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Another opp;ortunity, SDRL

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January 28, 2014 – Comments (10) | RELATED TICKERS: B , O , OB

I love sector/stock attacks by shorts.  It creates opportunity.  Last year you were given several. 

First the AG sector with the Russian potash cartel breaking up.  The potash stocks got crushed.  Yet there was your buyin.  POT at $28 now low $30.

Next was the attack on LINE and BBEP collaterally.  Knocked LINE down to low 20s and BBEP under $15.  There was your buyin.  LINE now low $30s and BBEP over $20.

Then there was and still continues to be an attack on QCOR.  It got knocked down to $50 a few times yet at mid $60s.

Now you have the attacks on oil rig stocks with a ridiculous analysis from Barclays' James West and Zachary Sadow.  You can't treat all rig operators the same.  They are not.  SDRL concentrates on deepwater rigs and offers the BEST rigs.  Integrateds have little choice but to drill deeper to replace reserves. These boobs at Barclays try to scare people into thinking SDRL will now drop to $11-16 all while paying a distribution of at least $4 for 2014.  Really?

Here's your chance to play SDRL.  Buy the stock, sell puts, buy calls.

Buy low sell high.  Well you are seeing lows now so what do you do?  Buy.

10 Comments – Post Your Own

#1) On January 28, 2014 at 8:53 PM, awallejr (79.68) wrote:

grrr ;

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#2) On January 29, 2014 at 1:04 AM, VExplorer (29.65) wrote:

 I like RIG's Free Cash Flow vs. SDRL's. So, I'm selling RIG puts.

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#3) On January 29, 2014 at 9:24 AM, ElCid16 (96.80) wrote:

Awalle - since 2009, SDRL has generated a cumulative total of $7.1B in operating cash flow, but has spent over $10B on new capital investments.  They haven't had one year of positive free cash flow in 5 years.  I really don't understand why this company is paying a dividend, at all.

Also, I hope all that capital investment pays off - they now have a debt level that's nearly as big as their market value... 

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#4) On January 29, 2014 at 3:24 PM, awallejr (79.68) wrote:

Well Fredriksen's plan was to build out a super modern fleet utilizing low interest rates while he can.  So far there has been high demand for SDRL's ultra deep water rigs. They are simply the best. They monetize fast since they are the only real way for the integrateds to drill deeper.  People pay more for Cadillacs than Fiat 500s for a reason.

You can check out its website for its fleet and build info.

 

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#5) On January 30, 2014 at 5:57 PM, YoungNGunnin2 (< 20) wrote:

First off, Nice move with the tickers lol.

 This almost seems too good to be true, however I do not believe it is!  I will be making an investment in this company here shortly.

I do not believe this company's debt is an issue, and here is why.

There are currently 20 ships under construction.

6 of these ships under construction are to be completed this year(2014).

 4 of these ships can operate in water depths of 12,000 feet, and drill in 40,000 feet.  These 4 ships can operate in depths FAR greater than majority of the ships currently being contracted out.  The ships that are currently operating these levels(completed in 2013)  are being contracted out at a DAILY rate of $565,000.00 US PER DAY(sometimes more).  These ships are contracted out for years at a time.  Let me do some simple math. 

565,000 * 365 =  206 million dollars PER SHIP PER YEAR.

Holy crap batman!!

(they currently have 69 units in the fleet)

Their ships currently being constructed due to be out on the water this year(some sooner than later) should by theory bring in over 1 billion in a year.

6/75 = about 8% of their fleet bringing in over 1 billion in one year. 

Be advised some of these ships that are under construction ARE ALREADY UNDER CONTRACT!!!!

Let's go ahead and say that their debt may have been leveraged against them by the contracting companies (exxon BP, Chevron, and whatnot)  There could very well be a day rate increase on their brand new top of the line products.

Now if you'd like to see where I got this information from, here's the link from their website which provides a nice easy to understand spreadsheet which lists their entire fleet, both in construction and currently operating. Who has which ship and how long their contract is for, what the day rate is, and when construction of newer ships is expected to be completed.

http://www.seadrill.com/stream_file.asp?iEntityId=1555

Now for the dreaded technical analysis:

Well there isn't much to see here, there are a few things here that would indicate some good signs.  One of them being is there has historically been resistance at about $36.00 and it seems to have worked in this situation!  Also the OBV volume indicator is on a solid uptrend and today it finally closed bullish on some of the highest volume this stock has ever seen.  RSI is in the perfect range, hooking up along with the Slow Stochastic indicating it is oversold.  And the stock has bounced or is bouncing off of its lower bollinger bands.   I would say in this particular instance, if you were to go the technical route, you would have to comepletely ignore every single possible moing average you could think of. 

Needless to say, this company's assets seem to outweigh their debt, which would explain why banks are offering them low interest rates on huge sums of money. 

 I would like to write more but I'm already boring myself, but not really this is a sexy stock with a wicked freakin huge dividend guy. 

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#6) On January 30, 2014 at 6:39 PM, awallejr (79.68) wrote:

Thanks Young.  Many like to lump all rig drillers together when they are quite different. People have this "overbuilt/oversupply" mentality like those 2 boobs at Barclays except deep water rigs aren't.  The integrateds are too big to expand reserves by squeezing the oil out of rocks.  They need to find bigger and bigger reserves and there is really only one place left.  Deep water.

Using leverage can be dangerous or can create opportunity.  SDRL is creating opportunity by concentrating on these under supplied highly sought after rigs by the big boys.

I am usually a put seller but the other day bought 20 January 2016 $40 calls for $1.50.  Hopefully SDRL will be selling over $60 by then.

 

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#7) On January 30, 2014 at 8:29 PM, YoungNGunnin2 (< 20) wrote:

No problem bud, in fact thank YOU sir!!  As you said these are quality machines, if you look at that link I posted there is a reason why there are so few deep water rigs and also a reason as to why they cost more, and there is also a reason why some are already under contract before they are ready for operation.  Whoever is selling calls that cheap that far out must not be aware of the ships being constructed. I'd look at 2017 as well because all ships will be completed at that time. I can't believe it's only 1.50!  In fact I will be purchasing some in addition to a small sum(because I'm poor) to collect and drop the dividend back into call options occasionally and into more stock as well.  Thanks for putting this info out there because otherwise I would have not stumbled upon this opportunity.  Respect boss! 

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#8) On February 25, 2014 at 6:04 PM, awallejr (79.68) wrote:

Well again I say here is your buyin.  I do have to say whatever language they were speaking at the cc was not English.  That had to be the toughest transcript to understand.

They have decided to put the floor for the divy at .98 per quarter so $3.92 a year next 2 years.  They are confident this dividend is covered.  They are then setting up some kind of "additional dividend fund"  to be used as special divies or stock buybacks, at least that is how I understood it.

As for the business itself they seemed confident but it really was hard for me to understand most of what they were saying.

So with that said you have a company that will yield $3.92 for 2 years.  I'll take that instead of 1% from a CD.

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#9) On April 16, 2014 at 7:07 PM, awallejr (79.68) wrote:

Credit Suisse comes out with its outlandish comments on SDRL and then tonight Noble reports great numbers and gives strong forward guidance:

5:01 pm Noble Corp beats by $0.28, beats on revs (NE) : Reports Q1 (Mar) earnings of $0.99 per share, $0.28 better than the Capital IQ Consensus Estimate of $0.71; revenues rose 24.2% year/year to $1.21 bln vs the $1.19 bln consensus.

"We continue to believe the more guarded exploration and production spending pattern shown by some operators during early 2014 is temporary and that contract visibility, especially in the floating rig segment, is likely to improve as we progress further into 2014 and 2015. "Despite the current market dynamics, Noble is well positioned with limited near-term fleet exposure, a large revenue backlog, strong client relationships, well-timed premium rig additions with attractive contracts, a rapidly declining capital expenditure commitment and successful implementation of new operating systems and procedures that are driving improved financial performance. We continue to anticipate improving free cash flow in 2015 despite current industry developments. We believe the offshore drilling business remains fundamentally sound over the long-term and Noble is better positioned to address the opportunities expected with the next cyclical upturn with a more versatile and focused fleet run by skilled and highly competent crews."

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#10) On June 21, 2014 at 1:51 PM, awallejr (79.68) wrote:

For those who listened to me on the calls, you might want to profit take some but leave some to ride out into 2016.  I just have a strong gut feeling this stock will see 54 before expiration.

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