In the spring of 2010 things were looking pretty good for me. I was sitting on big gains on a large position that I had added to in ATP Oil and Gas (ATPG) in the darkness of early 2009 and the stock of that company seemed poised for further gains with large production increases in the Gulf of Mexico imminent.
Then the horrible Macondo occurred, which brought to a halt all drilling activity in the Gulf of Mexico and crushed the share price of ATP, which was my largest holding. Given the uncertainty of the timing of normal Gulf of Mexico activity resuming and ATP’s large debt load, I didn’t want to add much to that position. But I did feel strongly that a portfolio of Gulf of Mexico stocks including ATP was likely a great idea.
I therefore assembled a portfolio of Gulf of Mexico players in June 2010 that I was able to sell in March of 2011 for gains ranging from 40% to 200%. You can scroll through my blog for real time posting of the experience (link).
Recently looking for ideas that might be extraordinarily attractive given the current hysterics from one Mr. Market, I cast an eye back towards these Gulf of Mexico companies that I know well. Imagine my surprise to see them basically at the same prices as they were last summer when I stepped in and bought them at bargain basement prices. I stopped for a second to check the news for oil spills.
Now, remember how scary investing in the Gulf of Mexico was last year with the BP (NYSE:BP) well flowing oil in huge quantities directly into the water and politicians grandstanding about shutting down drilling forever? When I look back now, buying these companies was nerve racking.
Today these companies are priced the same as a year ago when their futures were legitimately cloudy. Today we have some nasty headlines, but certainly nothing that seems worthy of crushing the stocks of Gulf of Mexico businesses back to Macondo levels.
Consider the following companies and their stock prices both now, post BP spill on June 30, 2010 and their 52 week highs:
ATP Oil and Gas
- Aug. 8 stock price - $8.70
- June 30, 2010 - $10.06
- 52 Week High - $21.40
- Aug. 8 stock price - $40.59
- June 30, 2010 - $40.76
- 52 Week High - $60.31
Cobalt International (NYSE:CIE)
- Aug. 8 stock price - $8.80
- June 30, 2010 - $7.40
- 52 Week High - $17.22
Diamond Offshore (NYSE:DO)
- Aug. 8 stock price - $56.86
- June 30, 2010 - $63.49
- 52 Week High - $81.19
I think Mr. Market has lost his senses by pricing these companies today at the same level he did when their futures were very murky with the potential for politicians enacting legislation that would impact or end Gulf of Mexico drilling.
It seems like a lifetime ago that I was reading the various proposals from politicians that were meant to change liability caps on Gulf of Mexico producers. In fact it is only a year later and all of that political posturing is a distant memory.
I suspect a year from now we will look back on the panic in the market today and think that buying ATP, Cobalt, Ensco and Diamond Offshore today was a no-brainer. The prices will undoubtedly go lower before they go higher because I’ve never picked a bottom. But unless the world is actually ending, I suspect that they will eventually go higher.
Whether or not the United States has a AAA rating, we are going to need a considerable amount of oil to keep feeding the world and getting to work. And with the money printing that is likely coming, that oil is not likely to sell for prices much lower than today for long.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ATPG, CIE, DO, ESV, BP over the next 72 hours.