North Atlantic Drilling (NASDAQOTH:NATDF)

CAPS Rating: No stars

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Member Avatar LouPinella (< 20) Submitted: 12/31/2012 7:10:01 PM : Outperform Start Price: $1.61 NATDF Score: +70.61

First off, don't believe the score -- CAPS still hasn't accounted for the 1:5 reverse split, so instead of a $1.91 pick going to $10.66 (as of writing), it's actually only up to $2.13. If only my brokerage had made the same mistake of neglect...

Anyway, NATDF -- soon to be NADL, and off the pink sheets (wonder how long it'll take CAPS to figure =that= one out?) -- is a drilling company, with one drillship, three harsh environment jack-ups, and three semi-subs (plus one "controlled by" Seadrill but operated by NADL, and one more drillship under construction). Except one semi-sub in the UK, all the rest are currently operating in Norwegian waters.

--Another Fredrickson company, and boy does that guy love dividends.
--Seadrill parent makes it unlikely (?) this one's going to go bankrupt.
--All the pros of oil & gas, plus a specialized fleet (harsh environment rigs, meets Norwegian environmental standards) which gives it an extra moat against potential industry overbuilding. You can't drag any old jack up out of the gulf and put it in the North Sea.
--Arctic drilling appears to be on the up-and-up; for now NADL is just in the North Sea, but Shell's adventures in Alaska and Exxon's in Russia highlight a potentially huge market build-up.
--Small fleet means a large dividend boost for every additional rig brought into the company.
--Based in Bermuda, technically, so comes with a favorable dividend tax policy (living in the US, I haven't seen anything withheld from my dividends).

--As per the last conference call, there is some investor concern that NADL is becoming the red-haired stepchild in the Fredrickson family. Seadrill management has been working hard on SDLP (which they want to be "one of the fastest growing MLPs out there", or similar phrasing) possibly at the expense of NADL. One option for a semi-sub (West Mira) was allowed to expire, right before nailing a great contract from Husky -- potentially > $600k / day. SDLP now has dibs on that semi-sub.
--You'd think their dayrates would be great because of the specialized nature of the fleet, but you'd be wrong. For semi-subs, their 1986 rig earns more than their 2000 and 2008 newbuilds ($482k / day versus $445k and $453k, respectively). That 2008 rig's dayrate is almost $100k less than their last contract, too. Similarly, their drillship is taking a paycut for the next year and a half (going from $620k to $586k, starting Jan. 2013).

Both Pro and Con??:
--Soon to be traded on the NYSE; I do not pretend to know if it'll go up or down, but it'd be nice if I'll now be able to reinvest those dividends.
--Small cap.
--Tightly controlled and managed by Seadrill.
--Pretty quiet company; they don't have a raft of newbuilds and new contracts and exciting things happening (like Seadrill), so it seems unlikely to pop or doing anything crazy. In fact, the only apparent things which will change and directly impact cash flow in 2013 appear to be the drop in their drillship's dayrate by $34,000 / day, partially offset by the new revenue they'll get from operating Seadrill's semi-sub (West Hercules) -- about $27,000 / day. In other words, 2013 earnings potential appears flat. Any announcements about newbuilds, contracts, or fleet additions could give a nice pop to the share price but probably wouldn't actually affect revenue for many quarters. From their 3Q 2012 results, "The Board is confident that attractive opportunities to grow the fleet and increase the backlog will arise within the coming months." Sounds good, but that dividend doesn't look like it's going anywhere soon... (I'd love to be wrong.)


Member Avatar Raufus (< 20) Submitted: 11/14/2012 10:00:58 AM : Outperform Start Price: $1.65 NATDF Score: +62.27

North Atlantic Drilling Ltd., in which Seadrill has a 75 percent ownership, has a strength relationship with Statoil.

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