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Special Sale on Deepwater Drillers



June 08, 2010 – Comments (5) | RELATED TICKERS: NE , ATW

While I have decided to stay away from any of the companies that are directly involved in the Gulf spill, I recently have become very interested a number of drillers and I added several of them to my CAPS portfolio a week or so ago.  These companies became significantly more attractive this morning after they were downgraded by Goldman Sachs:

Deepwater Drillers: Analysts Cut Bait

Goldman Sachs analysts led by Daniel Boyd say they’re now expecting the current six-month moratorium to stretch into 12 months. Things could be slow enough that drilling activity won’t be substantial again until 2012. With that in mind, Boyd removed his firm’s “buy” rating on shares in Transocean and Noble Corp., and hacked 28.7% and 15.5%, respectively, off Goldman’s estimates for each company’s 2011 earnings per share. A “sell” was slapped on Diamond Offshore and Atwood Oceanics, which also took similar estimate cuts.

If only I had added ATW to my CAPS portfolio this morning instead of late yesterday @#$%^*  :).

Goldman probably winked at someone through a hole in its special firewall that it put up between its analysts and traders and issued the downgrade so that its prop desk could snatch up shares of these companies on the cheap...kidding (only somewhat).   

So GS thinks that it will take six months to a year longer for these businesses' drilling activities to ramp back up after the Gulf moratorium.  Six months to a year?  That's it?  Why would you sell a company for a temporary blip on the radar like that?  Oh that's right, most of the trades on The Street nowadays last tenths of a second.  To me, companies in this sector that have solid balance sheets are buys today. 


5 Comments – Post Your Own

#1) On June 08, 2010 at 11:33 AM, TMFDeej (97.65) wrote:

Phew, It's a good think that I never added Diamond Offshore to my CAPS or real portfolios. 

Diamond Offshore Falls After Report of Gulf of Mexico Oil Leak

You know what bugs me the most about DO?  The massive dividend that everyone always cites when they talk about the company.  

Yes Diamond has returned a lot of money to shareholders in the form of dividends over the past couple of years, however the company does not officially pay a huge regular dividend.  These are special payments that DO issues.  

Any event that causes the company to need to conserve cash, say oh I don't know a moratorium on drilling or even worse a spill at one of its rigs, could have a significant impact upon the company's willingness to pay a dividend to shareholders.


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#2) On June 08, 2010 at 12:17 PM, Gemini846 (34.27) wrote:

Land drillers have been gaining slightly since this fiasco started, but many of them were overpriced to begin with.

There may be opportunity in the equipment and services sectors. I haven't really done much research on these companies, but if regulations come down producers are going to be fixing potential issues sooner than later.

BP may be in the dog house now, but the next guy with a leak is really going to get it.

I'm looking at HLX, BPZ, HK, XEC et.

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#3) On June 08, 2010 at 12:36 PM, leohaas (30.06) wrote:

Agree 100%, so I copied some of your picks. Thanks!

I am considering to use real money here...

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#4) On June 08, 2010 at 12:45 PM, obsoleteaccount (< 20) wrote:

considering obama is going to  'kick ass', i would wait a few months before using real money

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#5) On June 08, 2010 at 2:01 PM, cbshort (83.38) wrote:

When the well is capped you may get a short squeeze.  However, deepwater drillers will feel the financial effects of this for a few years until they can redeploy assets.  Furthermore, tarbirds, who continue to dominate the news, will continue to put downward pressure on drilling stocks.  I think you can play a bounce here, but the trend for the remainder of the year will be to the lower right.


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