life_in_the_oaks
17 years ago
Hi Spleen, been busy with day job, sorry I missed the post.
I have a long post here, so beware.
I still have 2/3 of my VLO, sold some around 57, thought I would get a better drop after the asia stuff, but did not. I put the proceeds in Verizon for time being, up about 4% there. Added more VLO afterward with some year-end bonus/option money.
Averaged down in GSF for some more. Agree about the frustratingly low dividend, but I believe part of that is in line with the goal of buyback, so they are probably trying to keep ample dry powder for right now.
I almost dumped my U.S. drillers, and fortunately, got to busy to follow through. Back up to positive, except for Pride.
The Hercules/Todco deal woke people up, and as you noted, Cramer has been positive on the sector.
Anyways, current holdings:
SDRLF: 5850 @ 12.84 (added 350 shares) Looking for 20 to 25, depending on re-capitalization, currently 16.25
VLO: 1750 @ 53.73 (sold 1370 shares, added 820) Looking for 65 - 70, currently 62.88
ESV: 200 @ 52.94 Looking for 60 - 65, currently 55.46
GSF: 160 @ 61.21 (added 60, also did swing trade with 200 shares from 56.78 to 58.50....oops, should have kept them) Looking for 70 - 75, currently 62.44
PDE: 190 @ 31.91 Looking for 40 - 45, currently 31.16
Consolidation speculation is helping drive interest, definitely, but I might still start placing some trailing stops. I also need to consider going after the most likely single target for acquisition, and consolidating there..... diversification protects wealth, concentration creates it, assuming I make the right pick.
But also....my SeaDrill holdings, and the stated acquisition goals made me look at driller targets, and if SeaDrill is showing shyness at these prices, I may step back from ESV/GSF/PDE entirely. The prices will probably be lower after the summer, and more likely to be deal candidates again. Hard to say. I will post within the week with my best guess.
SDRLF moved off a 100% consolidation goals to its first suggestions of recapitalization, which was the potential equity re-coup I mentioned before. Again, a pinkie with low volume, so it is tough to get decent pricing and trade execution, so not for the faint of heart.
I also might dump my VZ before it goes ex-div, and see if I can pick it up on a bigger drop. I am becoming a little skittish on the economy in general, so I am looking to keep a tighter rein on my portfolios, with regard to locking in gains.
Fun stuff, eh?? Best of luck to you.
LITO
life_in_the_oaks
17 years ago
Thanks for the feedback, thespleen.
Not so much a dividend junkie as something I use as an added "hedge" bonus on anything I feel is undervalued. The drop on the ex-div date is always frustrating, so I am now more likely to sell prior to the dividend, and buy back after, since it seems the price usually falls more than the divvy (computer programs possibly contributing based on a perceived drop in PPS).
Currently holding in the oil sector:
SDRLF - 5500 @ 12.70
VLO - 2300 @ 51.85
ESV - 200 @ 52.94
GSF - 100 @ 61.36
PDE - 190 @ 31.91
Also a tad of internet with AQNT (probably letting that one go shortly), and some pinkies.
Refining:
VLO - I have faith that VLO is okay long term, and I believe a 1 year target of $75 is very achievable. I feel their refining capabilities in sour crude has positioned them to continually buy lower price oil and capitalize on the higher market prices for refined product. I do wish I understood the connection with VLI and VEH better....working on that. Only concerns are politics with recent election results.
Drillers:
The small positions in GSF, ESV, and PDE are as of 12/7/06. I am spreading out in the U.S. space based on potential consolidation, and increasing demand (and higher rates cause of that) for drilling.
SDRLF I have been in for a while, and added alot more on the latest downturn. Two items, the consolidation aspect, and the majority owner, J Fredriksen, having a past history of big dividends. If he does with SDRLF what he did with FRO, could be huge. In that case, he set up a company SFL, bought out all the tankers through SFL, and leased them back to FRO. The cash was then paid back out to the shareholders through dividends.
As the acquirer, SDRLF would probably drop somewhat if they took GSF (or any of the others). I may take some SDRLF off the table and spread further into the potential targets.
Thanks for the information regarding other plays. You are absolutely right, conservative divvy plays. I am not yet at the point that I want to slow down my portfolio growth, but I will keep them in the back of my mind.
Please note; I promise shorter message in the future.
LITO
life_in_the_oaks
17 years ago
My interests in the oil production/transport/refining is a bit convoluted. I tend to get long-winded, so bear with me, and please note the other stocks I mention are not as pumps or solicitations, simply the path I went down.
I jumped into Frontline (FRO) as an undervalued dividend play when it came up as a board mention. As I researched further, the progression was clear that the majority owner, John Frediksen, was/had consolidated within the tanker industry, and then had re-capitalized the company for big dividends.
As I learned more on the industry, I realized that refining constraints were the biggest barrier to gas prices in the U.S. since tanker capacity was growing by 2006, and oil production was up. My research in refiners pointed to VLO as big upside; similar to your earlier GSF positions, I'd be better off if I stayed put, but I've got right now about 10% upside plus some realized profits in that ticker.
I moved into SDRLF as another Fredriksen company, hesitantly at first, then heavily about 5 months ago. I currently hold 5500 shares of SDRLF at an average cost of $12.70, trading today at $17.55. Not looking to move out of this position for a while, which I will explain below.
In terms of GSF, I currently hold 100 shares from 12/7/06. I am NOT looking short term through the next 6 months, mainly in relation to the consolidation possibilities, and hoping to add on the dips.
I would have bought more, but I went with spreading throughout the U.S. drilling sector. I am honestly (or hopefully) looking for a long-term play towards consolidation with Seadrill. Which in itself is not the goal, but J. Fredriksen has a tendency toward dividend production in his companies, and I look toward those possibilities as a recapitalization of the drilling industry into a dividend machine similar to the Frontline experience.
Either way, the utilization rates on the drilling rigs (jack up, submersible, etc.) are enticing in terms of high demand/low capacity for at least the next two years. Meaning higher rates, higher profits, and higher valuations.
So I am bullish long term on the sector, let alone GSF. GSF is more attractive in my opinion because of size, under-valuation to EBITDA and revenue, and lower debt-to-cash position.
I also think PDE is very attractive in terms of price reach of Seadrill, and may have upside.
So short term, IMO, the interest rates are subject to re-fi through private equity, inventory will reflect a cold winter, OPEC will at minimum support the current price of oil, and options will not/have not affected my planning thus far, since I am looking 6 months out.
Again, I am hoping for a consolidation into fewer players, thus driving rates up until capacity catches up, with the benefit or potential dividends from re-capitalizing the companies.
Sorry for the long post.
LITO
life_in_the_oaks
17 years ago
I actually meant to post this article in earlier message. This addresses what your broker has discussed.
The other article was about the high booking %'s that make all of those companies lucrative on an accretive takeover basis.
From Reuters...I place in bold the paragraphs outlining several targets.
US offshore driller consolidation expected in 2007
Thu Dec 7, 2006 1:16 PM ET
By Anna Driver
HOUSTON, Dec 7 (Reuters) - Tight demand, attractive valuations and a Norwegian company that has said it is ready to get bigger have sparked widespread expectation for consolidation in the U.S. offshore drilling sector in 2007.
Possible scenarios include a leveraged buyout by a private equity firm, large-scale recapitalizations or the acquisition of a U.S. driller by an overseas company, U.S. analysts said.
And a lot of industry attention is focused on Norwegian driller SeaDrill Ltd. <SDRL.OL>, which said in no uncertain terms in November that it was looking to grow by "creating a world leading offshore drilling company."
SeaDrill is controlled by Norwegian shipping magnate John Fredriksen, who analysts credit with the know-how and experience to make an acquisition work, citing his leadership in building tanker company Frontline Ltd. <FRO.N><FRO.OL>.
"SeaDrill is backed by an individual who helped consolidate the tanker market," said Poe Fratt, an analyst with A.G. Edwards in St. Louis. "They've already bought some companies and it looks like they may be on the verge of merging or acquiring a U.S. company."
SeaDrill also bought another Norwegian oil driller, Smedvig, earlier this year and has risen to a number six ranking worldwide since it was founded in May 2005, the company said.
LBO?
Offshore drillers are also seen as juicy targets for private equity firms who expect the companies' profit cycle to extend beyond 2009, a scenario that equity investors are not pricing into the stocks, analysts said.
"You've got such significant earnings growth and cash flow yield," said Pierre Conner, an analyst at Capital One Securities. "And the equity markets are pricing these stocks as if they peaked, assuming the cycle ends in 2009."
In addition, demand for rigs is expected to stay firm for the next several years, as many drillers are nearly booked.
"Rig availability is becoming very short and the customer is assigning contracts to use rigs well out into the future at very high day rates," A.G. Edwards' Fratt said.
Drillers' profits have surged and available rigs have become scarce and expensive over the past two years as oil and gas producers have spent heavily to take advantage of sky-high energy prices.
Bear Stearns analyst Robin Shoemaker recently wrote in a note to clients that Houston, home of many drilling companies, is said to be "crawling" with private equity firms looking to make deals.
But because U.S. drilling executives who have lived through boom and bust cycles are wary of merging with each other, a leveraged buyout or acquisition by a foreign company such as SeaDrill is more likely, analysts said.
The most talked about targets for consolidation include GlobalSantaFe Corp.<GSF.N>, Noble Corp. <NE.N>, Diamond Offshore Drilling Inc. <DO.N> and Ensco International Inc. <ESV.N>.
And any merger or takeover activity would likely boost the sector, as investors anticipate who might be next.
In a recent note to clients, Merrill Lynch analyst Alan Laws forecast "a 15 percent or more rise on an announced transaction." He added that consolidation among offshore drillers "is a real possibility in 2007."
So far this year, the Philadelphia Stock Exchange Oil Service index <.OSX>, which includes some drillers, has risen nearly 16 percent.
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LITO
life_in_the_oaks
17 years ago
Thank you. For now I'd like to just go with the flow, until I learn a little bit more about IHUB, and its rules/policies/politics.
As far as GSF, here is an interesting article about consolidation, copied below. Consolidation factored strongly into my investment strategy on this one.
LITO
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Weekly Offshore Rig Review: Jackups Locked In
RigLogix Thursday, December 07, 2006
As 2006 draws to a close, we are going to be looking forward at the prospects for the major segments of the offshore rig fleet in the coming years. We will start by examining the current level of future contracted time for the competitive jackup fleet and then comparing those numbers across the leading offshore drilling contractors' fleets.
More Contracts in Place
As a guide to current and future levels of rig demand, we'll be looking at the percentage of the jackup fleet that already had contracts and options in place for the following year by early December of the previous year. In the current instance, as of today, December 7, 2006, 69% of the available jackup rig time during 2007 is already contracted. Thus, of all the competitive jackups that are currently in the market and those that are set to be delivered next year, a significant majority of the days that those rigs will be available to work are already contracted.
Hypothetically, if all of the rig days that were already contracted were to be meted out as quickly as possible following the start of the year, there would be no jackup time available for new contracts until September 2007. Of course, this is not the way things actually work out, since some rigs are contracted the entire year and well into 2008 or even 2009 while other rigs are only marginally contracted and mostly available for work in 2007. However, this comparison illustrates the length of the current contract backlog that many rigs have.
As a reference to the past state of the jackup fleet, the table below provides a comparison of the percentage of next year's rig time contracted at the start of December each of the last three years. As can be clearly seen, as the amount of contracted time increases, day rates have climbed as well.
Year End Jackup Rig Demand Comparison
Date % of Rig Time Cont. For Next Year Avg. Day Rate For Next Year
Dec 7, '06 (for '07) 69% $125,358
Dec 7, '05 (for '06) 51% $78,796
Dec 7, '04 (for '05) 41% $52,844
We can look back at the percentage of jackup time for 2006 that was contracted as of one year ago. So, as of December 7, 2005, 51% of the available jackup rig time for 2006 was contracted. That is 18 percentage points below the current level of contracts in place for next year. Taken another way, there are 42% more contracted days currently in place for 2007 than there were one year ago for 2006.
Looking back another year to December 7, 2004, only 41% of the available jackup rig time for 2005 was contracted as of that date. That is 10 percentage points less than in 2005, and it is 28 percentage point fewer than today. Comparing the current level of future contracted time to the level in 2004, we can see that 81% more days are currently contracted for 2007 than were contracted for 2005 as of this day in 2004.
The obvious conclusion is that the level of jackup demand has increased significantly over the last two years. Additionally, during the last two years, the length of contracts has also increased noticeably, which has pushed contracts further out into the future. Along with the decrease in rig availability and increase in contract lengths, jackups have seen rapidly climbing day rates as operators have competed for rig time, as illustrated by the rising average day rates shown above.
The Companies Benefitting
With longer contracts, decreasing rig availability, and rising day rates, the jackup market is clearly a driller's market. Offshore drilling contractors now have more rigs contracted and are earning historically high day rates for those rigs. At the same time, some contractors have been more successful than others at garnering higher day rates and longer contracts.
The table below compares the level of future contracts among the drilling contractors that currently have at least 20 competitive jackup rigs. For each company, their current jackup fleet size is given, along with the levels of rig time contracted and the average day rates for those contracts for the next three years. These figures are based on the published contract information that is currently available in RigLogix and are not predictions.
Future Contracted Time by Manager
Current 2007 2008 2009
Manager Jackups % Time Cont. Avg. Day Rate % Time Cont. Avg. Day Rate % Time Cont. Avg. Day Rate
GlobalSantaFe 43 rigs 76% $150,537 55% $165,929 22% $168,719
Noble 41 rigs 82% $115,111 35% $124,795 15% $131,535
ENSCO 41 rigs 66% $138,578 38% $131,050 25% $133,398
Pride 27 rigs 52% $93,677 19% $97,340 11% $105,387
Transocean 24 rigs 88% $112,515 49% $134,314 29% $140,786
Rowan 21 rigs 65% $173,303 50% $167,554 23% $167,616
All Others 124 rigs 66% $108,750 38% $118,678 25% $96,387
World 321 rigs 69% $125,358 40% $137,218 22% $129,037
Looking at the table above, it is clear that Transocean has been the most successful at locking its jackup fleet into contracts for the next several years. With 88% of its jackup rig time for 2007 already contracted, Transocean will have its jackups working at near capacity throughout the year with little time for new work. At the same time, Transocean has only the fifth (out of six) highest level of day rates, which are about 35% lower than the day rate leader among this group and 10% below the worldwide average. It appears that Transocean has sacrificed per rig revenue in favor of longer term contract stability.
However, looking at Rowan's jackup fleet, it appears that sacrifice is not entirely necessary. While Rowan has one of the lower levels of contracted time for 2007, it does have the second highest level of contracted time for 2008. In addition, the company has the highest average jackup day rates of any of the leading offshore drilling contractors. That combination should lead to strong revenues for the company in 2007 and 2008.
At the other end of the spectrum, Pride has the lowest average day rates and the lowest level of contracted time among these leading contractors. For operators, Pride's jackup fleet presents a relative bargain by comparison to other contractors, and with almost half of the company's rig time during 2007 not yet contracted, there is plenty of opportunity to hire Pride rigs during 2007 and beyond.
Conclusion
As can be seen, the future of the jackup market and the future revenue potential for the offshore drilling contractors looks strong for the next several years. Compared to the last two years, a much larger portion of the available rig time over the next two years is already contracted. This means that the demand for rigs is strong, and many rigs are already set to work. Even with the ongoing slowing in jackup demand and day rate increases, the jackup fleet has a bright future.
For More Information on the Offshore Rig Fleet:
RigLogix can provide the information that you need about the offshore rig fleet, whether you need utilization and industry trends or detailed reports on future rig contracts. Subscribing to RigLogix will allow you to access dozens of prebuilt reports and build your own custom reports using hundreds of available data columns. For more information about a RigLogix subscription, visit www.riglogix.com.
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frenchee
16 years ago
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