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Considering coming out of cash and and wading back into the markets? Look at energy, says Real...

Considering coming out of cash and and wading back into the markets? Look at energy, says Real Money's Daniel Dicker, particularly offshore drilling companies. Offshore profitability is almost entirely based on crude oil pricing, and Dicker is convinced that crude oil prices will find a bottom well above $100/bbl. This will make the most challenging offshore operations, using the deep and ultra deep water rigs owned and leased by companies like SeaDrill (SDRL), Transocean (RIG), Ensco (ESV) and Rowan (RDC) increasingly profitable through 2012-13.
Comments (9)
  • While I agree with Dicker's thesis that the offshore drilling industry is primed for a strong run I disagree that the industry is that susceptible to spot market oil prices. These contracts last months or years and are planned well in advance and budgeted by the major E&P companies. Short periods of weak oil pricing has no impact on drilling company profitability. Sustained pricing at or above the current levels will support a longterm powerful cycle for offshore drillers. I am long RIG, SDRL, ESV, ATPG, CIE, and going long on PACD.
    26 May 2012, 10:28 AM Reply Like
  • US crude oil production is at 14 years high thanks tight oil revolution.

     

    This technology will soon spread to the rest of the world.

     

    Offshore drillers are much pretty fvcked. That's why the market has sent PBR and RIG to march 2009 abyssal levels, and ATPG will go bankrupt in a few years.
    26 May 2012, 11:34 AM Reply Like
  • Meanwhile, SDRL was about $25 this fall and was trading above $40 until the recent pullback while paying a yield around 9%.

     

    You should be looking at emerging markets beginning to use offshore drilling and not just focus on the U.S.
    26 May 2012, 01:12 PM Reply Like
  • SDRL is a special case.

     

    As for EM beginning to do more offshore drilling, Chinese are DEFINITELY NOT going to use stuffs from DO, NE, and RIG. They will employ COSL (2883HK) to wage price wars on the rest of the group.
    27 May 2012, 10:36 AM Reply Like
  • Shorted RIG from $55 via puts. Short term weakness due to perceived lowering oil prices, but long term, these stocks are primed for large gains based on day rates and emerging middle class demand for oil/gasoline in China/India.

     

    Looking for Oil to find a bottom soon and will change back to long positions in SDRL, RIG via Jan 13/14 deep in the money calls
    26 May 2012, 01:44 PM Reply Like
  • Div,

     

    Both PBR and RIG both have Company specific issues.

     

    I don't think either one should be used as a proxy for the industry as a whole.
    26 May 2012, 02:28 PM Reply Like
  • DO, NE are also very weak.
    27 May 2012, 10:36 AM Reply Like
  • Well I don't really know what to say to some of these comment. ATPG may go bankrupt but not because it doesn't have oil and valuable leases but because the shorts are trying to kill it off. Tight oil technology is helpful but won't solve the oil supply problem so that is a non starter. PBR has too much government involvement so no matter what prospects it may have the Brazillian government is likely to screw it up. RIG is resolving most of its most pressing problems and will show significant earnings improvements. Please don't buy it. I will be happy to pick up your shares. SDRL is best in class right now in spite of the debt load because it has the day rate growth going for it and a strong modern fleet. I am long offshore drillers for the next several years.
    26 May 2012, 06:24 PM Reply Like
  • One thing to consider when investing in drillers is their ability to kill the cycle by overbuilding the equipment. There are 87 Jackups and 94 Floaters are set to enter the market from now until 2015 with 76% of the jackups and 47% floaters without a contract... So, one would have to assume those will all find home at rates close to where they are now.
    27 May 2012, 02:26 PM Reply Like
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