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  • Could The 'Shale Oil Miracle' Be Just A Pipe Dream? [View article]
    U.S. EIA says that crude oil inventories are down year-over-year.

    Production is rising rapidly and has been over the past few years but it's been largely due to the capital markets being willing to finance unprofitable drilling operations.
    Oct 14, 2014. 02:02 PM | 6 Likes Like |Link to Comment
  • Norway's Telenor Offers High Yield And Growth Prospects [View article]
    Agree with you on Myanmar. I'm working on another article that will explore Telenor's opportunity there in more detail.
    Sep 25, 2014. 08:59 AM | 1 Like Like |Link to Comment
  • Ascendas REIT Offers Growth Potential And A High, Stable Dividend [View article]
    I actually did mention the reduction in rents.

    "Unfortunately, the rent for new leases (meaning the rent that the trust was able to charge tenants moving into space that the tenant did not previously occupy) were lower than the levels that the trust was able to charge in the preceding quarter for all properties except for high-spec industrial ones. This is something that investors will want to keep an eye on going forward as continued weakness here may be an indication that the Singaporean economy is beginning to slow. This is supported by data released by the country's Ministry of Trade and Industry, which stated that the country's GDP growth was 2.1% year-over-year in the most recent quarter compared to 4.7% in the previous quarter."

    The income that they bring in is not declining though. Ascendas REIT's revenue went up year-over-year. Remember that these are long-term, multi-year leases. The company does have a lot of leases coming due over the next two years but market rental rates are higher than they were when these leases were signed so there's still the likelihood of positive rental reversions.
    Sep 22, 2014. 02:30 PM | Likes Like |Link to Comment
  • Pacific Drilling Second Quarter Results Show Growth Story Playing Out [View article]
    You're correct. The first six months of a rig's operations is typically called the "break-in" period. Rigs are typically less reliable during this period and will suffer from lower revenue efficiency and uptime.
    Aug 29, 2014. 12:08 PM | 1 Like Like |Link to Comment
  • Pacific Drilling Second Quarter Results Show Growth Story Playing Out [View article]
    Off the top of my head, I have to share the comment of jackmaster20. Pacific Drilling looks set to pay a dividend of about $152 million in 2015. This should give the stock a dividend yield between 7-8% at its current level.
    Aug 28, 2014. 09:14 PM | Likes Like |Link to Comment
  • Understanding The Current Conditions In The Offshore Drilling Industry And Understanding Future Trends [View article]
    Thanks for your insights!

    I agree with you that we'll be seeing some "right-sizing" of fleets going forward. I think that we will be seeing cases where offshore contractors are retiring older fourth-generation drilling. There also seems to be some bifurcation in the market where sixth- and even seventh-generation rigs are much more in demand than fifth-generation and older rigs. This is the reason why I recommend sticking with those companies that boast newer fleets - they can typically demand higher dayrates and generate better cash flow to their assets.

    Mexico's opening of its waters will definitely increase demand for rigs, as will increased drilling in the Norwegian and Russian Arctic.

    There's also another development that could prove positive for demand. That's the recent agreement between CUPET and Rosneft to develop the resources in the Cuban continental shelf. By some estimates, there's as much oil there as there is in the Bakken... it's all shallow-water though, so it would likely be mostly jack-up rigs seeing the increased demand. We could see that start to play out.
    Aug 21, 2014. 12:11 PM | 1 Like Like |Link to Comment
  • Seadrill's West Saturn Contract Promises To Deliver Forward Growth [View article]
    On July 9, Seadrill said that it should have about $1.5 billion in cash by the end of July, so my guess would be that the money showed up in the second quarter or it showed up in the first quarter and is included in that $912 million total with the rest of the $1.5 billion coming from other sources.

    The company also stated that the original purpose of that $1 billion convertible bond issue was to fund the construction of newbuilds. Then that bond issue was cancelled and management said that the company had enough liquidity... so maybe you're right, maybe the company will just use the cash on hand to finance this rig.
    Aug 13, 2014. 02:26 PM | Likes Like |Link to Comment
  • Seadrill's West Saturn Contract Promises To Deliver Forward Growth [View article]
    You're correct, it's normally 20% of the estimated construction cost due at the start of the construction and the remaining 80% of the balance due at delivery.

    Seadrill will probably finance it. The company had $912 million in cash on its balance sheet at the end of the first quarter which is technically enough to cover the remaining balance on the drillship but Seadrill also has to cover the remaining balance on West Jupiter. It doesn't have the money to cover both balances and still keep enough cash to carry out its ordinary operations.
    Aug 13, 2014. 11:13 AM | Likes Like |Link to Comment
  • Ensco's Second Quarter 2014 Results Are Not As Bad As They First Appear [View article]
    New contracts signed today generally have a lower dayrate than contracts signed in the middle of last year. However, the rates are still higher than they were back in 2009-2011. Contracts for ultra-deepwater rigs tend to last for a number of years. Thus, older contracts are running out and being replaced with newer ones which, although lower than a year ago, are still higher than what the old contract was. Or, the rig was sold.

    $479,000 is well below the rate that new contracts for ultra-deepwater rigs are at.

    Right now, new ultra-deepwater contracts are at dayrates in the $500k-$550k range or so. Last year, they were getting $650k or so. So... overall dayrates are lower than last year. However, the average dayrate of a rig in Ensco's fleet went up.
    Aug 5, 2014. 10:12 AM | 2 Likes Like |Link to Comment
  • A Look At Noble's Current Industry Position And Its Forward Prospects [View article]
    You are correct in that it is possible for an exploration and production company to unilaterally cancel a drilling contract but such events are rare and usually only occur when a force majeure situation arises (such as a government suddenly forbidding drilling) or if the rig does not meet the demands of the contract (such as when Statoil cancelled a contract with Diamond Offshore recently). In the rare case when there are no extenuating circumstances, the E&P company will have to pay a cancellation fee of at least 10% of the remaining value of the contract.

    Given the rarity of this event, I still feel comfortable saying that Noble is almost certainly going to receive this revenue. Nevertheless, I have updated the article for the purposes of clarification.

    I apologize for the confusion.
    Jul 31, 2014. 06:50 AM | Likes Like |Link to Comment
  • Several Recent Geo-Political Events That Could Threaten The Dollar's Dominance In International Trade [View article]
    As I understand it, the BRIC bank is partly an attempt by numerous emerging economies, led by China and Russia, to get away from the U.S. dollar and the inordinate amount of control that this currency allows the United States and other western powers to exert over the economies of the emerging markets. Basically, they want to prevent things like having their currencies suddenly lose a lot of value quickly.

    The same countries are also working on an alternative to the IMF that they hope will allow them to have the same functions served by without the dictates of the western organization.
    Jul 18, 2014. 09:30 AM | 1 Like Like |Link to Comment
  • Did Seadrill Partners Overpay For West Auriga? [View article]
    SDRL is not the managing member. Seadrill Management AS is. It's two different companies. Seadrill Management AS is also the company that manages SDRL. It's basically the executives of SDRL, so the difference is largely academic, but SDRL itself does not get the money from that management fee.

    The total management fee is 5% of the costs and expenses that Seadrill Management (the managing member) incurs on behalf of Seadrill Partners. The total management fee in the 2013 fiscal year was $600,000.

    That's $66,667 per rig per year. I'll increase that to $75,000 per rig since Seadrill Management was only managing eight rigs in the 2013 fiscal year and not nine. That's $205 per day on a per rig basis. That'll have virtually no impact on per rig cash flows.

    The numbers that I just gave came directly from Seadrill Partners' audited financial report from the 2013 fiscal year, page 66. There are also mentions to a management fee on page 73, F-11, and F-26. All these mentions state the same number. It's also mentioned on page 25 in passing, but the actual number is given on page 66.

    My cash flow assumptions are the same numbers used by Wall Street analysts, by company internal financial analysts, and by the companies themselves. They are also the industry standard direct rig operating costs numbers and pretty much every company that has given a number for direct rig operating expenses provides one that is in that range. There's no evidence on the financials that these numbers are wrong. I'm using the direct rig operating costs, not incorporating all corporate costs and D&A into the figures. D&A is a non-cash cost so its irrelevant for calculating cash flows. Corporate costs do not vary based on the number of rigs.
    Jul 11, 2014. 09:15 AM | 2 Likes Like |Link to Comment
  • Did Seadrill Partners Overpay For West Auriga? [View article]
    From your comment: "The operating margin for SDRL is 36% and the operating cost is at least 64% since Seadrill is charging a management fee on top of direct costs."

    No, it is not. It was 72.9% in the first quarter. The floater fleet alone, excluding the gain on sale for West Auriga, had an operating margin of 43.7%. I did the math in my comment. The math is in my comment above.

    You reference the general partner? That is irrelevant for SDRL's operating margin. SDRL is not a partnership. It's a corporation. Therefore, there is no general partner.

    Now, assuming that you misspoke and actually meant SDLP and not SDRL (which is a publicly traded LLC and is also not a partnership)... SDLP had operating revenue of $275.3 million in the first quarter. It had net operating income of $123.6 million. The formula for operating margin would thus be 123.6 million/275.3 million. That works out to an operating margin of 44.8%. SDLP never broke down its revenue or operating income for the floater fleet in its financial statements.

    SDRL is also NOT the general partner for SDLP. From the company's first quarter results, footnote 1:

    "All references to “Seadrill Partners” and “the Company” refer to Seadrill Partners LLC and its subsidiaries, including the operating companies that indirectly own interests in the drilling rigs Seadrill Partners LLC owns: (i) a 30% limited partner interest in Seadrill Operating LP, as well as the non-economic general partner interest in Seadrill Operating LP
    through its 100% ownership of its general partner, Seadrill Operating GP
    LLC, (ii) a 51% limited liability company interest in Seadrill Capricorn Holdings LLC and (iii) a 100% limited liability company interest in Seadrill Partners Operating LLC. Seadrill Operating LP owns: (i) a 100% interest in the entities that own the West Aquarius, West Leo and the West Vencedor
    and (ii) an approximate 56% interest in the entity that owns and operates the West Capella. Seadrill Capricorn Holdings LLC owns 100% of the entities that own and operate the West Capricorn,West Sirius and West Auriga. Seadrill Partners Operating LLC owns 100% of the entities that own and operate the T-15 and T-16 tender barges"

    SDLP itself HAS NO GENERAL PARTNER. It's an LLC, not an MLP. SDRL is a member of the LLC, but that's different from being the general partner. The legal definition of a general partner is an entity that has unlimited liability for the debts of the partnership that they control. Nobody has this in an LLC. SDLP is also being taxed as a corporation, not an partnership.

    With that said, SDLP does own stakes in some of the limited partnerships under its purview. Included among these are Seadrill Operating LP. SDLP owns the general partner interest in this entity according to footnote 1 in SDLP's financial statements. SDLP also owns 100% of the interest in Seadrill Partners Operating LP, including the general partner interest. The third entity that owns some of Seadrill Partners' rigs is Seadrill Capricorn Holdings LLC, also an LLC with no general partner, is 51% owned by SDLP.

    SDRL does own 70% of Seadrill Operating LP, but it does not own the general partner according to the footnotes to the financial statements. Once again, I ask, what is the footnote number?

    BTW, I actually did a Search of SDRL's financials for any reference to 36%. There's nothing in any footnotes and the only mention to a floater fleet operating margin is the number that I gave above. I'm more than happy to continue investigating, but after reading both SDRL's and SDLP's financials, I see nothing to support your statements.
    Jul 8, 2014. 11:32 PM | 2 Likes Like |Link to Comment
  • Did Seadrill Partners Overpay For West Auriga? [View article]
    Down below you state specifically that the company states in its footnotes to the financial statements that the operating margins for floaters is 36%. Where?

    The first quarter 2014 financial results state in Note 3 that the company's floater rigs generated contract revenue of $787 million in the first quarter and had operating income of $784 million. That's an operating margin of 99.6% but it includes the gain on sale of West Auriga. The gain on sale of West Auriga was $440 million, meaning that the operating income excluding this sale is $344 million. That's an operating margin of 43.7%.

    In the first quarter 2013, the company's floaters produced contract revenue of $757 million and had operating income of $317 million. That's an operating margin of 41.9%.
    Jul 8, 2014. 04:16 PM | Likes Like |Link to Comment
  • Did Seadrill Partners Overpay For West Auriga? [View article]
    How does it have the risk of losing the rig to SDRL? The rig was purchased by West Capricorn Holdings LLC which is 51% owned by SDLP and 49% owned by SDRL. In order for SDRL to get the rig back (which is might be able to do after the seven year contract is up and if the next contract isn't at least five years), it would have to buy it back from SDLP. Whether that purchase price would be fair for SDLP is uncertain, so that is a definite risk but SDRL can't just take the rig without compensation to SDLP.

    Operating margin would include the costs of D&A which are substantial on a new rig. It's also a non-cash expense... I was focused more on cash flow and EBITDA which both exclude this value.

    I agree with you that SDLP is getting hosed if it only owns and operates the rig for seven years and the residual value of the rig is zero, which it wouldn't be given the lifespan of the rig.

    In the first quarter, SDRL had $1.221 billion in revenue and an EBITDA of $624 million excluding the gain on sale of the West Auriga. That's a 51.1% EBITDA margin.

    Operating margin is defined as Net Operating Income/Net Revenue. SDRL's net operating income in the first quarter was $890 million. It's net revenue was $1.221 billion. That's an operating margin of 72.9%. Where are you getting 36%?

    SDRL's net cash from operations in the first quarter was $656 million. That's a cash flow margin of 53.77%.

    With all that said, I do think that SDRL is the better investment of the two and I've said that on multiple occasions in other articles.
    Jul 8, 2014. 11:20 AM | 1 Like Like |Link to Comment