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  • Offshore Drilling Companies With Newest Fleets Best Positioned To Weather Industry Problems
    Thu, Mar. 26 DO, ORIG, PACD Comment!

    Summary

    • The contract status of an offshore driller is important in determining its ability to maintain its cash flows during the current industry weakness.
    • As a rule, those drillers with newer fleets have much stronger contract statuses than those drillers with older fleets.
    • This is due to the marked preference that customers have expressed towards contracting newer rather than older rigs.
    • Older rigs have begun to be scrapped due to the lack of demand for them.
    • Those companies with newer fleets will be better positioned to prosper in the next industry upcycle.
  • Seadrill's Strong Cash Flow Provides Confidence In Ability To Handle Debt
    Wed, Mar. 25 SDRL 50 Comments

    Summary

    • Seadrill is one of the most highly levered drillers due to the company's aggressive fleet build out over the past few years.
    • Seadrill has approximately $1.3 billion in debt maturing in 2015 and 2016 and requires another $3.5 billion to pay for its newbuild rigs in 2015 and 2016.
    • Seadrill has strong cash flows which should allow it to pay down a significant amount of this debt using just its cash.
    • The bank credit and ECA markets still continue to offer Seadrill favorable terms for credit despite the concerns of analysts.
    • Seadrill's strong credit coverage provides confidence in the company's ability to maintain its cash flow.
  • A Few Reasons To Avoid Investing In American Shale Oil Companies
    Wed, Mar. 25 RICE, XOP, IEO 11 Comments

    Summary

    • It is no longer profitable to produce shale oil in any of the major plays in the United States on a half-cycle basis.
    • Most shale oil companies were not profitable even at $100 per barrel oil. That will be much worse today.
    • Shale oil companies as a group dramatically overspent in an effort to grow production, meaning that bankruptcies seem likely.
    • Shale oil is difficult to profitably produce because of its high decline rates, resulting in oil companies having to continuously drill to maintain production.
    • Investors should avoid the sector for the time being.
  • Pacific Drilling Is Well-Positioned To Weather The Industry Downturn
    Thu, Mar. 19 PACD 19 Comments

    Summary

    • Pacific Drilling is one of the youngest companies in the offshore drilling industry and this has resulted in it being one of the fastest growing companies in the space.
    • Pacific Drilling consistently maintains higher EBITDA margins than its competitors, meaning that the company consistently converts more of its revenue into cash flow than peer companies.
    • Pacific Drilling's stock price over the past year has not reflected its financial performance and the company's future performance may be stronger than the valuation implies.
    • Pacific Drilling will enjoy positive EBITDA and solid cash flows over the next two years even without any new contracts.
    • The company has sufficient liquidity to meet its debt maturation, amortization, and CapEx needs over the next two years.
  • Madalena Energy - An Incredibly Cheap Oil Junior With Massive Potential
    Thu, Mar. 19 MDLNF 19 Comments

    Summary

    • Madalena Energy is a Canadian junior E&P company with a tremendous opportunity in Argentinian shale production.
    • Argentina's shale plays have been attracting a lot of attention from major oil companies, which have actively been partnering with or acquiring the junior players that moved in first.
    • Madalena's land holdings in the country are worth several times the enterprise value at current land valuations.
    • The company has a very strong balance sheet, with no debt and significant funds flow from operations.
    • Madalena Energy could be an acquisition target or a major opportunity for an investor.
  • Is Europe Now Assisting China In Reducing The U.S. Dollar's Dominance?
    Wed, Mar. 18 BIL, TLT 14 Comments

    Summary

    • Several emerging economies are actively working to create alternatives to the World Bank and other American-dominated international financial organizations.
    • Four European nations announced this morning that they will actively assist in the creation of a Chinese alternative to the Asian Development Bank.
    • The Chinese are pushing to conduct international trade in national currencies instead of the current U.S. dollar dominated system.
    • The willingness of these European nations to move closer to China could indicate a willingness to use the Chinese system of international trade.
    • This could result in inflation and higher interest rates in the United States.
  • TeliaSonera And Telenor May Be More Advantageous Investments Than American Peers
    Tue, Mar. 17 T, VZ, TELNF 1 Comment

    Summary

    • Telenor and TeliaSonera have much better financial metrics than their American peers.
    • Both companies have the potential to deliver better growth.
    • TeliaSonera and Telenor have comparable dividends to their American peers but a higher dividend growth rate.
    • Investors in each company would be best served by investing in standard brokerage accounts rather than in retirement accounts.
  • Current Oil Glut Likely To Lead To Increasing Brent/WTI Spread
    Thu, Mar. 12 USO, OIL, UCO 8 Comments

    Summary

    • The current "oil glut" consists of approximately 0.87% of global demand. This is relatively in line with the supply/demand balance over the past few years.
    • The "oil glut" appears to be almost entirely localized in the United States, with the rest of the world not seeing the same amounts of oversupply.
    • The IEA expects demand to increase enough by the end of 2015 to more than eliminate this oversupply.
    • Virtually, all production growth globally has been in the United States which has stringent restrictions on exports. This is leading to rapidly growing inventories domestically.
    • This may lead to the spread between global oil prices and the U.S. ones increasing.
  • Don't Get Too Excited About The March Jobs Report
    Tue, Mar. 10 SLB 8 Comments

    Summary

    • The March jobs report was largely praised by the media and Wall Street, but there are a number of reasons not to buy into the hype.
    • Despite the unemployment numbers, the number of full-time jobs in the United States remains lower than in February 2008 despite the population increasing by 17 million.
    • Independent companies report that the number of job losses in the energy sector are vastly above what the BLS report shows.
    • More than half of all jobs created in February are in low-paying professions that do not provide the discretionary income needed for an economic recovery.
  • Analyzing Dayrate And Utilization Trends In The Offshore Drilling Industry
    Mon, Mar. 9 NADL, SDRL 7 Comments

    Summary

    • Utilization for ultra-deepwater rigs has been falling, although in the case of semi-submersibles, it remains higher than its September 2014 low. Dayrates were slightly stronger month-over-month.
    • The utilization rate for shallow-water backups has also been falling, but dayrates have been holding up quite well. The average market dayrate increased month-over-month.
    • Harsh-environment jackups continue to enjoy a 100% utilization rate but the dayrates have been declining.
    • There is certainly an oversupply of rigs worldwide in all categories except for harsh-environment shallow-water, and the decline in oil prices will make this worse.
    • Harsh-environment drillers may see declining cash flow as they recontract their rigs.
  • Telenor's Growth Makes It A Strong Investment Prospect
    Mon, Mar. 9 TELNF 3 Comments

    Summary

    • Telenor is one of the strongest growing telecoms in Europe, increasing its revenues by more than 10% YOY.
    • The company's move into the nation of Myanmar has proven to be a growth driver, adding more than 3.4 million new subscribers in that market alone.
    • Other Asian markets also provided significant growth for the company.
    • Telenor continues to struggle in Thailand, but currency fluctuations proved to benefit the company's top line in the quarter.
    • The company's growth in other markets overcome its weakness in Thailand.
  • The Stock Market Has Disconnected From Economic Reality
    Fri, Mar. 6 SPY, DIA, QQQ 24 Comments

    Summary

    • For the past few months, economic data has been disappointing, yet the stock market continues to trade upward to new highs.
    • Consumer spending has declined for two months in a row. This has not happened since the months following the collapse of Lehman Brothers.
    • The ISM Manufacturing Index has now declined for four months in a row, indicating a slowdown in the economy.
    • The Goldman Sachs Leading Indicator Index states that the global economy is currently in contraction and earnings among the S&P 500 are expected to decline YOY.
    • The Shiller PE is now at a level that it has rarely reached in the past 125 years and indicates a market that is much more expensive than normal.
  • Want To Know The Future Of Oil Exploration? Look To Russia
    Wed, Mar. 4 CEO, CVX, LUKOF 1 Comment

    Summary

    • The largest American oil companies failed to discover enough oil to maintain their reserves in 2014.
    • The major American oil companies largely focused their exploration efforts in the United States and the Americas in general.
    • The largest Russian oil companies managed to grow their reserves by focusing their exploration efforts on Russia.
    • A significant percentage of the world's undiscovered oil reserves are likely to be located onshore and offshore Russia.
    • ExxonMobil has significant acreage there but requires the sanctions to be listed to exploit them. Chinese oil companies may also have a strong opportunity in the country.
  • North Atlantic Drilling: First Impressions Of The Company's Results
    Mon, Mar. 2 NADL 14 Comments

    Summary

    • North Atlantic Drilling saw quarter-over-quarter revenue declines due to one rig going off contract and downtime due to repairs.
    • The company is likely to see further challenges throughout this year.
    • The company reported a large loss due to a reduction in its business prospects.
    • This reduction in its prospects forced it to take a one-time non-cash charge against its goodwill.
  • Seadrill Well Positioned To Weather Industry Downturn But Investors Should Still Be Cautious
    Fri, Feb. 27 SDRL 24 Comments

    Summary

    • Seadrill's results were quite respectable, with the slight decline in revenues being due to rig downtime.
    • Seadrill saw three new ultra-deepwater drillships begin working this quarter. These will serve as a growth driver over the next quarter.
    • Seadrill enjoyed success getting new contracts, but these are not as good as the ones it was getting back during the sector boom.
    • Seadrill suffered from contract cancellations and may see more in the coming months.
    • Thus far, Seadrill has not been having trouble getting financing but the company warns that financing is becoming harder to get.
  • Pacific Drilling's Q4 Results Quite Good, But Earnings Likely To Decline Going Forward
    Thu, Feb. 26 PACD 12 Comments

    Summary

    • Pacific Drilling beat estimates on both revenues and earnings.
    • The company showed strong quarter-over-quarter growth due primarily to a new rig operating for its first full quarter and a second rig getting a higher dayrate.
    • Pacific Drilling initiated a stock buyback program during the quarter and has bought back more than four million shares under this program.
    • One rig is scheduled to go off contract in the first quarter. This will result in revenue decreases in the first and second quarters.
  • Oil Prices Could Be Higher By The End Of The Decade
    Wed, Feb. 25 USO, OIL, UCO 13 Comments

    Summary

    • Analysts appear to be conflicted as to whether oil prices will be higher or lower over the coming years.
    • The current market oversupply is not particularly great compared to past oil shocks and will be wiped out by demand growth going forward.
    • Nearly all new production is unconventional oil, which requires much higher prices than today's to be profitable.
    • The decline in oil prices has caused many companies to postpone investing into those projects needed to satisfy the 10% demand growth by the end of the decade.
    • This could result in a situation in which demand for oil exceeds supply, pushing oil prices upward.
  • The Reserve Developments At These Two Oil And Gas Companies Are Worrying
    Mon, Feb. 23 STO, TOT 2 Comments

    Summary

    • It is important for an oil and gas company to discover enough new oil and gas to replace that which it extracts out of the ground to be sustainable.
    • Both Statoil and Total saw their reserve base shrink over the past year.
    • Statoil is cutting its exploration budget in 2015 which might hinder its ability to discover new sources of resources.
    • Total is actively selling off assets and cutting its exploration budget which may also lead to shrinking reserves.
    • Both companies have the wherewithal to withstand this in the short-term but they both need to correct this problem over the medium-term.
  • Total's Results Better Than They Seem, Company Is Positioning Itself Well
    Fri, Feb. 20 TOT Comment!

    Summary

    • Total reported a large net loss in the fourth quarter but this was due to paper losses on assets. The company's operations were profitable.
    • Total is reducing its spending on developing new fields in 2015 due to the decline in oil prices.
    • Total is likely to grow its production significantly in 2015, providing support for cash flow.
    • Total is reducing exploration spending in 2015, which could exacerbate its problem of declining reserves.
    • Total's moves provide support for its strong dividend, which it kept steady.
  • Could These Developments Prove Bullish For Gold?
    Fri, Feb. 20 GLD 4 Comments

    Summary

    • There has been a steady transfer of physical gold from Western nations to Eastern ones over the past few years.
    • Russia has, despite rumors to the contrary, not been selling off its gold holdings but has actively been increasing them.
    • Gold demand from India could increase due to a proposal to reduce the country's import tariff on gold.
    • China alone imported more than the entire world's annual production of physical gold in the month of January.
    • The physical settlement facility at the Shanghai Gold Exchange could lead to improved price discovery.
  • Analyzing The Impact Of The Petrobras Contract Cancellations On Seadrill's Cash Flow
    Thu, Feb. 19 SDRL 19 Comments

    Summary

    • Petrobras recently cancelled two contract extensions with Seadrill. This will result in the latter company's cash flow declining over the next year.
    • The West Taurus rig generates approximately 5.3 to 5.5% of Seadrill's third quarter cash flow, depending on uptime assumptions.
    • The West Eminence rig generates approximately 4.7 to 4.9% of Seadrill's third quarter cash flow, depending on uptime assumptions.
    • Seadrill's cash flow will likely decline by more than the combined total of these two rigs once the current contracts end because of the need to pay off debt.
  • Analyzing The Revenue Impacts That The Petrobras Cancellations Will Have On Seadrill
    Sun, Feb. 15 SDRL 19 Comments

    Summary

    • Seadrill recently announced that it no longer expects Petrobras to execute on the contract extensions for two of its rigs that previously looked likely to happen.
    • This will reduce the company's 2015 revenue accordingly.
    • The West Taurus goes off contract in February and represents approximately 4.3% of Seadrill's total revenue.
    • The West Eminence represents approximately 4.1% of Seadrill's total revenue and goes off contract in July.
    • This development is likely to reduce Seadrill's revenue by 8-8.5% by the end of the year, excluding positive impacts from other sources.
  • Could These Events Threaten The U.S. Dollar's Reserve Status?
    Fri, Feb. 13 USO, OIL, UCO 22 Comments

    Summary

    • The primary reason why the US dollar has become the reserve currency in the world is because of its dominant position in the oil trade, enforced by the Saudis.
    • This creates artificial demand for the US dollar from oil importing nations.
    • This creates a steady demand for US Treasury securities from oil exporters, helping to keep interest rates low despite huge deficits.
    • China is now Saudi Arabia's largest customer and China is looking to do all energy trades in RMB, not US dollars.
    • Russia has outright abandoned the petrodollar and Saudi Arabia may be next.
  • Suncor Energy's Results Hurt By Oil Prices, Company Still Positioned To Prosper
    Thu, Feb. 12 SU 2 Comments

    Summary

    • Canada's Suncor Energy's fourth quarter results were significantly impacted by the recent decline in oil prices.
    • The company still has growth potential due to its enormous reserves in the oil sands. This lessens the company's need to explore for more oil.
    • The Fort Hills project is still slated to come online in Q4 2017, resulting in growth from its oil sands operations that will produce cash flow for fifty years.
    • Suncor has been implementing a capital spending and cost reduction program to preserve its free cash flow.
  • Statoil's Earnings Affected By Oil Prices, Company Well-Positioned To Prosper Going Forward
    Wed, Feb. 11 STO 4 Comments

    Summary

    • Statoil's earnings were negatively affected by the recent plunge in oil prices just like all other companies in its industry.
    • The company's revenue remained fairly strong, due largely to the strength in the U.S. dollar against the Norwegian krone.
    • Statoil is likely to grow its production over the next two years.
    • The company is taking steps to strengthen its cash flow in light of the new price environment for oil.
    • Statoil should remain free cash flow positive at a price of $30/bbl for oil by 2016.
  • Seadrill's Earnings Likely To Fluctuate Despite Cash Flow Stability
    Tue, Feb. 10 SDRL 20 Comments

    Summary

    • Seadrill has a strong contract position for its rig fleet and this is likely to give the company some cash flow stability.
    • This does not apply to earnings as the company has a substantial investment portfolio and holdings of interest rate swaps.
    • The need to adjust the values of these financial instruments can have positive or negative effects on the company's earnings.
    • The company's stock portfolio may have suffered paper losses that will need to be written off due to the fall in oil prices.
    • The company's interest rate swaps move with interest rates.
  • The Jobs Situation Is Not As Strong As Policymakers Believe
    Mon, Feb. 9 SPY, DIA, QQQ 4 Comments

    Summary

    • Politicians and other policymakers have been consistently stating that the positive trends in the unemployment rate are one of the governing factors in future decisions.
    • There are numerous problems with the unemployment rate as it is currently calculated and this results in it providing a misleading figure.
    • The unemployment rate does not considered discouraged workers who want to work but have not actively looked for work in the past four weeks.
    • The labor force participation rate has been falling and this is not being caused by the baby boomers retiring.
    • The fall in oil prices may make the jobs situation much worse.
  • Examining Trends In The Offshore Drilling Industry - January 2015 Edition
    Thu, Feb. 5 NADL, XOP, IEO 2 Comments

    Summary

    • The IHS Petrodata report is one of the best sources of information for investors interested in the offshore drilling industry.
    • The utilization rates for ultra-deepwater drillships are falling along with dayrates. However, this is not the case with ultra-deepwater semisubmersibles.
    • Harsh-environment rigs continue to operate with 100% utilization rates although dayrates are declining.
    • Shallow-water jack-up rigs have seen both falling utilization and dayrates in the past month.
    • The weakness is caused by constrained cash flows among the oil and gas companies that engage in offshore drilling.
  • TeliaSonera's Revenues Under Pressure But Company Weathering Well
    Mon, Feb. 2 TLSNF 1 Comment

    Summary

    • TeliaSonera announced fourth quarter 2014 and full year 2014 results that would likely disappoint many investors.
    • The company's revenue declined year-over-year due to weakness in Asia and Europe.
    • TeliaSonera is taking steps to handle this revenue decline and the company managed to increase both EBITDA and net income for the fourth quarter year-over-year.
    • TeliaSonera maintained its dividend year-over-year.
  • More Evidence That Low Oil Prices Are Not Unequivocally Good For The American Economy
    Thu, Jan. 29 OIL, SPY, DIA 17 Comments

    Summary

    • Over the past few weeks, further data has come out that shows that the rapid decline in oil prices that recently occurred is not a net positive for the economy.
    • Factory orders are down significantly, largely because the energy industry is a major source of demand for American manufacturers.
    • Manufacturing jobs are, like energy jobs, high-paying positions and a slowdown in manufacturing could lead to a reduction in consumers' buying power.
    • Markit's Services PMI shows that the sector is expanding but that the rate of expansion is slowing.
  • Understanding Seadrill's Complicated Financial Structure: The Asset Side
    Tue, Jan. 27 SDRL 11 Comments

    Summary

    • Seadrill has a very complicated financial structure because it consolidates the balance sheets of three companies into its own without owning any of them completely.
    • These three companies are North Atlantic Drilling, Sevan Drilling, and Asia Offshore Drilling.
    • Some of the assets that Seadrill shows on its balance sheet are actually the property of one of these three companies and not Seadrill itself.
    • To better understand Seadrill's financial situation, an investor should bear in mind what is actually the property of Seadrill and what is the property of one of these companies.
    • Seadrill owns the majority stake of all three companies but does not own any of the three outright.
  • Ocean Rig's Thoughts On The Outlook For The Floating Rig Market
    Sun, Jan. 25 ORIG 4 Comments

    Summary

    • Ocean Rig provided an in-depth analysis of the floating drilling rig market in a recent presentation to investors.
    • The floating rig market is currently quite challenging due to several factors including a reduction in demand for floating rigs and increasing supply.
    • Oil and gas companies have been expressing a marked preference for contracting modern offshore drilling rigs and thus making it difficult for older rigs to get contracts.
    • The supply of older rigs is thus likely to fall and cause the worldwide floater fleet to decline over the next two years.
    • Unless oil and gas companies increase their demand for floating drilling rigs, the market is likely to remain challenging until at least 2017.