Copyright ©​ Daniel Cullinane CPA.

​RIG COUNT UP THIS WEEK

DRAMA

In the week ending July 27, 2018, the number of land rigs drilling for oil in the United States totaled 861, three more compared to the previous week and up by 95 compared with a total of 766 a year ago. Including 186 other land rigs drilling for natural gas and one listed as miscellaneous, there are a total of 1,048 working rigs in the country, up week over week by two and 90 more year over year. The data come from the latest Baker Hughes North American Rotary Rig Count released on Friday afternoon.

West Texas Intermediate (WTI) crude oil for September delivery settled at $69.61 a barrel on Thursday and traded down about 1.7% Friday afternoon at around $68.46 shortly before regular trading closed. Brent crude for September delivery traded at $73.93 a barrel, down about 0.8%.

The natural gas rig count fell by one to 186 this week. The count for natural gas rigs is now six fewer year over year. Natural gas for September delivery traded up about 0.8% at around $2.78 per million BTUs, up a penny compared to last Friday.

Today’s big news is the $10.5 billion acquisition by BP of BHP Billiton’s ill-considered 2015 purchase of acreage in the Haynesville, Permian Basin and Eagle Ford shale plays. The acquisition puts BP back in the game in land-based exploration and production.

One other note from the Permian Basin: Tom Kloza at OPIS is keeping an eye on the discount on crude from the Permian compared to WTI. His latest reading: “[T]he discounts for disadvantaged regional crude are widening. WTI in Midland now $17 bbl off WTI futures (~$52.15 bbl) and WCS in Alberta at $26.30 bbl discount (~$42.85 bbl).” These discounts won’t decline until more pipelines are built, and that is at least six months away for the next substantial capacity increase.

Among the states, Baker Hughes reports that Pennsylvania added two rigs this week and six states added one each: Alaska, Kansas, New Mexico, North Dakota, Texas and West Virginia.

In the Permian Basin of west Texas and southeastern New Mexico, the rig count now stands at 480, four more compared with the previous week’s count. The Eagle Ford Basin in south Texas has 80 rigs in operation, down by one week over week, and the Williston Basin (Bakken) in North Dakota and Montana now has 57 working rigs, up one for the week.

Producers made no changes in horizontal rigs this week and the count remained unchanged at 922, while offshore drillers reported a total of 15, two fewer compared with the previous week’s count.

​SOUTHERN CALIFORNIA HOME SALES CRASH

​Bad earnings news and questions about future prospects decimated shares of Facebook Inc. (NASDAQ: FB) and Twitter Inc. (NYSE: TWTR) this week. Facebook’s stock dropped over 20% after its earnings announcement, and Twitter’s fell 21%. Most of the awful news about the two companies is probably out, which makes their stocks cheap by historical measures.

Whether the stocks are cheap depends on whether each company can get back to a strong pace of adding users. Some Facebook users were probably driven away by a scandal over how it distributed data on its users. Twitter eliminated a number of fake accounts. Those two events are behind the companies now. If there are no more “surprises,” investors can return to the core consideration of earnings and growth.

Part of any optimism about Twitter is whether its revenue can increase even with its efforts to remove some accounts. Last quarter it did. Revenue rose 24% to $711 million. The company says it has added a number of features to the service that it said will improve engagement, a critical measure for marketers.

Twitter readily admits it removed millions of accounts that it believed were fake. This caused the number of monthly active users to be flat at 335 million from the first quarter of this year to the second. If most have been weeded out, Twitter’s user base can grow again.

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Facebook’s situation is more complex. It was attacked for allowing third parties access to user data. Its user growth rate has slowed considerably, along with margins. However, in the second quarter, revenue rose 42% to $13.2 billion. Net income rose 31% to $5.1 billion. Facebook can still boast a very high margin. As far as another key measure is concerned, daily active users “were 1.47 billion on average for June 2018, an increase of 11% year-over.” Facebook management continues to deal with the fallout of the data scandal, fake accounts and fake news spread across some of the platforms. And management expects a slowing of revenue growth and a drop of margins. There may not be another shoe to drop.

Facebook and Twitter each have hundreds of millions of users, with Facebook clearly in the lead. If they can continue to make money on these people, their best days may not be behind them.

​Widely admired CBS Corp. (NYSE: CBS) CEO Les Moonves has a big problem. The New Yorker ran an article that charged that he sexually harassed six women. The typical pattern for charges like this is that the company board hires outside counsel and the results are announced to the public once the process is complete. Moonves is not only the head of CBS. He is also the major force behind an effort to block a marriage between CBS and Viacom Inc. (NASDAQ: VIAB). If he is pushed out, the merger becomes almost certain.

The Redstone family has controlling interests in both CBS and Viacom. Shari Redstone, who sits on both boards, believes the two entertainment companies should be together. Her argument is reasonable. The two companies together could cut costs. Each company is up against powerful and large competitors, including Walt Disney Co. (NYSE: DIS), which is buying a number of assets from Twenty-First Century Fox for $71 billion. This may make Disney the largest entertainment company in the world. AT&T Inc. (NYSE: T) just bought Time Warner, which gives it a range of entertainment properties to add to its wireline, wireless and satellite distribution operations. The merger of large entertainment companies may not be over. These traditional media operations effectively have been challenged by tech companies that are also now entertainment operations, with Amazon at the head of the list.

Redstone has been challenged by the CBS board led by Moonves, who believes she should not control CBS and Viacom on her own. Boards, they argue, have a function. Among these is to decide what is best for shareholders. Moonves believes a tie-up with Viacom is a bad idea.

Another wrinkle in the drama was that Moonves eventually wants his chief operating officer to run a combined company, if there is one. This puts the Moonves pick, Joe Ianniello, up against Redstone’s pick to take over a combined operation, Viacom CEO Bob Bakish. Redstone has dropped the demand, but if Moonves is pushed out, her decision might change.

The biggest hurdle between Redstone and her vision of a merged CBS and Viacom is Moonves, and he could be gone soon.

INCOME TAX PREPARATION

JULY NEWSLETTER 8

Sales of both new and existing houses and condominiums dropped 11.8 percent year over year, as prices shot up to a record high, according to CoreLogic.
The median price paid for all Southern California homes sold in June was a record $536,250, according to CoreLogic, a 7.3 percent increase compared to June of 2017.
In the past, California, one of the largest housing markets in the nation, has been a predictor for the rest of the country.Diana Olick | @DianaOlick
Published 9 Hours Ago  Updated 4 Hours AgoCNBC.com[Potential homebuyers exit an open house in Redondo Beach, California.]
Patrick T. Fallon | Bloomberg | Getty Images
Potential homebuyers exit an open house in Redondo Beach, California.

Southern California home sales hit the brakes in June, falling to the lowest reading for the month in four years. Sales of both new and existing houses and condominiums dropped 11.8 percent year over year, as prices shot up to a record high, according to CoreLogic. The report covers Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties.

Sales fell 1.1 percent compared with May, but the average change from May to June, going back to 1988, is a 6 percent gain.

The weakness was especially apparent in sales of newly built homes, which were 47 percent below the June average. Part of that is that builders are putting up fewer homes, so there is simply less to sell.

“A portion of last month’s year-over-year sales decline reflects one less business day for deals to be recorded compared with June 2017,” noted Andrew LePage, a CoreLogic analyst. “But affordability and inventory constraints are likely the main culprits in last month’s sales slowdown, which applied to all six of the region’s counties and across most of the major price categories.”

Fewer affordable homes

The median price paid for all Southern California homes sold in June was a record $536,250, according to CoreLogic, a 7.3 percent increase compared with June 2017. While part of that is due to a mix shift, since there are fewer lower-priced homes for sale, it is becoming increasingly clear that fewer buyers are able to play in the higher price ranges.

“Sales below $500,000 dropped 21 percent on a year-over-year basis, while deals of $500,000 or more fell about 3 percent, marking the first annual decline for that price category in nearly two years,” said LePage. “Home sales of $1 million or more last month rose just a tad – less than 1 percent – from a year earlier following annual gains of between 5 percent and 21 percent over the prior year.”

LePage points to the rise in mortgage rates over the past six months, increasing significantly a borrower’s monthly payment. Rates haven’t moved much in the past month, but are suddenly going higher again this week, pointing to even further weakness in affordability.

In the past, California, one of the largest housing markets in the nation, has been a predictor for the rest of the country. Home prices have been rising everywhere, amid a critical housing shortage. Prices usually lag sales by several months, and sales are beginning to crumble, even as more inventory comes on the market. The supply of homes for sale increased annually in June for the first time in three years, according to the National Association of Realtors, but sales fell for the third straight month

Daniel Cullinane CPA

25 Plaza 5 25th fl Jersey City NJ                                          phone 732-516-1648 fax 732-516-9778

MBA Taxation

Daniel Cullinane CPA

2500 Plaza 5 25th fl  Jersey City NJ 07311                                                          phone 732-516-1648  fax 732-516-9778

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