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  • Ocean Rig - A Deeply Undervalued Contrarian Investment For Patient Investors [View article]
    Can you post (or repost) your calculations that contrast with Karl's an indicate that restructuring is probable?
    Oct 9, 2015. 11:56 AM | Likes Like |Link to Comment
  • Ocean Rig - A Deeply Undervalued Contrarian Investment For Patient Investors [View article]

    Can you post (or post a link, if you've posted them already) your calculations that indicate ORIG going belly up in 2017?

    I agree that management and the bond market are acting scared, but management may just be playing it safe and the bond market doesn't always get it right either.

    Oct 8, 2015. 10:00 PM | 1 Like Like |Link to Comment
  • Ocean Rig - A Deeply Undervalued Contrarian Investment For Patient Investors [View article]
    Henrik's right, SO, that language pretty clearly only applies if they form an MLP as RIG and SDRL did a while back.

    And now that I think of it, it is rational for the bond prices to oscillate in line with the price of oil, if oil has to recover for ORIG to avoid bankruptcy, whether that's in 2017 (as Henrik thinks) or 2019 (as we all agree will happen if the price of oil stays at current levels till then.)

    I've got another thought: What if oil recovers somewhat, but not a lot, so that deepwater drilling remains profitable only in relatively shallow or accessible places? Then ORIG's super modern fleet might only command a modest premium over older rigs. And a Fitch report I read recently said that E & P companies right now prefer the bigger drillers with solid balance sheets with whom they have a history, so ORIG's modernization premium might fall even further.

    I am long ORIG, but I'm also growing nervous.

    I am hoping that 1) management is being super conservative 2) the bond market is misinterpreting caution for fear and 3) oil recovers sooner rather than later, which I think would be good long-term for the economy too, since otherwise the snap back will be brutal and possibly recessionary when it comes.
    Oct 7, 2015. 02:18 PM | Likes Like |Link to Comment
  • Ocean Rig - A Deeply Undervalued Contrarian Investment For Patient Investors [View article]
    Thanks for your reply, Karl, I really appreciate it.
    Oct 6, 2015. 03:01 PM | Likes Like |Link to Comment
  • Ocean Rig - A Deeply Undervalued Contrarian Investment For Patient Investors [View article]

    How do you explain the discrepancy between your numbers and, as Henrik points out, the way management and the bond markets are acting?

    The bond market is generally less emotional and more professional than the stock market, and it's clearly pricing in a big risk of default / restructuring.

    Maybe management wants to be conservative, but if that's all it is, the bond market should be rewarding them, the bonds should be trading at near par, not (as is true for the 2019s) at about half face value, which is pretty much a bet on default considering all the real assets and cash that they have.

    What are we missing that the bond market is seeing? My question isn't rhetorical, I'm long, but I'm uneasy about being on the wrong side of the bond market.

    I ask with the highest respect, I saw that an earlier contrarian call you made, on RCL, was a great one.
    Oct 6, 2015. 09:20 AM | Likes Like |Link to Comment
  • Ocean Rig - A Deeply Undervalued Contrarian Investment For Patient Investors [View article]
    I'll give it a try.

    It's got a whole lot of debt. There's been argument here on SA as to whether it can make a big bond payment in 2017 without a recovery in oil prices. I think it can, but then it's got another big bond coming due in 2019, and I (and the bond markets, according to current pricing) suspect that at current oil prices it won't be able to pay it.

    I'm long, FWIW, and planning to add a little more, but if we're at a new normal for oil prices, as some are saying (and I, personally, doubt), ORIG will go bankrupt sooner or later, and before that happens it would probably restructure and wipe out shareholders.

    So, it's a high risk and potentially high reward stock, and right now, most big investors are not interested in adding risk in the energy sector.

    That's my attempt at an explantion, anyway. Happy to hear a rebuttal.
    Oct 5, 2015. 07:03 AM | 1 Like Like |Link to Comment
  • Ocean Rig - A Deeply Undervalued Contrarian Investment For Patient Investors [View article]
    Thanks for taking the time to respond, Karl. Like most of us who are long here, I'm trying to figure out why this company is getting hammered even more than most other OSD, and why management is acting as if it's afraid of bankruptcy, rather than sure of survival (in which case they'd be buying back debt and stock hand over fist.)

    Those are some reassuring words about PB. I got this thought because there was an article in a Brazilian paper about how PB had done just what I described with a couple foreign firms that had been leasing it maintenance ships.

    I'm glad to hear that even Henrik thinks PB won't cancel.

    Is it possible management is just being very, very cautious, and figures that saving a few million in interest payments now isn't worth risking bankruptcy if the downturn extends until the end of the decade?
    Oct 2, 2015. 05:37 PM | 1 Like Like |Link to Comment
  • Ocean Rig - A Deeply Undervalued Contrarian Investment For Patient Investors [View article]

    I think, to my regret (I'm long ORIG) I've found the missing link that explains why management is being so cautious and the bond market appears to be pricing in bankruptcy risk.

    In Brazil, where I live, any foreign naval company needs an annual certificado de autorização de afretamento (CAA), basically a license, to operate.

    Here's the thing: the domestic company, by law, has to request this license for its foreign suppliers. If the foreign supplier (e.g. a rig company) doesn't have it, the contract can be voided.

    So all Petrobras has to do, under Brazilian law, to get out of its contracts with foreign suppliers, is not request the license. They have already used this threat to renegotiate or break contracts with several foreign suppliers.

    Here's the question: are Petrobras's contracts with ORIG governed by Brazilian law, or, as with most bonds, are they under the jurisdiction of an American or European court?

    If they're under Brazilian law, you have to redo your worst case scenario to take into account the possibility that Petrobras will either renegotiate from a very strong hand or simply walk away from the contracts with ORIG.
    Oct 2, 2015. 07:49 AM | 1 Like Like |Link to Comment
  • Ocean Rig's Drillship Delivery Delay Will Benefit Shareholders [View article]
    I've got a small long position in ORIG, but to me the biggest signal that maybe we're wrong and folks like Henrik are right is the way management is acting.

    If it were indeed a sure thing that they'll be cash flow positive through 2017 no matter what and easily able to pay off that bond, then yes, they'd be nuts not to pay it off and buy back a little stock while they're at it.

    And GE would be nuts not to buy a few more millions of ORIG stock, he can afford it.

    That none of this is happening means either that they are nuts or they think they may need every cent they've got to survive, and survival isn't a sure thing.

    Of course, if they do survive without restructuring the stock is going to be worth multiples of its current value whenever the cycle turns.

    Those bond market prices are disturbing. 75 and 55 cents on the dollar for a company that has real assets, ones that could be sold if the company goes bankrupt? Bond traders, who tend to be better-informed and less emotional that stock traders, clearly think bankruptcy is a risk.

    I'd love to hear that my logic is weak -- as I said, I'm long.
    Sep 29, 2015. 02:19 PM | Likes Like |Link to Comment
  • Transocean Implicated By Ex-Petrobras Executive In Carwash Bribery Scandal [View article]
    Bulldog, Henrik, I'm going to return to the threadjack and make a comment about ORIG rather than RIG.

    I've got a very small long position in ORIG, but I think this release from Fitch contains the element that Bulldog might be missing:

    Here's the money quote: "Fitch expects HY offshore drillers to be at a contracting disadvantage, relative to larger, more established offshore drillers, due to their smaller size, limited customer history, and higher counterparty risk. Our view is that customers may, in most cases, prefer the highest quality assets, but are also giving careful consideration to an operator's size , staying power, geological familiarity, and historical operating performance."

    In other words, even if ORIG has the best rigs, they still may lose contracts to bigger players with long histories and stronger financial reserves.

    On the other hand, "Fitch's best guess for short-run market day rates is around $325,000 for ultra-deepwater rigs."

    I believe that's above ORIG's breakeven rate, so they may indeed be able to stay cash flow positive on operations. But at some point they've got to earn enough money to service their $4 billion in debt...

    Who knows if Fitch is right, but it seems like bondholders pricing in a chance of default, but not its certainty, are not at all dumb.

    I'm staying long, considering this a bet that could go to zero or pay off very handsomely.
    Sep 26, 2015. 01:08 PM | Likes Like |Link to Comment
  • WSJ: Smaller oil and gas producers brace for credit line cuts [View news story]
    bbro: I remember once you posted data about the size of the high yield energy debt market in the US, and about debt in the shale patch. Do you know where I can find that data?
    Sep 16, 2015. 06:52 AM | Likes Like |Link to Comment
  • Buy The Fear Now: Powerful Year-End Rally To 2250 On The S&P 500 [View article]
    Robert, what do you think of the Canadian banks?
    Sep 12, 2015. 08:37 AM | Likes Like |Link to Comment
  • Seadrill Discusses Current Conditions In The Offshore Drilling Industry [View article]
    The costs of deepwater's main competitor, North American shale, are falling quickly too.

    We need more recent estimates than October 2013 to make educated guesses here. If Seadrill is still waving around this chart two years later, then my guess is that more recent numbers may not show such a significant cost advantage for deepwater compared to shale.

    I am, however, just guessing here.
    Sep 9, 2015. 11:33 PM | 1 Like Like |Link to Comment
  • Ocean Rig Looks Interesting At Current Levels [View article]
    "right now ORIGs assets cannot operate profitably at $45/bbl so it might be hard to justify they cover the $4.8 billion dollar debt. "

    Anyone have an estimate of how much the price of oil has to recover for ORIG's assets to operate profitably?

    It seems clear that if oil doesn't recover to a certain level by 2017 the company is going to be in trouble, but it's not clear to me what that level is.
    Sep 5, 2015. 03:32 PM | Likes Like |Link to Comment
  • How Long Will The Deflation-Driven Stock Market Correction Last? [View article]
    When I first saw this post, I thought you were agreeing with the quote, then I clicked the link... Thanks as always for your concise and data-driven comments, bbro.
    Aug 27, 2015. 06:59 AM | 1 Like Like |Link to Comment