As cross-posting seems to have become the norm, this is for the non-AOLers of the thread. This guy could spin anything. Clinton could sure use his talents right now.
Subject: RANDOM "MUMBLINGS"
Date: Sat, Mar 14, 1998 13:57 EST
From: Bouhafa
Message-id: <19980314185701.NAA07139@ladder03.news.aol.com>
Just some thoughts concerning recent developments.....
The Refinery Operation
I know, I know! Asphalt is boring and few of us got into AIPN because of the prospects for its refinery operations. Nevertheless, I think it is worth considering certain things that happened last week that point to AIPC's refinery division becoming a serious cash producer for the company...and, perhaps, faster than expected.
Here's what we know about the future of the asphalt industry. We know that, according to news reports, two-thirds of all US roads are in need of repair. The harsh winter in the Midwest as well as extensive flooding throughout the country this year has probably contributed to the problem. Last week, the US Senate passed a bill authorizing 4214 billion for highway and bridge repair over the next 6 years. Of this amount, $173 billion will be
allocated to highway construction. The bill also corrects some of the inequities in the way highway funds are distributed to states by assuring that each state gets no less that .91 for every $1 of taxes paid into the Federal Highway Trust Fund through gasoline taxes. Midwestern and Southern states that historically have only received .71 for every $1 will be the primary beneficiaries of this part of the bill.
In a related development, New Jersey last week announced that it would spend $150 million for the purchase of asphalt in the coming year. While New Jersey is unlikely to be one of AIPC's customers, it gives us an idea of the amount of money a state might allocate for the purchase of asphalt.
Clearly, Congress has identified the asphalt industry as a growth business throughout the country. Now, let's get back to AIPC.
It is generally agreed that Gene Chew, who was the refinery industry's top lobbyist for 9 years and is currently the Chairman of the Asphalt Institute, did not join AIPC to run a $30 million/year refinery in Lake Charles. For comparaison purposes, Chew left Neste TriFinery, doing $200 million a year in revenues where he was Operations Manager, to join AIPC. Furthermore, his departure seemed to occur at around the same time that AIPC was
rumored to have made an attempt to purchase Neste. When he was hired, GF stated that his involvement with the company would help to implement the company's "inevitable expansion..to strategic markets in other areas of the country". Then, in last week's much maligned refinery announcement, Chew stated the following: "I believe we are now ready to become a significant supplier in the Gulf Coast asphalt market". Think about that....does anyone think
that a refinery that only does $30 million a year in revenue (when other relatively small ones nearby are doing $200 million) will be a "significant supplier" in any real sense of that term, let alone producing enough asphalt to expand throughout the country.
I don't think it takes a rocket scientist to figure out that Gene Chew has a business plan to expand AIPC's Refinery operations in a serious way. I know that sounds boring until one considers that the acquisition of say a Neste would have turned AIPC instantly into a company with asphalt revenue of about $230 million and about $55 million in profits (which, of course, would be diminished somewhat by continuing oil exploration expenses in Kaz).
That almost happened, folks, and it still could happen....in fact, I would venture that, at some point in time, AIPC will acquire Neste or some other refinery (s) backed by financing from Banker's Trust. When that happens, AIPC will suddenly be a serious player in a growth industry with real profits and cash flow. Chew is undoubtedly extremely well-connected and probably saw this "growth industry" coming before many others. He says he has a business
plan. My bet is that that business plan outlines how AIPC is going to methodically go about linking itself to that growth on the national level. When some speculate about a press release concerning something that none of us have thought about, I would suggest thinking "refinery operation".
Falling Oil Prices
While the recent plunge in oil prices does affect the street's perception of AIPC (the fact that it has the word "petroleum" in its name pretty much ensures that those with limited knowledge of the AIPC story will lump it in with the "Chevron's" of the world), I agree with those who have stated that the current price of crude is not a negative for AIPC at this point in its development. In fact, it is actually a very strong positive going
forward. Right now, AIPC is not at the stage of actually producing oil and selling it on the world market. Therefor, the price fluctuations do not have any effect. The only impact that low oil prices might have on AIPC is that US and European oil companies may not be so eager to jump into an expensive JV. But even that argument doesn't really hold up because forward-thinking oil companies know that the price will recover and that energy needs 2-3
years out will probably be higher than they are now....even if you just consider China's tremendous needs for the forseeable future. Also, we should remember that China is on a very big shopping spree worldwide. The country is buying up fields throughout the world. It grossly overpaid for the Uzen fields in KAZ and, in the process, ousted UNOCAL and TEXACO from the bidding. I have a suspicion that UZEN will not be the last deal we see the Chinese
make in Kazakhstan....and whatever deal that is will not have much relationship to the current price of crude on the world market.
On the positive side,the drop in oil prices is a distinct benefit to AIPC's refinery operations. The less AIPC has to pay for crude, the more money goes to the bottom line. Now, with revenues of $30 million, that probably would not amount to much. However, it would have a significant effect on profitability if AIPC were doing $200+ million a year.
Wall Street Journal Article Re: Pipeline Difficulties
There has been some speculation that Friday's early decline in price was directly related to Hugh Pope's Friday article outlining the uncertainties of oil transport through proposed pipelines in Central Asia. The headline was "Scramble For Oil in Central Asia Hits Roadblocks". The headline should have read "Western Scramble For Oil in Central Asia Hits Roadblocks". When I read the article, I was struck by two things. For one, the map of the
area showing all the different proposed pipelines had one glaring omission. The 650 bbd pipeline to China from UZEN (the one that passes close to AIPC's concession) and that is being built by the Chinese was not even on the map!...nada!!...never happened!!...doesn't exist!!! Apparently, Hugh Pope does not consider supplying China's future energy needs of equal or greater importance to that of supplying the West's future needs. Fortunately, the Kazak
government has demonstrated that it does not share the myopic, Western bias of the Wall Street Journal.
So, yes, some people in the financial community read that article (or, maybe just the headline) and got nervous. In my opinion, those people have as good an understanding of the Kazak story as Hugh Pope does. China is without doubt a major player in Kazakhstan. Its role will, in my opinion, grow and may even, as I've suggested before, end up being some part of the "AIPC story"...as will Russia. Finally, anyone who read the article closely would
have noticed that it was mostly about Turkmenistan. In fact, I'm not sure Kazakhstan was even mentioned but I may be wrong.
Friday's Action
Contrary to what one poster claimed, there was no continued sell-off in the afternoon. Anyone who was watching the stock closely would have seen that, up until 5 minutes before the close, the stock was seriously threatening to close "unchanged" at 3 1/2. It was a few small sell orders at the close that brought it to a 3 3/8 final print. This often happens on Friday as day-traders close positions.
In actuality, the stock closed rather well considering the volatility and selling pressure of the morning when MM MASH was consistently on the offer with size of 30,000+. This could have been margin selling since MASH handles Schwab accounts. The interesting thing that happened was that, in the early afternoon, two orders were transacted...one for 99,000 which went off below the bid at 3 3/16 and another that went off at the posted bid of 3
1/4. Now, there are some who claim that those were sell orders, others claim that they were "crossed" orders involving MASH, and MarkVO1man who talked to his MM friends told us that both orders were handled by MM NASH-WEISS and had nothing to do with MASH. Pending clarification, one thing we can be certain about is that the stock immediately headed north once those transactions were executed leading still others to speculate that the MM's recognized
these large block transactions as "bullish" meaning buy orders from existing MM inventory by some institution or well-heeled investor. Institutions often are able to make large block purchases at or even slightly below the bid. If those transactions had been serious sells, I doubt that the MM's would have instantly raised the bid...large block sales are usually "red flags" and result in depressing the shareprice. This did not happen.
I think Friday's early weakness was due to a combination of factors: margin selling, negative reaction to the WSJ article, sellingby some who are frustratedby lack of KAZ news and really don't care about or understand the refinery operation, and selling by those who are frightened by some of the extreme negative views posted largely by non-shareholders recently. The reality, however, is that the morning decline occurred on volume of 350,000
shares (12:30 PM, about 175,000 shares had actually changed hands...or about 0.36% of AIPC's outstanding shares)....about 550,000 shares were recorded after 12:30 during the recovery. If you deduct the 200,000 in large block sales...you end up with the same volume in the recovery as you had in the morning decline. In all, 1.8% of AIPC's outstanding shares traded on Friday and closed down 1/8...not a very convincing argument for a sell-off. In fact, I
think Friday's action was more of a stand-off between small buyers and sellers....no contest, in my opinion.
Some have speculated that Monday would see more initial selling. I doubt that will occur. If there were more selling to be done, wouldn't we have seen it throughout the afternoon? Would the price have recovered and stabilized? My guess is that the afternoon activity had a positive bias that I hope will continue into Monday morning.
Cheers...Faris |
