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The Market Seems To Be Overestimating Seadrill's Risk
- The market has been severely punishing Seadrill's stock price in recent weeks due to fears of a dividend cut, debt maturation, and a weak drilling environment.
- Seadrill's strong contract position should provide it with some stability to its cash flows.
- Seadrill has reduced its debt by more than $3 billion YTD and this provides some confidence in its ability to handle its maturing debt.
- Offshore drilling contractors are likely to scrap old floaters going forward at a rate in excess of the rate of construction, reducing supply.
- E&P companies are likely to demand more rigs going forward as a greater percentage of their reserves is found in deep- and ultra-deepwater.
Could The 'Shale Oil Miracle' Be Just A Pipe Dream?
- Technological developments such as directional drilling and hydraulic fracturing have allowed the United States to significantly increase its production of crude oil from various tight oil plays.
- This production suffers from numerous problems including very high costs and steep decline rates.
- Few companies operating in these formations have made any money and nearly all are depending on friendly capital markets to survive.
- Costs and decline rates appear to be getting worse, making it more difficult for these firms.
- EIA projections show that it is unlikely that the United States will ever be a net exporter of oil.
Examining Telenor's Huge Opportunity In Myanmar
- Last month, Norwegian telecommunications firm Telenor ASA began to operate in the Southeast Asian nation of Myanmar.
- Myanmar has a large population and virtually no telecommunications infrastructure, providing an enormous opportunity for Telenor.
- Telenor has a proven successful strategy that it will be using in the country.
- The company's operations in the country are unlikely to turn a profit for the next three years.
TeliaSonera's Declining Stock Price Partially Attributable To Currency Fluctuations
- Currency fluctuations can have a significant impact on foreign investments.
- This is because the stock price is typically denominated in a foreign currency so the value of that currency relative to the dollar affects how Americans value it.
- TeliaSonera's stock price has been driven down partly due to the USD rising dramatically against the Swedish krona.
- This could represent an opportunity for investors due to the stock's high dividend.
North Atlantic Drilling: Sanctions And Offshore Drilling Weakness Are Not Likely To Be A Problem
- North Atlantic Drilling's share price has suffered severely over the past few weeks.
- One reason for this has been the falling price of oil, but North Atlantic Drilling's revenues and cash flow do not depend on oil prices.
- Another reason for the share price decline has been the weakness in the offshore drilling industry but the company's focus on harsh-environment drilling makes this unlikely to be a problem.
- Finally, North Atlantic Drilling has been punished for its recent deal with Rosneft due to fear of sanctions preventing the deal from being executed.
- For several reasons, I do not believe that these sanctions will be a concern for the company and it will continue to operate as normal.
September Jobs Report Was Weaker Than Headlines Claim
- The September jobs report showed the unemployment rate dropping to 5.9% as 248,000 jobs were created.
- The labor force participation rate also decreased as workers dropped out of the workforce. It is now at its lowest level in 36 years.
- Average wages also decreased. This could make it difficult to maintain the consumer-focused economy in the United States.
- So far this year, wages have at best kept up with reported inflation. This is not a sign of a growing economy.
- A significant number of the new jobs created pay below average wages.
Seadrill Is Well-Positioned For The Current Difficulties In The Industry
- Seadrill has been one of the most rapidly growing offshore drilling contractors over the past decade.
- Today, the company has one of the largest ultra-deepwater and shallow-water fleets in the industry.
- Seadrill's contract position is much stronger than that of the other large offshore drilling companies.
- Seadrill's modern fleet better positions it to weather the current ultra-deepwater weakness than its peers.
- The company remains cautiously optimistic about the shallow-water market going forward, due to the large number of old rigs that may be scrapped and replaced.
Norway's Telenor Offers High Yield And Growth Prospects
- Telenor is one of the largest telecommunications concerns in the world, boasting more than 176 million mobile subscribers.
- Many of the company's subscribers are in Asia, in nations where smartphone penetration is low and few people use mobile data.
- As smartphones become commoditized, prices should drop and many of these non-users will begin to purchase and use them.
- This will result in steady growth going forward.
- Telenor currently yields nearly 5% and is likely to increase its dividend going forward.
Debunking The Bear Case For Seadrill
- Analysts issuing warnings about Seadrill's dividend being in jeopardy make some valid points but they may be overstating the problem.
- Demand for modern units such as those owned by Seadrill is much stronger than for older drilling rigs.
- Seadrill has some opportunities available to it to pay down its near-term debt including refinancing and selling West Jupiter to Seadrill Partners.
- Seadrill has no floating rigs coming off of contract this year, but it may see pressure on its cash flow next year if it fails to secure new contracts.
- The risks of a dividend cut are currently priced into the stock at the current levels.
Ascendas REIT Offers Growth Potential And A High, Stable Dividend
- Ascendas REIT is a large and well diversified business space and industrial real estate investment trust.
- The trust's properties are occupied by 1,330 tenants from a wide cross section of industries.
- The long-term commercial leases that the trust has with its tenants provides it with protection against short-term market fluctuations.
- Ascendas REIT purchased a new property a few weeks ago that should allow it to continue its historical growth in net property income and distributions.
- Ascendas REIT currently yields 6.03%, making it a good play for an investor seeking growth and income.
Seadrill Partners' Second Quarter Results Show Growth And The Sustainability Of The High Distribution
- Seadrill Partners' second quarter results show significant quarter-over-quarter growth.
- This growth was primarily due to improved rig uptime performance and the presence of a new rig in its fleet.
- For the first time since the first quarter of 2013, Seadrill Partners generated sufficient cash flow to cover its 6.63% distribution in full.
- The company's long-term contracts should ensure that its cash flows are stable to growing going forward.
Seadrill's Results Stronger Than Headlines Claim And Reveal Strong Forward Growth Potential
- Seadrill's failure to meet the expectations of analysts and the cautious outlook issued by the company resulted in the stock being punished.
- A closer look at these results reveal that the company's results are actually stronger than they initially appear.
- Seadrill's recent success at winning rig contracts for its newbuilds will result in growth going forward.
- Drilling rig dayrates have been falling due to competitive pressures but Seadrill is well-positioned to weather this.
- The company's macro-environment is likely to improve in the future.
North Atlantic Drilling's Earnings Report And Rosneft Deal Show Strong Growth Potential
- North Atlantic Drilling's revenues and profits grew significantly quarter-over-quarter, as evidenced by its latest earnings report.
- The improved fleetwide uptime and new rig were the reasons for this growth.
- The West Linus rig is likely to result in further quarter-over-quarter growth in the third quarter.
- North Atlantic Drilling's deal with Rosneft will result in further growth due to the company needing to construct two more rigs to meet its contract.
- The company will also see further growth due to its purchase of Rosneft's onshore drilling fleet.
Pacific Drilling Second Quarter Results Show Growth Story Playing Out
- Pacific Drilling announced very impressive second quarter results earlier this month.
- The company achieved its highest revenue in history due its lack of downtime and solid reliability from its rig fleet.
- The company has a new rig starting on its first contract in the third quarter that will result in both third and fourth quarter growth.
- Pacific Drilling has two more new rigs that will serve as drivers for its growth going forward, assuming they can obtain contracts.
- There is a good chance that Pacific Drilling's new rigs will obtain such contracts before they are ready to begin working.
Noble Corp.'s Contract Status Could Have An Adverse Impact On Revenues In The Near Term
- Offshore drilling giant Noble Corp. has a number of drilling rig contracts that will be expiring prior to the end of 2014.
- The expiration of these contracts will put downward pressure on revenues, should the company fail to secure new contracts.
- There are signs that Noble will be able to secure new contracts for at least some of these rigs prior to the end of the year.
- Lower dayrates on the new contracts may still put pressure on revenues.
- Noble still has the potential for growth throughout 2015.
Understanding The Current Conditions In The Offshore Drilling Industry And Understanding Future Trends
- Various Wall Street firms have downgraded the companies in the offshore drilling industry. While their concerns appear to be valid, it is a more complicated situation than most think.
- There is no weakness in the harsh-environment market at all.
- The jack-up market was the bastion of the strength in the industry and still is, although recent trends are concerning.
- The conditions in the ultra-deepwater market do not appear to be as bad as the market believes.
- The long-term future of the ultra-deepwater industry is quite bright.
Rowan Q2 Results Show Promising Signs
- Rowan's Q2 results were somewhat weaker than last year's due largely to rig downtime.
- Despite this weakness, the company beat analysts' expectations.
- Rowan is likely to deliver significant growth going forward due to the strong contract status of its newbuild ultra-deepwater rigs.
- The stock looks substantially undervalued at the current price.
Seadrill's West Saturn Contract Promises To Deliver Forward Growth
- Seadrill was recently awarded a two-year contract for the use of the West Saturn, one of the company's new ultra-deepwater drillships.
- This contract will result in ExxonMobil paying Seadrill $497 million over a two year period.
- This contract should generate incremental EBITDA growth of 5.61% over the first quarter.
- This contract should also generate incremental operating cash flow growth of 5.03% over the first quarter.
Noble Corp.'s Earnings Show Strong Forward Growth Potential
- Noble Corp. saw its second-quarter revenue and earnings adversely affected by scheduled rig downtime due to maintenance and other scheduled shipyard projects.
- The negative impact was mostly offset by the startup of new rigs.
- These new rigs, combined with two others will be the driver of forward growth.
- The spin-off of Paragon Offshore will reduce the company's forward earnings so the growth prospects need to be considered with this in mind.
- Noble Corp. will continue to grow following the spin-off.
Ensco's Second Quarter 2014 Results Are Not As Bad As They First Appear
- Ensco's reported net income showed a significant drop compared to the prior year quarter.
- This net income drop was primarily due to a $1.5 non-cash writedown. Excluding this, the company actually showed solid growth.
- Ensco has noticed that E&P companies greatly prefer newer, modern rigs so the company is selling off some of its older rigs in order to reposition itself.
- Ensco has been experiencing challenges in the market for floating midwater rigs.
- The company has the potential for forward growth due to new rigs coming online.
TeliaSonera's Second Quarter Results Show Stability And Growth For This Telecom
- TeliaSonera's Q2 2014 results were remarkably similar to its Q2 2013 results, with only minor fluctuations in most of its earnings numbers.
- TeliaSonera's FCF fell year-over-year due largely to higher capital expenditures and the timing of a dividend from Russia's Megafon.
- Adverse currency movements in many of the company's markets had an overall negative effect.
- Central Asian markets offer potential for growth.
- The company should be able to maintain or increase its sizable dividend going forward. This will prove beneficial for investors interested in income.
A Look At Noble's Current Industry Position And Its Forward Prospects
- Noble Corp. is one of the largest offshore drilling contractors in the world, boasting a fleet of 77 offshore rigs.
- Noble Corp.'s large fleet grants it significant amount of international diversification, protecting the company from adverse governmental policies or decisions.
- Noble has one of the oldest fleets of all the major companies in the industry but it is seeking to change this through a spin-off.
- Noble has a strong contract backlog which should allow it to maintain its dividend and generate stable revenues, although its dependence on Royal Dutch Shell is a concern.
- Noble has significant growth prospects due to its newbuild rigs and should generate growing free cash flow.
Several Recent Geo-Political Events That Could Threaten The Dollar's Dominance In International Trade
- There have been several events that have occurred in recent weeks that could weaken the dollar's status as the dominant currency in international trade.
- China and Russia appear to be jointly attempting to replace the dollar with another currency.
- China has moved to make the Yuan directly convertible into several currencies instead of only dollars.
- French officials are openly calling for a replacement to the U.S. dollar as the international currency.
- France, Germany, Qatar, and several other nations are refusing to follow the U.S. sanctions on Russia, which may require another currency to do business with the latter nation.
Did Seadrill Partners Overpay For West Auriga?
- Seadrill Partners paid an implied purchase price of $1.24 billion for West Auriga.
- West Auriga only cost $600 million to construct.
- The rig is currently contracted to BP until October 2020. The present value of this contract at the time of the rig's acquisition was approximately $722.62 million.
- The purchase price looks far too high for just the BP contract.
- When we consider the rig's future cash flows after the BP contract ends then the price that Seadrill Partners paid looks reasonable.
Future Of Ultra-Deepwater Industry Is Quite Bright Despite Current Weakness
- The ultra-deepwater drilling industry is currently suffering from a temporary contracting slowdown, but several macro trends are positive for the industry.
- The current downturn is being driven by strained cash flows at some production companies and other companies holding off on contracting activity until dayrates bottom.
- Deep- and Ultra-deepwater environments are the only environments in which reserves are growing. This will eventually force companies to expand further in these areas.
- Demand for ultra-deepwater rigs is projected to exceed supply over the near- to medium-term, providing upward pressure on dayrates.
- Rising dayrates will result in growing profits for ultra-deepwater drilling contractors.
Could China And Russia Be Trying To Kill The Petrodollar Standard?
- One of the major reasons that the U.S. dollar is the reserve currency of the world is because all transactions for oil are denominated in U.S. dollars.
- The U.S. dollar's preferred status in trade has allowed the United States to borrow more money than it otherwise would be able to.
- This status in trade has also resulted in the U.S. dollar being valued higher relative to most currencies than it otherwise would.
- Russia has begun selling oil in currencies other than the dollar. China has been actively working to ensure that all its oil purchases are in renminbi.
- Considering the dominance that these two nations have in the oil trade, this could be a significant blow to the U.S. dollar's reserve dominance.
Analyzing The Impact Of The West Jupiter Contract On Seadrill's Cash Flows
- Seadrill successfully secured a long-term contract for its brand-new West Jupiter drillship earlier this month.
- The contract has a total value of $1.1 billion over five years.
- In order to determine the profitability of the rig, we need to break the contract down into dayrate and mobilization fee and determine the company's cost of operating it.
- The West Jupiter should generate incremental cash flow of $32-$34 million per quarter.
A Brief Look At Lukoil's Operations In Iraq And Why The Company Will Not Be Affected By Violence
- Russia's Lukoil has been developing what will soon be one of the largest oil fields in the world, West Qurna-2 in Iraq.
- The nation of Iraq is in the midst of sectarian violence between the national government and a Muslim fundamentalist group.
- This violence has caused several oil companies to evacuate the country.
- The violence has been so far focused in the north and central areas of the country but Lukoil's field is in the south.
- Thus, the risk to Lukoil is not particularly high at this point, but could get that way if ISIS expands the fighting to other areas.
Weakening Consumers Will Be A Drag On The Retail Sector Going Forward
- The harsh winter this year showed that many consumers do not have much flexibility in their family budgets.
- The median consumer in the United States has seen their real income decline since 2000.
- The job market still remains weak and thus opportunities to increase their incomes through the acquisition of a better job remains elusive for most consumers.
- Rising costs of necessities has further strained budgets.
- These trends could eventually reduce the amount of money that consumers have available to spend on discretionary purchases at retailers.
3 Russian Energy Majors Bucking The Declining Production Trend
- Many western oil and gas majors have suffered from declining production over the 2009-2013 period and this has adversely affected their revenues.
- Growing production is important for oil and gas companies because a company cannot grow over the long term unless it sells progressively more products.
- Russian oil and gas companies have managed to grow their production over the 2009-2013 period.
- Many of these Russian companies trade at considerably lower valuations than their American counterparts.
- These Russian companies also trade with comparable or higher dividend yields than their western peers.
Seadrill's Earnings Report Continues To Show Company's Strength
- Seadrill's first quarter earnings report was the first in which Seadrill Partners was not consolidated into its results which resulted in the earnings looking weaker than they were.
- Several of Seadrill's and its subsidiaries' rigs suffered from equipment breakdowns during the quarter, weakening results.
- Management is committed to fixing these problems which should improve earnings performance going forward.
- The company's new contract for the West Jupiter rig should result in forward growth.
- Seadrill's management changed its mind about freezing the dividend and hiked it once again.
Don't Sweat Seadrill Partners' 61.4% Quarter-Over-Quarter Net Income Decline
- Seadrill Partners' net income fell by 61.4% in the first quarter compared to the previous one.
- The reason for this decline has nothing to do with the company's operations.
- This decline was due entirely to a write-down related to a hedging strategy that the company uses to manage its debt payments.
- Seadrill Partners' cash flow was not impacted by this decline in net income and, in fact, the company's cash flow increased significantly quarter-over-quarter.