GET MORE FROM THE CRISIS: Cal Dive International

The Associated Press ran a story yesterday "Envrio groups stunned that govt ignoring 27k wells". The gist of it is that half of the oil wells drilled in the Gulf since drilling started there are either abandoned, "temporarily abandoned", etc. and nobody is really doing anything about...or thinking to much about it for that matter.

It is no secret that more than a few oil companies have abandoned their operations on land and left them in a state that could be described as ramshackle. For a few examples, you might consult Mrs. Burns (aka "Malulo Numero Uno") at her Rancho Los Malulos blog. With the lack of oversight of some oil companies' onshore operations and their lack of regard for adequately packing up their onshore operations the $20.00 question is it safe to assume the same is true offshore? I might be willing to bet some money that it it is.

How much money? At least $6.00 share which brings us to Cal Dive International, Inc. (NYSE ticker: DVR ) .

Cald Dive International, Inc. is a Houston, TX based provider of underwater services to the offshore oil industry. Cal Dive's suite includes shallow and deepwater diving services, undersea pipeline construction and repair, installation of various offshore and underwater oil production widgetry, etc. Incidentally, Cal Dive also decommissions and removes alot of the same kind of stuff they put in.

After reading the fore mentioned AP article, I was delving into Cal Dive's 2009 Form 10-K and found the following tid bit on page 9:

"Aging production infrastructure in the Gulf of Mexico. According to the MMS, there are nearly 4,000 oil and natural gas production platforms in the Gulf of Mexico, of which approximately 65% are more than 15 years old. A significant portion of the older platforms and other infrastructure in the Gulf of Mexico lie in water depths of 1,000 feet or less, which is our core market. These structures are generally subject to extensive periodic inspections, require frequent maintenance and will ultimately be decommissioned as mandated by various regulatory agencies. Consequently, we believe demand for our inspection, maintenance, repair, decommissioning and salvage services will remain strong. We also believe the regulatory influence makes demand for these services less discretionary, and therefore more stable, than those arising from exploration, development and production activities. Additionally, when hurricanes cause offshore infrastructure damage in the regions in which we operate, our experience is that the demand for our services increases significantly. We experienced this trend following hurricanes Ivan, Katrina and Rita and, more recently, hurricanes Gustav and Ike."

Sounds like a recipe for future revenues in general but given the current realities in the Gulf and the rhetoric of various politicians, Cal Dive might find itself busier than it anticipates.

Cal Dive's history, location, fleet size, etc. puts them in a good position to take on any increasing volume of work in the Gulf of Mexico that results from the fallout from BP's ongoing mess.

Of interest, Cal Dive has invested in a piece of equipment they call the "Green Turtle" If the company fact sheet is factually correct, it would appear that Cal Dive will have competitive advantage in hand: increased safety, speed and economy when it comes to abandoning offshore oil wells. Cal Dive's partner on the Green Turtle project is Beeren Berg Frontier, a Norwegian company. According to their press release, the Green Turtle is essentially production ready.

Leading up to the recession, Cal Dive successfully expanded its operation through acquisitions.

A little sniffing around the typical measures of valuation are a mixed bag for Cal Dive: P/E is not bad, book value is attractive as are a few other numbers but the debt/equity number gives the appearance of being over leveraged (yet better than its industry and the S & P 500). However, the .79 Price/Sales beats industry, sector and the S & P 500).

Two more near term attractions are that Cal Dive is trading towards the low end of its 52 week range and just today got ahead of its 50 day moving average.

All the wonky stuff aside, Cal Dive International has a nice quality: it does business internationally and has boats. They do about 85% of their work in the Gulf of Mexico and 15% elsewhere in the World. Cal Dive is like a double hedge: they can either ramp up or roll up underwater activity depending on which direction the U.S. Government and the offshore oil industry want to go. Too, if the U.S. moves away form offshore petroleum activity, Cal Dive can sail to where the work is offshore petroleum appears to be progressing elsewhere at this time regardless of BP's mess in the Gulf of Mexico.

I have to do a little more looking but may open a small position in Cal Dive International, Inc. in the morning as purely speculative bet.

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HIT ME WITH A HAMMER: Is it time to buy BP common stock?

The water is murky in the Gulf of Mexico...and the bong water at the White House is seemingly murkier...so I am wondering if now is the time to open a position in British Petroleum, Plc's common stock (NYSE ticker: BP).

Nathan Rothschild is reputed to have said that "the time to buy is when the blood is running in the street". The value of British Petroleum's common stock has fallen about 70% since the explosion, fire and subsequent loss at sea of the Deepwater Horizon which left 11 able, good crew dead and an environmental mess which continues to unfold. The question at hand seems to be "is a 70% discount blood in the streets?"

British Petroleum's stock is at a 13 year low today. So is a 13 year low "blood in the street" or one of those dude-in-the-street-with-a-sandwich-board-dat-sez-"everything must go 70% off"-that said "50% off" last week-and will say "85% off" next week-kinda deals? That is a question I cannot rightly answer but I do suspect that BP has a buyable look about it. A 70% near term discount strikes me as a "decision height" opportunity...i.e. the bottom may be near so "you gonna'pull that pistol or whistle Dixie".



I thought for a moment about giving a detailed, erudite, logical and persuasive argument to buy British Petroleum's common stock but in this case I am going to spend my time opening a position and preparing to buy more on any serious dips. The time for shooting appears to be close at hand and if it ain't there is plenty of room to shoot more later.

CAVEAT: I do not believe in unconventional offshore petroleum and have bet predominantly on unconventional onshore natural gas.

However, years ago I took long positions in Keppel Engineering and Sembcorp Marine.

Not a fan of the deep water but at one point in the past was aware of the permitting situation.

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INKLING OF AN INVESTMENT IDEA: Hedging for Solar Weather ?

The headline over at NASA reads "As The Sun Awakens, NASA Keeps A Wary Eye On Space Weather". The issue at hand is a predicted increase in the frequency and intensity of what are informally known as "Solar storms" that arise from the Heliophysic event called a solar flare.

Space weather has historically had various effects. Solar wind is responsible for the Aurora Borealis and Aurora Australis. Solar flares can range from mild to wildly spectacular such as the Carrington-Hodgson Flare during the late Summer of 1859. The 1859 event caused problems with the global telegraphy net, a certain amount of panic, etc. More recently (and more important to the issue at hand) is that a solar flare is the suspected culprit in the case of the demise of the Galaxy 15 spacecraft.

The fate of the Galaxy 15 highlights modern civilization's growing vulnerability to space weather events. People everywhere are using electronic devices and various sorts of personal communication equipment in just about every conceivable application. To make matters worse, the electrical grid in the United States is already in need of overhaul and upgrade as well as the fact that many of the spacecraft that handle modern communications are nearing the end of their service lives.

With the vulnerability to space weather clear and immediate, the question is who fixes things that get broken in the storms?

Satellites are not likely to get repaired in space as many of the big communications units are way out in Geosynchronous Orbit. If such hardware gets fried, replacement is the likely scenario. The Boeing Company and Lockheed-Martin have built a number of spacecraft and do come to mind but such activity is a small portion of their portfolios and I am not to hot on investing in the big, integrated Aerospace & Defense firms at this time for other reasons.

A better way to cover the space end of solar flare induced problems is probably niche, specialty operators. Orbital Orbital Sciences Corporation (ticker: ORB) designs, builds and launches satellites and other space hardware. Orbital has a proven track record, decent fundamentals and backlog and is expanding through acquisition.

Astrotech Corporation (tick: ASTC) is in the business of payload services which entails hooking up one person's spacecraft with another persons booster (rocket). An increasing demand for launches would increase ASTC's business. ASTC is currently in a sales slump but has a low P/E, is trading below book value and carries less debt than industry peers.

Ball Corporation (tick: BLL)...you know...like Ball Mason jars...that Ball...has a neat subsidiary: Ball Aerospace and Technologies Corporation. Ball Aerospace manufactures satellites of the observation persuasion and does a bit of integration work as well. The downside here is that Ball Aerospace accounts for only 10% of Ball Corp's sales and 95% of that is U.S. Government contract work.

There are others in the space market but that is a start. Meanwhile, back here on Earth...

The U.S. electrical grid is not in the best shape to begin with and a Century class solar flare could very well cause a good deal of trouble. There a number of publicly traded companies that repair, maintain and build bits of the grid.

Pike Electric Coporation (tick: PIKE) is an interstate supplier of electric grid related services. PIKE does a lot of business in the mid Atlantic states which fits in nicely with this map based on a solar flare scenario whipped up by NASA:





PIKE handles power line construction and cleans up after regular old Terrestrial weather so they have a life outside of waiting for "The Big One".

EMCOR Group (tick: EME) is a bigger fish in the same pond in which Pike Electric Corp. swims. EME has about five times the market cap as PIKE, international exposure and a strong balance sheet. Looks like a potential winner.

Who knows when the next really big space weather event will occur? It could be 100 days or 100 years from now but it will happen and the Sun is entering the active part of its cycle. All of the companies discussed herein have lives outside of waiting for the space weather event of the Century but all appear to be in a position to gain from it.

DISCLOSURE: Author holds positions in ORB, ASTC and PIKE.

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Enanced Oil Resources, Inc. : The Word Is Helium

Enhanced Oil Resources, Inc. (ticker: EORIF) is up almost 32% over two days. The story here is Carbon Dioxide.

Enhanced Oil Resources has a large, proven CO2 reserve, the St. John Helium/CO2 Field in Southern Arizona and New Mexico. EORIF's strategy is to extract the CO2 for the purpose of Enhanced Oil Recovery (E.O.R., aka "Tertiary Oil Recovery") from mature fields in the famed Permian Basin. On April 20'th, EORIF issued a press release announcing that it inked a five year contract with Kinder Morgan CO2 Company, L.P. to deliver CO2 for their various E.O.R. projects. While this is certainly good news for EORIF, it is not the whole story.

Let us take a closer look at the Helium part of Enhanced Oil Resources' St. John Helium CO2 field. EORIF claims that it represents the largest known, undeveloped Helium source in North America. Why is this important? Because the World is in the initial stages of a looming Helium crunch.

Helium is a distinctly non renewable resource moving forward into the foreseeable future and demand is going up. Helium is vital to a variety of government, research and commercial/industrial applications including purging gas systems, cooling magnets in MRI machines, certain types of welding, particle accelerators and more. A slightly dated article, "Helium Shortage Hampers Research and Industry" from a 2007 issue of "Physics Today" sums up the issue nicely. An OP-ED piece "Going, Going, Gone" over at "Seed" magazine's website offers a contemporary take on the issue. Clearly, the depletion of Helium supplies in an age of increasing demand is going to be no small problem.

Enhanced Oil Resources known Helium reserve clearly has the look of a gold mine about it. What makes EORIF's St. John Helium/CO2 field even more attractive from an investment standpoint is that the company has a fifteen year "Take or Pay" contract for the Helium with industrial gas purveyor Air Liquide once production starts. "Take or Pay"...that is pretty strong contract language and strikes me as a fair indicator that EORIF will enjoy future revenues.

Enhanced Oil Resources, Inc. is a development stage company and is a "penny stock" which are both turn offs to many investors. However, EORIF has three things on hand that make it an attractive investment: they are increasing oil production at their own E.O.R. projects, they have the 5 year CO2 contract with Kinder Morgan and they have the 15 year Helium contract with Air Liquide. These factors look like a recipe for future revenue and revenue growth.

DISCLOSURE: I hold shares in Enhanced Oil Resources, Inc. and I am a unit holder of Kinder Morgan Energy Partners, L.P..

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The Case For Investing In USEC, Inc.: "Take A Long View"

In their 2009 Annual Report, USEC, Inc. attempts to put the lipstick on what appears at first glace to be their pig employing the theme "taking the long view." However, a little delving into some of the facts at USEC, Inc. shows that there are some interesting things about the company that might point to it being undervalued.

USEC, Inc. (USU on the NYSE) is a leading supplier of low enriched Uranium (LEU) which is the key feedstock in the manufacture of fuel assemblies for commercial nuclear power plants.

USEC, Inc. has what to many analysts are some clear problems:

1. The Paducah Gaseous Diffusion Plant: USU leases the Paducah GDP from the U.S. Department of Energy. Gaseous diffusion as a means of industrially refining LEU is incredibly electricity intensive.

USU claims that electricity costs alone represent 70% of the production costs of LEU. Traditionally, USU has had long term contracts at special rates with the Tennessee Valley Authority (TVA). However, the burdens of environmental compliance upon the TVA as well as their requirements for capital spending will surely mean an increase in rates for USU going forward as new contracts are let.

According to USU, "Negotiating a reasonably priced extension of our power contract will be the key factor in how long operations at our Paducah plant will be competitive."

Power costs are already eroding USU's profits. If you thought you had problems, the electric bill for the Paducah GDP last year alone was $700 million!!!

2. The American Centrifuge Project (ACP): Recognizing that a good chunk their future profits were tied to reducing manufacturing costs, USU licensed the technology for the ACP from the Department of Energy several years ago and has invested $1.7 billion into the project since.

USU claims that successful deployment of the ACP will reduce electricity consumption in enriching LEU by 95%.

To advance the ACP program, USU applied for $2 billion in loan guarantees from the DOE. In mid 2009, the application for those guarantees was held up. After more research, a decision should be forthcoming in the first half of this year. Naturally, many people consider this issue to be a tremendous black cloud over USEC, Inc.'s future.

Much of the ink regarding bad news surrounding USU revolves around these two points to some degree or another. Naturally, given the nature of USU's business, there are other risks but they do not seem to command nearly as much attention.

Now, to take a long view:

First, USU has an $8 billion backlog. Since many of their contracts are for five and ten years, this should translate into some consistency in earnings in the future.

Secondly, USU is a major player in the LEU business with an established footprint: they are said to supply 50% of U.S. demand and 25% of global demand. There are currently 440 reactors operating worldwide with 53 under construction. Furthermore, according to the World Nuclear Association (an industry group and propaganda organ) there are 100 reactors planned/on order and hundreds more proposed). Clearly, there is room for USU to expand its sales.

Thirdly, the Paducah GDP is reliant on Freon for cooling purposes. USU claims that the supply of Freon at Paducah is sufficient to the end of the decade. At that point, the Paducah GDP, the only currently operating enrichment facility in the United States, will most likely have to close.

Freon recovery and spare parts from the now closed Portsmouth Gaseous Diffusion Plant in Piketon, Ohio could extend the life of the Paducah GDP but there are issues and that source is still finite.

In essence, the ACP needs to move forward or the U.S. might become dependent on imported LEU. There are a lot of dim bulbs in Washington and on Capitol Hill, but they certainly cannot be so short sighted as to allow a good chunk of U.S. electricity production to become hostage to foreign vendors...one would hope.

Fourthly,USU has a real sweet contract clause with the Department of Energy: when the time comes, USU can walk away from Portsmouth and Paducah leaving them "as is" outside of any contamination directly attributed to their activities. It is difficult to put a dollar value on this fact, but it can no doubt be substantial.

Finally, consider that Usec, Inc. is a privatized piece of the Department of Energy. Though I have no figures, it is probably safe to assume that the amount of money the government invested in what was eventually spun off is probably more substantial than what USU appears to be worth. No figures but just a hunch!

DISCLOSURE: Yes, I am long in Usec, Inc. and a couple of other players not mentioned herein.

RANDOM COMMENT: Why Human Resources Sucks

It is no secret my disdain for Human Resources. H.R. sucks. Period.

Somebody called me on it the other day so I had to lay it down: every dishonest, lazy, rude, thieving, unskilled, incompetent, ignorant, unprofitable and otherwise high liability employee I ever met anywhere at any time was a product of a Human Resources department decision. Clearly, H.R. is the problem for staffing, not the solution and the quality of their product is the most damning conceivable indictment of their bizarre cult and evidently substandard, backward practices.

As they say over there at Marvel, "'nuff said".

Inkling of an Investment Idea: Coal Bed Methane

A few years ago, I made a bet that some coal companies would attempt to beat changing market and political conditions by reinventing themselves as something besides coal companies. Given the amount of real estate some of these outfits control such a change in behavior seemed likely.

What does a coal company reinvent itself as if it chooses to do so? With all the hype about "dirty old king coal" and snappy propaganda about "the clean, blue fuel", it was not an unreasConsol Energy, Inconable assumption that some coal companies would attempt to reinvent themselves as gas companies. Accordingly, I opened positions in CNX Gas Corporation (CXG) and Geomet, Inc. (GMET). These two companies are unconventional North American gas plays but what I was interested in was their exposure to Coalbed Methane (CBM).

After a couple of years, I must confess that I am losing in Geomet, Inc. but recently the bet in general paid off: . Consol Energy (CNX) started buying shares of CNX Gas Corp. that it did not already own. I took the opportunity to cash out of CXG at a profit but now I am interested in pursuing the reinvention and/or CBM theme further. After all, lightning has been known to repeatedly strike the same place!

CNX Gas Corp. and Geomet, Inc. operate mostly--but not exclusively--in the Appalachian Basin and the Illinois Basin. However, North American coal production has been shifting Westward and that is where I have been investing and looking for more.

Looking forward along the lines of the Coalbed Methane theme, there are two things I am contemplating. First, energy production activities in the East are under economic and political pressure (e.g. mountain top removal). Secondly, the Energy Information Agency was kind enough to provide this map of North American Coalbed Methane fields:


(Click here for original image.)

Based on these two facts, I am keenly interested in CBM opportunities in the Powder River Basin and the San Juan Basin. I have a sneaky suspicion that the future of North American methane production is unconventional onshore rather than offshore production despite recent, promising headlines in favor of the latter.

DISCLOSURE: In the East: have recently taken profits in CNX Gas Corp. and Patriot Coal Corp. In the Powder River Basin: I have long positions in Peabody Energy and Arch Coal, Inc..