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  • ENI Terminates The Ocean Rig Olympia Early Due To Dramatic Fall In Oil Prices  [View article]
    Many thanks for such a well-reasoned reply, Fun. The question is indeed if $65 oil would be enough to make deepwater come back in a big enough way to get all these idle rigs back to work at appealing dayrates. I don't feel qualified to answer that, but if I did feel confident that the answer was yes, I'd be buying ORIG hand over fist...

    Best of luck to you! You're extremely generous with your time and research and I really appreciate that.
    Feb 7, 2016. 04:01 PM | Likes Like |Link to Comment
  • ENI Terminates The Ocean Rig Olympia Early Due To Dramatic Fall In Oil Prices  [View article]
    Fun, TW, Adec, MrD

    Isn't the basic problem here that ORIG's business model -- load up on debt to buy top-of-the-line rigs that can command top prices in order to get at hard-find-oil in the Arctic, ultradeep etc -- is broken unless oil gets over $80 and shows signs of staying there?

    Yes, offshore tendering will return when oil gets about $50 and E&P companies are convinced that it will stay there. But it will be mostly shallow and relatively uncomplicated deepwater, for which older, cheaper rigs will do just fine.

    Since right now the consensus is that oil will not get over $80 before the end of the decade and may stay closer to $60, ORIG's business model is shot. No one will need to pay premium prices for premium rigs. Then maybe ORIG can meet its debt payments in 2017 and 2019, maybe it can't, but it clearly can't keep going forever if, as the consensus suggests, $100 oil was a temporary aberration that ain't never coming back.

    The companies that will do best in this environment are those with worse rigs and better balance sheets.

    Now, the consensus is often wrong, and the way you make big money is to be on the other side of a big trade, so if indeed oil explodes in the next year or two, ORIG shareholders will make a fortune. If you are confident about that, and it sounds like most of you are, then ORIG is a great idea.

    But the stock market price reflects the consensus, whether or not that consensus is wise, so I think there's your explanation for the crash in the stock price. Bonds are trading at levels that indicate a risk of default, so this consensus is widespread.

    I also don't understand why you all think GE has such a big motive to save the equity. If the situation continues as it is right now, Henrik's scenario makes sense: save the cash to bring the company through bankruptcy in good shape, then do a debt-for-equity swap that essentially leaves him, in return for a modest amount of new cash, majority owner of a company with no debt.
    Feb 7, 2016. 06:52 AM | Likes Like |Link to Comment
  • Ocean Rig - Target Price Is Zero  [View article]
    Vladimir,

    Great article, thanks for it. What do you think about some of the suppliers for off-shore that are also active in shallow waters? I'm particularly curious about TDW (Tidewater), if enough bad news is already baked into that share price.
    Feb 4, 2016. 07:11 AM | Likes Like |Link to Comment
  • ENI Terminates The Ocean Rig Olympia Early Due To Dramatic Fall In Oil Prices  [View article]
    Thanks for taking the time to respond in such detail, Fun. You're extremely honest and generous with sharing your time and research, and I appreciate it.

    I guess it indeed comes down to whether or not you believe what the professionals say (including about alternative energy) or not. If you do believe them, ORIG is in trouble. But indeed, the professionals are often wrong...
    Jan 27, 2016. 02:47 AM | Likes Like |Link to Comment
  • ENI Terminates The Ocean Rig Olympia Early Due To Dramatic Fall In Oil Prices  [View article]
    Fun, Henrik,

    For me the question is whether or not we're in a new normal for oil prices: not $30 / barrel forever, but say $60-$80 in a few moniths or a few years. Offshore certainly is viable at those prices, but probably not ultradeepwater and arctic, and maybe not all of the deepwater fields either, especially since, given the recent evidence that extreme volatility is possible, E & P companies will prefer developments where they can recoup their investments pretty quickly -- and a lot of deepwater needs years of production to recoup the investment.

    I was just at Davos and went to a couple of sessions on energy. What I heard again and again were oil CEOs saying, "From now on we're just going after the easy oil." Of course they can't foresee the future very well, they've proved that, but that will be their guideline until the scenario changes.

    ORIG can clearly survive another year or two, but in the scenario I outline above, the advantage of its modern rigs is limited, and the disadvantage of its debt is bigger. Can it even survive?

    I sold my ORIG holdings at a big loss last week because I don't feel capable of answering that question (and I could use the tax loss) though I may enter again later -- but without any illusions that I'm doing anything other than gambling.
    Jan 26, 2016. 02:53 AM | Likes Like |Link to Comment
  • Seadrill - Per Wulff's Interview Flashes Red Lights For The Drilling Business, Is There A Silver Lining On The Horizon?  [View article]
    Henrik,
    You think that's true even for the more solid players in the sector, like Ensco? I'm wondering if it's time to take a tax loss and look to buy back after 30 days...
    Jan 15, 2016. 12:39 PM | Likes Like |Link to Comment
  • Bakken Oil Well Productivity In The First Half Of 2015 And The Outlook Going Forward  [View article]
    Hi Karl,

    So is the takeaway here that shale in general has seen its best days, and won't prove to be the swing producer and competitor to offshore that many analysts expect? Or am I generalizing too much?
    Jan 13, 2016. 01:36 PM | 2 Likes Like |Link to Comment
  • My Take On The Offshore Drilling Industry Going Forward - Part II - Sifting Through The Wreckage  [View article]
    Hi Henrik,
    Do you have any thoughts on some of the suppliers, TDW and NOV? But I take it you think the whole industry and anything related is going to be bad news for a while.
    Jan 7, 2016. 04:58 AM | Likes Like |Link to Comment
  • Oil: Could Have Been $200 In 2008; Might Reach $20 In 2016  [View article]
    Great article as always, Tom! I've got some positions in the offshore drilling industry that are heavily in the red. With 20/20 hindsight... But I am trying to use these losses as tuition to remember that I am not smart enough to guess when a highly cyclical industry is going to bottom.
    Jan 5, 2016. 09:10 AM | 1 Like Like |Link to Comment
  • My Take On The Offshore Drilling Industry Going Forward - Part I - The General Picture  [View article]
    Really interesting link, David, thanks for sharing it. So it looks like the average breakeven for shale is $60-$70. If U.S. shale has indeed become the swing producer, then $60-$70 the limit for how high oil prices can go when supply and demand finally come into balance. That probably keeps ultradeepwater off the table pretty much forever, no?

    I also found it interesting that Exxon's shale subsidiary is one of the very few that appears to be making money. Those guys at Exxon are smart.
    Jan 4, 2016. 04:38 AM | Likes Like |Link to Comment
  • My Take On The Offshore Drilling Industry Going Forward - Part I - The General Picture  [View article]
    Petrobras claims the reserves are profitable at $45 / barrel.
    http://bit.ly/1ZFVxQR
    Whether or not you want to believe Petrobras management is a different question. But they have repeatedly reaffirmed that they are pushing forward on developing these reserves. If Sete Brasil, a Brazilian driller with a number of rigs being built in shipyards but none operational, folds as is quite possible, Petrobras will have to contract more rigs abroad.

    But there are a lot of "ifs" here, I'm not making any forecasts.
    Jan 2, 2016. 06:36 AM | Likes Like |Link to Comment
  • My Take On The Offshore Drilling Industry Going Forward - Part I - The General Picture  [View article]
    Excellent article, Henrik, and I say this as someone who is regrettably long several companies in the offshore drilling industry.

    A question: you say shale oil's economics is better than OSD. It is obviously more flexible, but do you have any stats that show it's cheaper? I've seen several posters on SA suggest that a lot of shale drilling was cash flow negative even at much higher oil prices, and at least some of the shale oil companies were dependent on high oil prices and cheap capital to survive.
    Jan 1, 2016. 07:36 AM | 2 Likes Like |Link to Comment
  • 3 Offshore Drillers To Invest For An Eventual 2017 Recovery  [View article]
    Fun,
    Do you follow the OSD suppliers too, companies like TDW and NOV?
    Nov 20, 2015. 08:39 AM | Likes Like |Link to Comment
  • How Patient An Investor Are You?  [View article]
    Great article, Cam. I personally think Bruce Berkowitz is currently one of those great managers getting punished for his deep value style, but he seems to be sticking to his guns despite investor flight.
    Nov 4, 2015. 03:51 AM | 3 Likes Like |Link to Comment
  • Weekly Market Update: The S&P Charges Higher, China Isn't Imploding, And Earnings Season Is Underway  [View article]
    You think we're nearing a bottom? Were new technologies such as shale as big a part of the mix in the previous downcycles?
    Oct 31, 2015. 06:40 AM | 2 Likes Like |Link to Comment
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