Pride Int'l Sinks While Chesapeake Common Hits Rough Water (CHK, PDE)

I posted a few days ago that I had bought shares in Chesapeake Preferred [CHK-D, CHKpd]. Those are holding up fine and are, as expected, acting less wildly than the shares of Chesapeake common (CHK). All fine and dandy, and working out like I planned so far.

But the universe of my energy holdings and the energy companies I've considered, which at this point includes only SeaDrill [SDRL.OL] and fellow driller Pride International (PDE), is certainly not looking too healthy. Even if you throw in my solar energy play, which consists of MEMC Electronic Materials (WFR) and some call options on Cypress Semiconductor (CY), the whole group is not performing all that well.

The worst performer, and one of my larger holdings, is SeaDrill. I am keeping a steady hand on this and have averaged down once (way too early, it turns out). If I was willing to overcommit to this volatile company I'd be tempted to buy up more. But the combination of easing oil futures (depending on what day you check), an IEA report on easing oil demand, and the unpleasant Kroner: USD exchange rate has really clobbered the shares, as it has virtually everything on the Oslo Bourse. My holdings are down more than 25%, a state in which they'll find plenty of company in this market but one that I still find unpleasant. I simply must remind myself to focus on the out years. SDRL is really a 2008-2009 play because of their huge order book of deepwater rigs, and I hope that I'm correct in believing that those who are in at these prices, before earnings pick up, have bought a bargain in the long term.

While SeaDrill is really a long term growth investment, and an investment in the acumen of John Fredriksen, Pride International (which I hold a few short term call options in but nothing else yet) is a possible value play. Pride has long lagged the drilling group in performance, with worse margins and some ineffective management. Last week I theorized that Pride might be a takeover tarket for Fredriksen's SeaDrill, but even if that's a bit unlikely I am still starting to like the idea of picking up a few Pride shares as a bet on their potential turnaround.

Pride is trading right now at a very, very low forward PE of about 7. That's not unusual, since all the drillers are trading at low PEs, but they're lower than the others. Since I think this discount is likely to be removed, and the uncertainty about their future business erased as the industry remains flush with business, I like PDE as a turnaround play to pick up its evaluation. The two catalysts seem to be that they are likely to either get a takeover bid or sell off their land-based drilling and services segments, and that I expect the current scandal investigation will eventually dissipate and cease to materially impact the shares. That's just a guess, mind you, but I'm not that worried (financially -- morally I'm not crazy about it) about an oil company bribing foreign officials and don't expect that Pride is any different in this activity than their competitors. I could be wildly wrong, and they could be criminals, which is just one small point of uncertainty that has kept me from buying shares.

The other thing that has kept me from buying shares is the downturn. I'm hoping that they fall more, and if they do I'll revisit this argument again and perhaps pick some up. Woe is the investor in this market who doesn't have enough cash (me) to pick up shares in all the companies that he thinks are becoming bargains.

CHK/PDE 1-yr chart: