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First Thoughts On Seadrill's Earnings Report And Reasons Not To Panic
- Seadrill announced earnings that were quite solid despite the company's dividend suspension.
- Seadrill is now largely booked until the end of 2015, with only 9% availability following the awarding of four contracts from Petrobras.
- Seadrill's dividend suspension will allow it to reduce its debt significantly going forward and thus strengthen its balance sheet.
- The company also plans to buy back up to 10% of its current shares outstanding.
- Despite the pain that income investors are feeling now, the suspension of the dividend was actually a very prudent decision that positions the company well for the future.
Chinese And Russian Demand Provides Reasons To Be Bullish On Gold
- Gold has proven a difficult asset to hold in recent months as the dollar continues to strengthen and gold prices weaken due to the pressure this exerts.
- The actual fundamental dynamics of the market prove much more promising, however.
- The Russian Central Bank recently increased its purchases of gold several times over.
- The Chinese citizenry are now purchasing nearly all of the world's annual gold production and the PBOC is also likely to be a significant buyer.
- China has opened a physical gold exchange that could prove to be a game changer.
Could International Support For The U.S. Dollar Be Waning?
- The primary reason why the U.S. dollar is the reserve currency is that it is the dominant currency in the oil trade.
- This dominance provides a source of artificial strength in the dollar as it increases demand for U.S. dollars and U.S. Treasury securities.
- International support for this standard continues to wane as three countries recently agreed to trade oil to China in yuan and not U.S. dollars.
- The nation of France also appears to be moving away from using the dollar as the standard currency of international trade.
- If support for the dollar continues to fade, the U.S. would likely see rising interest rates and inflation at home.
Decline In Oil Prices Unlikely To Affect Linn Energy's Distribution
- Linn Energy pays its distribution by pulling oil out of the ground and selling it.
- The stock has declined along with oil prices, likely due to fears that the distribution will be cut.
- Linn Energy maintains a hedging program that effectively locks in a sale price for the company's oil production.
- The company also has a significant margin of safety in its cash flows that could help it maintain the distribution.
- Linn Energy's distribution is likely in no danger in the short-term.
Could Forward GDP Growth Prove More Elusive Than In The Past?
- Nominal GDP is equal to the velocity of money times the size of the money supply and velocity has been slowing rapidly since the 1980s.
- This means that all economic growth comes from increasing debt loads because in our financial system all money is debt.
- The effect that each additional dollar of debt is having on GDP is diminishing.
- At some point, the continual expansion of debt could stop having any effect on GDP or even begin reducing it.
- This is due to the U.S. economy becoming increasingly focused on non-value adding speculative transactions instead of actually producing things that people need.
Pacific Drilling's Latest Results Show Company's Growth Potential And An Improved Ability To Weather Industry Downturn
- Pacific Drilling's third quarter results showed significant quarter-over-quarter and year-over-year growth in virtually all metrics.
- Pacific Drilling is likely to show even further growth in the fourth quarter due to the start-up of a new rig.
- Pacific Drilling is recommending the initiation of a share buyback program pending approval by the stockholders.
- The company is in talks for two of its three rigs that need new contracts. This could result in further growth next year if it gets these contracts.
Seadrill's West Vela Deal Shows The Company's Financial Flexibility
- Seadrill is selling the West Vela ultra-deepwater drilling rig to a subsidiary of Seadrill Partners.
- This will reduce Seadrill's debt and increase its cash position.
- The deal will increase Seadrill's ability to maintain its dividend.
- Seadrill's cash flow will not be significantly impacted by the deal.
Ensco's Q3 2014 Earnings Report Shows Company's Ability To Weather Industry Storm
- Ensco's Q3 2014 report shows significant year-over-year growth despite weakness in the industry.
- Ensco has a large revenue backlog representing nearly nine quarters of revenue at its current level.
- Ensco has one of the newest floater fleets in the industry and has less availability than many peers.
- Despite the company's fundamental strength, the share price has been hammered by oil price weakness and challenging industry conditions.
Despite Some Risks, Pacific Drilling Could Offer Interesting Opportunity
- Pacific Drilling's stock price has gotten beaten down with the rest of the companies in the offshore drilling industry.
- Pacific Drilling has one of the newest fleets in the industry and demand for these rigs has held up much better than for the broader ultra-deepwater fleet.
- The company still needs to secure contracts for two new rigs in the next six months.
- Pacific Drilling has another rig coming off contract in February 2015 that needs a replacement contract.
- Despite these risks, the company could present an interesting opportunity for investors willing to take on the risk.
Tracking Utilization And Day Rate Trends In The Offshore Drilling Industry - October 2014 Edition
- The offshore drilling industry has been hit hard with concerns about falling dayrates and utilization.
- A closer look at the actual figures though reveals that much of this fear is misplaced.
- Some types of rigs continue to enjoy 100% utilization.
- Even among ultra-deepwater rigs, modern drillships have shown remarkable strength in both utilization and dayrates.
- Hardest hit have been those older ultra-deepwater semisubmersible units.
Markets Are Not Considering Weakness In Middle Class
- The middle class is frequently considered to be the driving force of the American economy.
- The middle class has less discretionary income than in the past due to the rising costs of necessities at a rate that exceeds inflation.
- Unless this is reversed, this group will not be able to consume like they have in the past.
- Yet, markets continue to ignore this reality and are still near all-time highs.
A Few Reasons To Be Cautious On ExxonMobil
- ExxonMobil has several problems which need to be corrected in the next few years.
- The company's production levels have been steadily declining since 2009.
- ExxonMobil is not generating enough free cash flow to finance its enormous share buyback program and dividend commitments.
- ExxonMobil has been taking on debt to finance its dividend and share buybacks.
- Many of ExxonMobil's forward growth projects are in Russia, which the company is pulling out of.
Statoil's New Gas Discovery Strengthens Company's Position To Be A Major Supplier To Growing Asian Markets
- Statoil recently made its seventh major discovery in the gas-rich block 2 region offshore Tanzania.
- Tanzania is ideally positioned to ship natural gas to Southeast Asia.
- Several countries in Southeast Asia are likely to greatly increase their imports of natural gas over the next two to three decades.
- Statoil has sufficient gas reserves in the country to become a major supplier to these countries.
- The company is currently constructing the needed infrastructure to take advantage of this trend.
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.