BDCO looks very cheap. My first question would be - how can the strong earnings last? 15k brl throughput is a very small refinery where large ones are 20x the size and this is a business where unit cost should fall with size. It seems that they are located well, but still. Worth looking into as they also have storage and pipeline assets.
You're on the right path. It is cheap. Why is it so cheap? It's a very small unknown independent refiner..period. The people on this board know value is often found in the quietest corners of Wall St.
Without getting into the pro's & con's of a CEO who owns 81% of a company I believe the share structure also plays a role in why the stock is not a household name. As of 3/31/2015 the O/S count was 10,449,444... and the float is just under 2MM...there simply aren't many shares out on the street for people to purchase or talk about.
How can the earnings last? Two things come to mind...1) The earnings you see to date are relatively impressive considering they were made from an unimpressive Utilization Rate [UR] of just 78.7% . In 2013 it was 80.9%. It goes without saying management and shareholders alike would like to see this UR closer to industry standards. By comparison one of its' peer refiners "HollyFrontier’s President & CEO, Mike Jennings, commented, “For 2014, we reported full year refinery utilization of 91.7%". The difference? HollyFrontier has had decades to dial in their plants for peak performance...whereas the Blue Dolphin refinery in Nixon, TX sat mothballed for decades and was just given new life a handful of years ago. It takes time and money to retool a plant...this is not being done with the resources of an XOM or MPC. What was an acceptable facility in the 1980's, from a processing and safety perspective, doesn't pass muster in the new millennia.
Operating income per barrel sold in 2014 was $3.40. Gross margins for refiners goes up when the price of oil goes down. I personally don't see a return to $100 oil but that's a whole other discussion and not one what I care to discuss here.
2) The Nixon refinery literally sits atop the Eagle-Ford oil patch. It is probably one of the only refineries in the world that could get the feedstock crude from a perpendicular pipe. The refinery currently gets its feedstock by truck...but its a short trip...the Nixon refinery pays less for the crude it receives. Its all about the margins in refining as many of you know better than I.
It's been a bumpy ride with BDCO...I admit being overly anxious...a 5 year chart reveals a few false starts. It can move very quickly. Retooling a refinery out of mothballs is easy stuff sitting here at my computer. Eisenhower once said "Farming looks easy when your plow is a pencil and you're a thousand miles from the corn field". I resemble that remark. The good news is if this looks like something worth your time you don't have to wait much longer for things to get interesting. An 8-K was put out just yesterday after the bell that the company has plans to expand the refinery.
My comfort zone is bank investing and distressed. O & G is not something I know well for sure. Some of you probably do. I welcome your cross examination...rip it up...see what you think. I'm not offering cool-aid here. I was searching old bankruptcy PACER filings for Texas late one night, actually looking for a bank on the skids, and ran across the Nixon refinery story. I was intrigued by a refinery being given new life...which to me was another example of a rising domestic crude production..which meant more US jobs...and more energy independence..etc etc. So I took a closer look and then took a position. My average pps is now $6.10.
Thank you for asking. |
