Power Hedge

Investment advisor, macro, energy, alternative energy
Power Hedge
Investment advisor, macro, energy, alternative energy
Contributor since: 2010
Please tell me where in any article I've written in the last year I've advised anybody to buy SDRL.
Yes, I'm long. I made what's called a "vulture" investing play.
WTF do you mean that I don't respond?! I've been responding to all your comments on this thread!
They never said that the dividend was totally safe. They said that cash flow was sufficient to sustain it. They were right. The company's cash flow is fine! It could pay the dividend at its previous level.
I don't think anybody thought that oil would go from $80/bbl to $40/bbl in a month. That rapid of a drop never happened before in history.
Management made the right decision in suspending the dividend.
The only place where oil reserves have increased over the past decade is offshore. Onshore reserves are declining fast.
Over the very long-term, offshore drilling will be where the money is in the oil industry, but short-term is painful. Nobody can produce profitably with oil at $30/bbl so it basically comes down to who folds first... the Saudis or US shale.
I don't think they're a buy right now. I'd wait a year or so and see how things play out. I'm not selling my stock in the company, but I'm not rushing to buy either. Things will be difficult for the company until 2018 at the earliest.
I don't think so. The market seems to be pricing it like bankruptcy is an option, but this company has too many options available to it to avoid that that it doesn't look possible.
doghousecontributor,
Offshore drilling is a very cyclical sector. Everybody knows that. Seadrill isn't going to go under so at this point, locking in the loss doesn't make much sense.
I bought OHI this morning as well. I'm not a retiree yet but I see most of the market as being overvalued (PEG ratio just hit an all-time high today) so I'm planning on collecting the checks and reinvesting them as the market provides opportunities.
For what it's worth, my significant other is also an avid investor and works in the healthcare sector and she agrees with me on this one!
The biggest problem I see with SDLP is that some of their rig contracts run out in 2017. If they can't re-contract these rigs then debt becomes an issue.
Thanks for the kind words!
Treat yourself to a couple beers with the dividend!
Thanks for the kind words!
I bought some this morning with the same thesis.
I like to write articles as a part of my research for my own portfolio. I convinced myself to take a position in this company!
Yeah, but remember that OHI has no connection to drug prices. It's just a landlord.
That was my take as well. I didn't see any negative news for any of these REITs. In my mind, healthcare REITs are some of the safest things to own because they're pretty inelastic.
I pointed that out in the article. It's a C-Corp, but it operates like an MLP.
Oil prices matter because because if its customers go under, they won't be able to pay the contractual rates for shipping product over the company's pipelines.
Maybe. The banks have already said that they'll delay principal payments, but none of the SDRL/NADL/SDLP companies have exercised that as of yet.
They MIGHT be opportunistic purchases at this price, but it will take a few years to pay out.
SDRL does not consolidate SDLP results into its results. It does not have majority interest in the common units (although its very close and I can't find the exact interest percentage in either company's quarterly filings).
SDRL does own the majority of SDLP's subordinate shares.
Thus far, the banks haven't cut off either company from credit. I don't think they will. What would a bank do with drilling rigs? If I'm right, then this could be a big opportunity, but it won't materialize in short order.
Oil prices aren't going to recover. But.... Nathan Rothschild once said that the time to buy is when everyone else disagrees,
SDRL has more than enough options to prevent bankruptcy. The company's debt has been coming down quickly.
Dilution is one possibility, but I don't think they'll need to take it.
Seadrill has one of the highest backlogs in the space.
$3 billion would buy you at best four ultra-deepwater rigs. Frankly, Seadrill's liquidation value right now is far less than the value of its assets.
The stock price won't rebound within the next couple years, but the company won't go under, which the current stock price implies.
Seadrill has managed to delay delivery of a large number of units that are otherwise perfectly fit for delivery. Sevan Drilling managed to do the same thing. There's no reason to assume that NADL couldn't delay delivery of West Rigel.
Correct. Fidelity (my broker) will do it directly as will Interactive Brokers and many others. You're right though that the Pink Sheets shares aren't as liquid.
I personally don't own it. I've been thinking about taking a stake if the investment is trading at a discount once the current NAV is released by the company.
The fund itself has a total management fee of 1.25% a year, which is higher than most mutual funds or ETFs, but I personally don't care that much what an investment costs me as I'm more concerned with what my returns after costs are and this seems to be worth the extra management fee.
I think his point is that drillers aren't buy and hold investments because the industry is cyclical. I think he's right.
Noble Energy and Noble Corp. are two different companies. The only involvement Noble Corp. would have in that would be if its rigs were being used to develop it and they're not.
You're correct that they're the best positioned in terms of debt load, but they also have an antiquated fleet compared to the others and the market is demanding better rigs than Ensco has.
The problem is that those aren't high paying professional jobs. They're entry level professional jobs that won't even pay the rent, let alone student loans. That's why there's a record number of 25 year olds living at home.
There are jobs out there. Hell, I drive past a help wanted sign in front of every burger joint or bar that I see on my way to work every day. But those aren't comparable to the family-supporting jobs that we had a decade ago.
That's a real possibility. Thus far though, the major lenders to the industry seem to acknowledge that the industry that suffering from the worst downturn in its history and seem to be willing to work with them to avoid bankruptcy.
Seadrill's executives also disagree about higher dayrates going forward. They think that the downturn will last until at least into 2018, so I think we should be prepared for that.
The current conditions are among the worst that the industry has ever faced. It's now virtually impossible to secure new contracts at the cash flow break even point. Any company that doesn't take steps to hold onto as much capital as it can is acting foolishly.
Noble appears to be doing what is necessary to allow it to weather the conditions that are facing it.