Buying versus Renting I was just looking at Poseidon's news release on Jan 11, 2012. In the release the company said at the end of 2011 they had 240 tanks with plans in 2012 to bring the total number of tanks up to 400 at a total capital cost of $60 mill. I am estimating the cost to build a new tank at around $375,000 per tank.($60 mill divided by 160).
The question I have is if you are a major oil producer why wouln't you just buy your own tanks instead of renting them especially if you plan on fracking for multiple years? I know when rental rates were closer to $2,000 a day it would be a no brainer to just buy your tanks as your recovery of investment would take roughly 6 months. Obviously rental rates are significantly lower but even in a bearish case it probably wouldn't take longer than a year to recover your investment.
If the majors end up buying their own tanks then what are the quality of companies that you end up renting to? The Jed Clampett's of the world? or perhaps you are renting to Daniel Day Lewis(There Will Be Blood). I'm just trying to figure out why this company had such a big receivable write off in Q3 with surely more write offs in Q4. I'm also trying to figure out where day rental rates will eventually stabilize at?
On another note. I love how all these Monday Morning QB's come out after the fact to mention the company's problems. Carter and I were the only guys who raised red flags PRIOR to the disaster.