OIL RIGS Part II
Alright, for those of you who read my last blog, there were some questions about specific companies and just on the industry in general. I will try to flush out these topics in this blog. You should read the previous blog before this one to get an intro into the industry.
There are so many offshore drillers out there and I was looking for indicators to find winners. Through research, I came to the conclusion in my previous blog that the most important thing to look for in drillers was future lease contracts.
After further research, I found that there is more demand for deepwater drilling than shallow drilling. Almost all the drilling companies state this on their 10Qs. Also looking at the future contracts, the deepwater rigs have contracts farther into the future. Nearly all of the drilling companies are adding new deepwater rigs to their fleets. But these projects take several years to complete, so the next few years at least should be strong for deepwater drilling. Deepwater rigs also have much higher dayrates and margins.
Things for a good driller:
1. Contracts far into the future to protect current earnings until oil prices rise again.
2. Drillers with many deepwater rigs because higher demand and better margins
Now I will delve into some specific companies that were requested. Do your own research ifyou are considering buying. It really is not that hard of a business to understand. Just grade the companies on the above criteria and pick your favorite.
First of all, I would like to thank rd80 for correcting me about RIG. They do have vey nice clarity about their contracts, I just didn't see them on the 10Q.
I will now attempt to rate the drillers based on what I found. Starting from the bottom.
7. PDS. Their shares have taken a huge haircut. They are trading extremely discounted relative to other drillers. However, looking breifly through their quarterly report, they seem to have some financial troubles. They had a secondary offering and seem to be trying to raise capital which is a very bad sign after coming from record oil prices. Oil companies should be rich with cash. They also do not do ocean drilling, they do land drilling which is an oversupplied market and contracts are falling through the roof. They are a trust. I don't know what this means for them, but I think they need to make more cash distributions. I would not recommend buying them unless you discover why they are priced so cheaply. I did not spend much time researching them, so you may see a completely different story
6. HP. They have 75% land rigs, which is not where you want to be in this market. Their contracts are not as strong because they have land rigs. They aren't even trading at much of a discount relative to deepwater drillers.
5. ESV. They are priced relatively cheaper than other drillers because they have almost all shallow water rigs, which is not as strong as deepwater contracts. They state that the deepwater demand is much higher.
4. RIG. They are the most diversified and largest driller. If you look at their rigs under construction, they are all deepwater, again proving that the demand there is strongest. They have relatively strong contracts.
3. NE. Also has a good fleet distribution with several deepwater rigs. Fair valuation. Contracts are sort of weak for having so many deepwater rigs which may be of concern. I really like the insider buying and the excellent timing on their buys.
2. DO. They are rightfully priced higher than all the drillers. They have the best fleet. Most of their fleet is in deepwater and their contracts are very strong, 75% of fleet is contracted through 2010. I would put them at a very close second to ATW.
1. ATW. 66% of revenues come from deepwater and 2 new deepwater rigs are coming online 2011 and 2012. This will increase their deepwater fleet from 4 to 6, a big jump. Currently, 4 out of 9 of their rigs are deepwater. Strong contracts going forward, with 75% of the fleet contracted out through 2011.
I didn't reread it, so don't mind grammar and spelling mistakes.
I hope this was helpful. Comments and questions are appeciated. Check out my first blog on drillers also.
Be sure to give a rec ;)