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The long case for drillers



June 14, 2010 – Comments (3) | RELATED TICKERS: NE


As I have mentioned in previous posts, I have become very interested in investing in drillers lately after this Gulf disaster absolutely hammered a number of stocks in the sector.  I just picked up some bonds with relatively short maturities that are currently yielding around 8.5% in real life this morning.  

I am being careful not to mention the names of any specific companies that I am considering taking real money positions in in my blog because I don't want to freeze myself out of them (I have to abide by TMF's blackout rules).

I just came across an excellent long case for another driller a little while ago on the fantastic Rational Walk blog: 

Noble Corporation Profile and Analysis

The piece is definitely worth a read.  While it specifically talks about Noble (NE), much of the general information in the article and the thought process behind buying a driller right now can be applied to the rest of the sector.  

I added NE to my CAPS portfolio ten days ago.  Barring any unforeseen draconian drilling restrictions issued by the U.S. government it appears as though I may have gotten lucky and come pretty close to picking the bottom for this company, it's stock is already up nearly 12% since my green thumb.  Time will tell.

Here's the summary of the author's, Ravi Nagarajan, case for buying stock in Noble:


Noble Corporation appears to be in a well diversified position from a geographic standpoint and has delivered solid financial results with minimal leverage in recent years.  Free cash flow is impressive relative to the current market capitalization of the company which reflects no premium on reported book value as of March 31, 2010.  The company should be protected to some extent in the near term by contractual terms associated with the six deepwater Gulf of Mexico rigs. Chairman and CEO David Williams has indicated that all contracts have force majeure clauses but whether these clauses will come into effect is not known at this point.

In the long run, it is likely that the United States government will again allow deepwater drilling, albeit with tougher regulation.  In the event that an extended moratorium exceeds the lengths of Noble’s current contracts, the company should be able to eventually redeploy assets in other parts of the world. 


3 Comments – Post Your Own

#1) On June 14, 2010 at 10:58 AM, TMFDeej (97.48) wrote:

You have to scroll down the page a bit to get to the Noble post in my above link.  Here's a direct one:


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#2) On June 14, 2010 at 11:01 AM, obsoleteaccount (< 20) wrote:

Where can I find bonds with such a sexy rate of return?

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#3) On June 14, 2010 at 11:25 AM, TMFDeej (97.48) wrote:

I use Charles Schwab, but most brokers have a system that enables people who have accounts with them to query a list of the available bonds using a specific set of criteria.  I can't discuss the specific company that I bought the bonds for, but it should be pretty obvious if you run the query.

The notes that I bought today were in one of my son's college funds.  I was playing around with a simple query looking for the highest yields to maturity for with paper a maturity date of less than 11 years, regardless of the Moody's or S&P rating (because the ratings are essentially worthless).  Unfortunately, Schwab restricts sales through the system to "investment grade" paper HAHAHA whatever that is.  There's some issues out there right now that have higher yields than AIG.

On a related note, I am pleased to announce that my International Lease Finance (AIG subsidiary) that I purchased at the height of the credit crunch with insane yields matures tomorrow.

I love bonds, but rates are so disgustingly low right now that one has to be very selective in what they purchase and snap up higher yielding opportunities when they present themselves. 


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