into rotational energy at the wheel) due to the inefficiency of transport, storage, and creation.
Natural gas is not usable as a fuel for all the reasons of Hydrogen, except it doesn't experience the troubles of hydrogen drift. That is it's not energy dense enough to use as a mobile fuel source, even though it has some very beneficial properties when used in stationary places for uses of generating heat (where it's a champion). Natural gas will likely replace coal as the major form of energy generation in the next several decades and is likely to persist for centuries if the US makes it that long. It's cheap, abundant, AND it's a fossil fuel! Biological natural gas is not, and possibly cannot, be produced on an industrial scale competitively.
Propane & Butane - Almost good enough, and a possible alternative in the distant future, but still not very energy dense (partly because they're gases), and still fossil fuels.
Bio-alcohols
Methanol - not energy dense enough to use as a mobile form of energy.
Ethanol - impractical to use as a form of mobile energy, half as energy dense as gasoline, and very inefficient production in the US leads to a negative well to wheel consumption analysis (If I recall properly, for every calorie of energy in Ethanol produced it takes 1.2 to 2.5 calories of energy expenditure). If you still think that's a good idea, I'll give you a dollar for every $1.20 you give me as often as you'd like ad infinitum.
Butanol - almost a 1:1 replacement for gasoline, and potentially the future. Although current supplies of butanol come from fossil fuels, some form of it is produced in all fermentation reactions (including beer), and I'm hopeful they'll be able to step up it's percentage output. However it has a relatively low LD50 of 2290 to 4360 mg/kg, 2 to 6 times more lethal than ethanol, and can be absorbed through the skin. Environmentally n-Butanol takes a lot of oxygen to degrade, but could potentially be better than petrochemicals in my estimation. . . if we can ever get to the point where we can make significant quantities of n-Butanol without using oil. Currently biologic forms of Butanol are far more toxic and have dismally low yields.
Biodiesel - Petro chemicals are still too cheep and biodiesel manufacture still too expensive, but I believe this is the most viable alternative fuel and the most likely thing that will be running cars in 20 to 30 years combined with electric motors. I expect this transition to begin in the first world countries in about 5 years if oil remains above $75/barrel.
Electricity - Will require a full overhaul of current distribution infrastructure and improved battery/storage technology, the other side of the future of all mobile devices combined with bio-fuels.
Solar & wind - require large tracks of land to produce energy, and even then it's unreliable and generally suffers from "Not in my backyard" politics. Will require massive reductions in average energy expenditure or a revolution in storage technology to be a viable form of alternative fuel. At current levels, without government subsidies, it will take the average households 40+ years to recover the costs of Solar or wind local power generation (areas of high wind or sun obviously need less time, I calculated that near Moffit field in Mountain View it would likely only take about 15 years to pay off a wind turbine due to the consistency of the wind, but it only has a useful life of about 30 years).
Big oil, that is companies that integrate recovery, refining, transport, and delivery, are Exxon Mobil, BP, Chevron, Total SA, and ConocoPhillips. Big oil produces and distributes oil very cheaply meaning there is a HUGE barrier to entry for alternative fuels. Not only that the government subsidies oil/oil companies more than bio-fuels and it has been suggested that Big oil actively suppresses bio-fuel adoption though Exxon seems to be giving lip service to the idea that it is developing them.
In short, oil likely isn't going anywhere for at least 100 years and it's price is likely to be quite high for the next 50 even as it is phased out. Hitching a ride up to the peak is a sound financial decision, and while I do believe they are the future I don't believe alternatives to fossil fuels are anything other than theater presently or in the immediate future.
As of this writing I've owned DNR for some time (I bought 8/11/2010@16.25 & 8/20/2010@14.85). I initially did a write up, but I wrote it in my browser and I lost it in a browser/Facebook Snafu. The gist is that this company has a massive CO2 cache/well (4.5 trillion cubic feet) and can use it as a special way to extract more oil than anyone else from "used" oil fields.
It works like this:
Step 1, Primary recovery: Some company finds oil somewhere and extracts it under it's own pressure, yielding about 5%-15% of the total amount of oil pressent in the field.
Step 2, Secondary recovery: By injecting water & steam to increase the pressure 25 to 35% of the remaining oil can be extracted.
This is the extent that most companies can get to (~50% extraction), after that they cap the well and call it "depleted". How much is a depleted oil field worth? Not much since no one can get any oil out of it. But wait! With enough CO2 to reduce the viscosity another 5 to 15% of the oil can be extracted. Unfortunately you need a lot of CO2 to do this, the kind of levels that aren't feasible to produce or easy to come by. You need a truly massive CO2 cache, which Denbury has. Because of this it has a strangle hold on tertiary recovery in the areas it operates.
Price@Eval: 18.71
Valuation Ratios
Price/Earnings (TTM) . . . . . . . .25.01x
Price/Sales (TTM) . . . . . . . . . . .4.47x
Price/Book (MRQ) . . . . . . . . . . .1.72x
Price/Cash Flow (TTM) . . . . . . .11.18x
Held By Institutions (MRQ). . . . 96.03%
Patrick . . . . . . . . . . . 3/5: Target price 20.00, Lotsa debt
Benjamim . . . . . . . . . 3/5: low EPS but 106.9% increased revenue & 43% increased cash flow from same quarter last year, Gross profit margin 55.5%, net profit 6.3%
Davison . . . . . . . . . . 4/5: 12mo target $22, High qualitative risk, Credit BB, fair value 17
Thomas . . . . . . . . . . . 3/5: 10mo trailing Av, highest expected price 38.25
Marcel . . . . . . . . . . . . 3.3: Hold, no new positions, do not short sell, watch for resistance at 19
Saxon. . . . . . . . . . . . . 4.2
Insiders . . . . . . . . . . . Lots of buys and sells, most sells targeted around $20, executives are highly vested and sell very little of their total holdings.
The company cyclically puts itself into massive debt to buy "depleted" wells then sets up shop and churns out oil, in both 2008 & 2009 it spent ~$1 billion. This used to be complemented by traditional recovery and natural gas wells but it sold a big chunk (46%) of it's Barnett Shale claim (Natural gas) to allocate more capital to tertiary operations, which have provided a 14.9% return on investment in recent years. Expect DNR to continue to sell off Natural gas assets to finance other activities.
CO2 recovery is no secret, but CO2 is difficult to transport in the quantities necessary and requires it's own dedicated pipeline to move it from it's source to the Oil well and Denbury's CO2 source is the only one in the southeast (Jackson Dome, Mississippi) and it already has pipelines in place giving it ripe access to Texas, Louisiana, and Mississippi. Also, to protect it's future investment it's created contracts with companies that produce CO2 as a waste gas to help prevent others from getting in on the game and picked up a Riley Ridge (Wyoming) CO2 asset for potential westward expansion (Sept 2010). Westward expansion though is troubled by ExxonMobile entrenchment and current unwillingness to deal, but that hasn't stopped Denbury from buying up sizable fields. Oil & CO2 are finite resources, eventually it will be in Exxon's best interest to make a deal.
Still it's only currently worth while for them along the Gulf Coast, and when they run out of oil and CO2 it will be time to jump ship. At current estimates they may run out of CO2 around 2030. Currently it costs them about $37 per barrel to use tertiary recovery and Oil is currently $88.48/narrel and I'm quite certain it will rise into the low 90s this year and mid to high 90s next, and suggest that at some point this year (perhaps August 2011) crude will top $100/barrel.
The low price DNR has been trading at and poor ratings are due to recent years of reduced EPS, due primarily to acquiring new oil assesses and building the infrastructure to exploit them. Additionally in March DNR acquired EAC for ~4.5billion which gives DNR one of the largest CO2 oil recovery platforms diversified across the gulf coast and the Rocky mountains.
DNR is currently trading at $18.71 and I expect that's about the price you'll have to pay, maybe as little as 18.50, but it'll be worth about $24-25/share at some point in the next year and perhaps even more in the years to come so we should have little difficulty making a tidy profit.
First let me harp on oil & energy for a moment. Oil is not going anywhere anytime soon. Most of the worlds energy needs are currently satisfied by hydrocarbons and at best we're simply conserving them now rather than replacing them with alternatives. Indeed the demand for oil keeps increasing despite our "best" efforts and the pace of increased supply/output is struggling to meet it. The international Energy Agency believes there will be 1.8% compounded growth in oil demand yearly meaning it is expected to grow more than 40% over the next 20 years while output is expected to decline.
Most alternatives simply will not work, and I will enumerate them for you here.
Hydrogen is not energy dense enough to be a mobile fuel source, not to mention how difficult it is to store. There's this thing called hydrogen drift where, since it's the smallest atom in the universe, it just exits through anything trying to contain it. This not only weakens and eventually breaks the container (which would cause you to lose ALL your hydrogen) but this process is continual and likely impossible to prevent due to the laws of physics. Worse hydrogen drift increases as the pressure of the gas is increased, making energy density all but an impossibility. So all storage of hydrogen is lossy and costly, it is not energy dense enough to power things which are mobile. It is prohibitively inefficient to transport by any means, and unless generated on demand on site or used in a fusion reaction it's basically useless as a fuel source. While the hydrogen fuel cell may reach 98% it still can't beat the 30% internal combustion engine efficiency when compared well to wheel (from creation/extraction until converted into rotational energy at the wheel) due to the inefficiency of transport, storage, and creation.
Natural gas is not usable as a fuel for all the reasons of Hydrogen, except it doesn't experience the troubles of hydrogen drift. That is it's not energy dense enough to use as a mobile fuel source, even though it has some very beneficial properties when used in stationary places for uses of generating heat (where it's a champion). Natural gas will likely replace coal as the major form of energy generation in the next several decades and is likely to persist for centuries if the US makes it that long. It's cheap, abundant, AND it's a fossil fuel! Biological natural gas is not, and possibly cannot, be produced on an industrial scale competitively.
Propane & Butane - Almost good enough, and a possible alternative in the distant future, but still not very energy dense (partly because they're gases), and still fossil fuels.
Bio-alcohols
Methanol - not energy dense enough to use as a mobile form of energy.
Ethanol - impractical to use as a form of mobile energy, half as energy dense as gasoline, and very inefficient production in the US leads to a negative well to wheel consumption analysis (If I recall properly, for every calorie of energy in Ethanol produced it takes 1.2 to 2.5 calories of energy expenditure). If you still think that's a good idea, I'll give you a dollar for every $1.20 you give me as often as you'd like ad infinitum.
Butanol - almost a 1:1 replacement for gasoline, and potentially the future. Although current supplies of butanol come from fossil fuels, some form of it is produced in all fermentation reactions (including beer), and I'm hopeful they'll be able to step up it's percentage output. However it has a relatively low LD50 of 2290 to 4360 mg/kg, 2 to 6 times more lethal than ethanol, and can be absorbed through the skin. Environmentally n-Butanol takes a lot of oxygen to degrade, but could potentially be better than petrochemicals in my estimation. . . if we can ever get to the point where we can make significant quantities of n-Butanol without using oil. Currently biologic forms of Butanol are far more toxic and have dismally low yields.
Biodiesel - Petro chemicals are still too cheep and biodiesel manufacture still too expensive, but I believe this is the most viable alternative fuel and the most likely thing that will be running cars in 20 to 30 years combined with electric motors. I expect this transition to begin in the first world countries in about 5 years if oil remains above $75/barrel.
Electricity - Will require a full overhaul of current distribution infrastructure and improved battery/storage technology, the other side of the future of all mobile devices combined with bio-fuels.
Solar & wind - require large tracks of land to produce energy, and even then it's unreliable and generally suffers from "Not in my backyard" politics. Will require massive reductions in average energy expenditure or a revolution in storage technology to be a viable form of alternative fuel. At current levels, without government subsidies, it will take the average households 40+ years to recover the costs of Solar or wind local power generation (areas of high wind or sun obviously need less time, I calculated that near Moffit field in Mountain View it would likely only take about 15 years to pay off a wind turbine due to the consistency of the wind, but it only has a useful life of about 30 years).
Big oil, that is companies that integrate recovery, refining, transport, and delivery, are Exxon Mobil, BP, Chevron, Total SA, and ConocoPhillips. Big oil produces and distributes oil very cheaply meaning there is a HUGE barrier to entry for alternative fuels. Not only that the government subsidies oil/oil companies more than bio-fuels and it has been suggested that Big oil actively suppresses bio-fuel adoption though Exxon seems to be giving lip service to the idea that it is developing them.
In short, oil likely isn't going anywhere for at least 100 years and it's price is likely to be quite high for the next 50 even as it is phased out. Hitching a ride up to the peak is a sound financial decision, and while I do believe they are the future I don't believe alternatives to fossil fuels are anything other than theater presently or in the immediate future.
As of this writing I've owned DNR for some time (I bought 8/11/2010@16.25 & 8/20/2010@14.85). I initially did a write up, but I wrote it in my browser and I lost it in a browser/Facebook Snafu. The gist is that this company has a massive CO2 cache/well (4.5 trillion cubic feet) and can use it as a special way to extract more oil than anyone else from "used" oil fields.
It works like this:
Step 1, Primary recovery: Some company finds oil somewhere and extracts it under it's own pressure, yielding about 5%-15% of the total amount of oil pressent in the field.
Step 2, Secondary recovery: By injecting water & steam to increase the pressure 25 to 35% of the remaining oil can be extracted.
This is the extent that most companies can get to (~50% extraction), after that they cap the well and call it "depleted". How much is a depleted oil field worth? Not much since no one can get any oil out of it. But wait! With enough CO2 to reduce the viscosity another 5 to 15% of the oil can be extracted. Unfortunately you need a lot of CO2 to do this, the kind of levels that aren't feasible to produce or easy to come by. You need a truly massive CO2 cache, which Denbury has. Because of this it has a strangle hold on tertiary recovery in the areas it operates.
Price@Eval: 18.71
Valuation Ratios
Price/Earnings (TTM) . . . . . . . .25.01x
Price/Sales (TTM) . . . . . . . . . . .4.47x
Price/Book (MRQ) . . . . . . . . . . .1.72x
Price/Cash Flow (TTM) . . . . . . .11.18x
Held By Institutions (MRQ). . . . 96.03%
Patrick . . . . . . . . . . . 3/5: Target price 20.00, Lotsa debt
Benjamim . . . . . . . . . 3/5: low EPS but 106.9% increased revenue & 43% increased cash flow from same quarter last year, Gross profit margin 55.5%, net profit 6.3%
Davison . . . . . . . . . . 4/5: 12mo target $22, High qualitative risk, Credit BB, fair value 17
Thomas . . . . . . . . . . . 3/5: 10mo trailing Av, highest expected price 38.25
Marcel . . . . . . . . . . . . 3.3: Hold, no new positions, do not short sell, watch for resistance at 19
Saxon. . . . . . . . . . . . . 4.2
Insiders . . . . . . . . . . . Lots of buys and sells, most sells targeted around $20, executives are highly vested and sell very little of their total holdings.
The company cyclically puts itself into massive debt to buy "depleted" wells then sets up shop and churns out oil, in both 2008 & 2009 it spent ~$1 billion. This used to be complemented by traditional recovery and natural gas wells but it sold a big chunk (46%) of it's Barnett Shale claim (Natural gas) to allocate more capital to tertiary operations, which have provided a 14.9% return on investment in recent years. Expect DNR to continue to sell off Natural gas assets to finance other activities.
CO2 recovery is no secret, but CO2 is difficult to transport in the quantities necessary and requires it's own dedicated pipeline to move it from it's source to the Oil well and Denbury's CO2 source is the only one in the southeast (Jackson Dome, Mississippi) and it already has pipelines in place giving it ripe access to Texas, Louisiana, and Mississippi. Also, to protect it's future investment it's created contracts with companies that produce CO2 as a waste gas to help prevent others from getting in on the game and picked up a Riley Ridge (Wyoming) CO2 asset for potential westward expansion (Sept 2010). Westward expansion though is troubled by ExxonMobile entrenchment and current unwillingness to deal, but that hasn't stopped Denbury from buying up sizable fields. Oil & CO2 are finite resources, eventually it will be in Exxon's best interest to make a deal.
Still it's only currently worth while for them along the Gulf Coast, and when they run out of oil and CO2 it will be time to jump ship. At current estimates they may run out of CO2 around 2030. Currently it costs them about $37 per barrel to use tertiary recovery and Oil is currently $88.48/narrel and I'm quite certain it will rise into the low 90s this year and mid to high 90s next, and suggest that at some point this year (perhaps August 2011) crude will top $100/barrel.
The low price DNR has been trading at and poor ratings are due to recent years of reduced EPS, due primarily to acquiring new oil assesses and building the infrastructure to exploit them. Additionally in March DNR acquired EAC for ~4.5billion which gives DNR one of the largest CO2 oil recovery platforms diversified across the gulf coast and the Rocky mountains.
DNR is currently trading at $18.71 and I expect that's about the price you'll have to pay, maybe as little as 18.50, but it'll be worth about $24-25/share at some point in the next year and perhaps even more in the years to come so we should have little difficulty making a tidy profit.
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