DeBeurs.nl

Gaston Lagaffe 30 augustus 2017 10:21

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Gegevens over Transocean in de maand september, bedankt voor de ca. 700 bezoeken in augustus (1/2 maand)

Gaston Lagaffe 31 augustus 2017 13:00

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Als we de Conference Call nader bekijken dan zien we toch enkele interessante zaken. De verschillende analisten zijn niet (zeer) negatief over de geplande aankoop van Songa Offshore, dit in tegenstelling tot de markt/enkele publicisten. Uit de Conference Call, maar ook uit andere stukken, blijkt dat Transocean naar verschillende andere drillers gekeken heeft (o.a. Atwood Oceanics) maar uiteindelijk bij Songa uitkwam vanwege de volgende punten :
1 = 4 jonge Harsh Environment semi subs (CAT-D), een sector waar men in wil groeien
2 = aanzienlijk orderboek (backlog) groot $ 4,1 miljard welke een basis levert om aan huidige verplichtingen te blijven voldoen
3 = opdrachtgever Statoil is een belangrijke investment grade opdrachtgever, met name in Noordzee
4 = management / aandeelhouders Songa Offshore waren tot verkoop bereid

Al met al lijkt met mij een dure maar goede overname. Door de forse uitbreiding van het aandelenkapitaal (max + 30%) zal het winst/herstelpotentieel (upside)voor bestaande aandeelhouders dalen, maar ook het risico op een herstructurering met een nagenoeg totaalverlies voor huidige aandeelhouders (downside) daalt. (zie situatie Oceanrig en Seadrill = opgelet is NIET Seadrill Partners !!). Transocean zal de moeilijk periode, welke m.i. minimaal tot 2019 zal duren, moeten zien te overleven zonder een herstructurering. Hiervoor is een ruim / passend orderboek (backlog) nodig. Tegelijkertijd dient Transocean van de situatie gebruik te maken voor het versterken van hun positie (uitbreiding Harsh Environment segment).

Additionele risico's / kansen overname Songa Offshore :
De CAT-D semi subs zijn gebouwd in 2015 door Daewoo maar de oplevering /het in gebruik nemen verliep niet vlekkeloos. In 2017 werd tijdens een arbitrage zaak (voorlopig) Songa Offshore in het gelijk gesteld. Het betreft een claim van $ 350 a $ 400 miljoen. Een definitieve uitspraak ligt er nog niet dus dit kan nog voor een (negatieve)verrassing zorgen

Het contract dat Songa Offshore met Statiol heeft kan mogelijk door Statoil opengebroken worden daar men nu met een andere eigenaar / uitvoerder te maken heeft. Transocean denkt dat dit niet zal geburen maar de toekomst zal het leren.

Als ik het goed begrepen heb zal de huidige grootaandeelhouder / CEO van Songa (Frederik Wilhelm Mohn)grootaandeelhouder/obligatiehouder worden bij Transocean. Mochten er toch liquiditeitsproblemen ontstaan dan zal een eventuele herstructurering ook bij hem tot een lastige situatie leiden. Kijken we naar de herstucturing bij Oceanrig en Seadrill dan zien we dat de huidige aandeelhouders nagenoeg alles verliezen. Opmerkelijk is de situatie bij Oceanrig waar CEO / grootaandeelhouder George Economou zijn positie na de herstructurering enigszins heeft weten te behouden. Deze George Economou laat hierbij duidelijk zien dat zijn eigen belang en het belang van overige aandeelhouders niet hetzelfde is.

Gaston Lagaffe 8 september 2017 15:12

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07-september-2017 Barclays CEO Energy-Power Conference 2017 // Transocean presentatie

phx.corporate-ir.net/External.File?it...

Gaston Lagaffe 8 september 2017 15:54

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Op 7 september heeft Jeremy Thigpen (President / CEO Transocean) bovenstaande presentatie gegeven. Er staan niet erg veel nieuws in. Waar komt het op neer :
1 - Transocean wordt neergezet als de grootste (55 schepen), solvabelste (orderboek $ 14,3 miljard), "rijkste" ($ 5,2 miljard liquiditeiten in welke vorm dan ook = let op RC $ 3 miljard loopt af 2019 ?), met tevens de meeste ervaring in UDW/HE drilling.
2 - Bij een olieprijs van ca. $ 50,-/vat begint het interessant te worden in offshore oliewinning te gaan investeren. Schalieolie/gas is dan nog (iets) goedkoper maar de verschillen worden door stijgende kosten bij schaliewinning (prijsinflatie) en dalende kosten bij offshorewinning (o.a. verbeterde techniek en reductie onderhoudskosten) steeds kleiner. Het grootste voordeel van schalieolie/gas is de kleinere schaal waarop gewerkt wordt (goedkoper op te starten/ af te bouwen). Dit is tegelijkertijd ook het nadeel zie blad 33 "Offshore wells characterized by higher production rates and lower decline rates to those onshore" (duidelijker in Engels dan Nederlands)
3 - Diverse publicisten (analisten waren minder negatief) gaven aan dat de prijs voor aankoop van 4 CAT-D Harsh Environment (HE)Semisubs met backlog (+ 3 oudere Semisubs die waarschijnlijk gerecycled gaan worden) veel te hoog was. Transocean reageert hierop met een prijsvergelijk waaruit blijkt dat men de CAT-D voor ca 55 % van de marktprijs gekocht heeft. Probleem is dat er eigenlijk geen markt is. Al helemaal niet voor HE Semisubs met een backlog. Conclusie : iedereen heeft zijn eigen ideeen en goed vergelijken is niet mogelijk (iets met appels en peren)
3 - Het aantal boorcontracten waar op ingeschreven kan worden neemt toe (Wil niet zeggen dat je ze krijgt, competitie is door vele stilliggende schepen zeer hevig).

We zien de prijs van het aandeel weer oplopen van $ 7,30 naar $ 8,70. Het lijkt er dus op dat men meer vertrouwen in het aandeel krijgt. Thigpen probeert de moed er in te houden maar voor 2019 moeten we er niet veel van verwachten. Het aantal opgelegde schepen is gewoonweg veel te groot.

Gaston Lagaffe 8 september 2017 16:02

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Nog een ouder artikel van Bloombergmarkets : 15 augustus 2017

Interessant is de passage "The deal would make Perestroika AS, Songa’s biggest owner, Transocean’s largest shareholder with a stake of about 12 percent. Perestroika’s owner and Songa Chairman Frederik W. Mohn would join Transocean’s board". Het grootste risico voor de huidige (klein)aandeelhouders van Transocean (herstructurering = totaalverlies) wordt hiermee weer iets kleiner nu dit ook grootaandeelhouder F.W. Mohn zou treffen. Er zijn echter ook uitzonderingen, zie Oceanrig's grootaandeelhouder George Economou. Een man die je maar beter niet je geld kan toevertrouwen.

Transocean Punished for Biggest Offshore Deal of Oil Downturn
By David Wethe and Joe Carroll
15 augustus 2017 08:43 CEST 15 augustus 2017 22:27 CEST
Company gains semi-submersible rigs and long-term contracts
Transocean touches record low as investors worry about price
Transocean Ltd. dropped to the lowest in more than two decades as investors panned its deal to buy Songa Offshore SE in the biggest offshore drilling industry deal since oil prices collapsed three years ago.

The enterprise value is about $3.4 billion, half of which is Songa debt assumed by the combined entity, the companies said. The 47.50 kroner ($5.97) a share offer implies an equity value for Norway’s Songa of about $1.2 billion. The transaction, pre-accepted by 77 percent of Songa investors, will be settled in shares, cash and a convertible bonds.

The deal “worsens credit metrics” for Transocean, in part because of the convertible bonds the buyer will use to finance a portion of the transaction, Marc Bianchi, an analyst at Cowen and Company LLC, said in a note to clients.

Songa, on the other hand, surged as much as 37 percent on a deal that will add four harsh-environment, semi-submersible rigs to Transocean’s fleet. Those vessels -- on long-term contracts with Norwegian oil producer Statoil ASA -- will boost the contract backlog of the world’s largest offshore driller by 40 percent to $14.3 billion as the industry recovers from the worst slump in a generation.

"The acquisition will strengthen Transocean’s position as the leading offshore driller with exposure to deep- and harsh-water markets,” Transocean CEO Jeremy Thigpen said in a statement. “Songa Offshore is an excellent strategic fit.”

Transocean closed 5.7 percent lower at $7.91 in New York, after slumping as much as 10 percent for the biggest intraday drop in more than a year and the lowest price since debuting in 1993. Songa closed 29 percent higher at 43.70 kroner in Oslo.

The offer is “attractive” for Songa, while Transocean gets a “very strong backlog,” Vidar Lyngvaer, an analyst at SpareBank 1 Markets, said in a note to clients. Yet analysts including James West at Evercore-ISI said the market believes Transocean overpaid for the rigs.

Day rates would need to double to about $450,000 per harsh-environment rig "to justify the implied value paid per rig," Martin Huseby Karlsen, an analyst at DNB ASA, wrote Tuesday in a note to investors.

Transocean began exploring the possibility of acquiring Songa a number of months ago, Thigpen told analysts and investors Tuesday on a conference call.

"We actually feel pretty good about the valuation, especially given the backlog and really nice day rates for a prolonged period of time," Thigpen said.

The deal will boost sales from Transocean’s backlog by 35 percent next year to $2.7 billion, and by more than half in 2019 to $2 billion.

Enlarged Fleet

The transaction follows Transocean’s sale of its entire fleet of jack-up rigs to Borr Drilling Ltd. for $1.35 billion earlier this year, and rival Ensco Plc’s proposed acquisition of Atwood Oceanics Inc. for $863 million. The collapse of oil prices in 2014 coincided with an influx of new rigs into the market just as exploration companies began cancelling drilling projects.

Transocean’s purchase of Songa, which is expected to close in the fourth quarter, also includes three additional semi-submersible rigs, pushing the combined company’s fleet to 51 floating rigs, in addition to four drill ships under construction. Transocean said it may scrap some of the older units.

Apart from Songa debt, the deal’s $3.4 billion enterprise value includes an estimated $660 million Transocean convertible bond, $540 million of Transocean equity and $480 million of cash.

The deal would make Perestroika AS, Songa’s biggest owner, Transocean’s largest shareholder with a stake of about 12 percent. Perestroika’s owner and Songa Chairman Frederik W. Mohn would join Transocean’s board.

Transocean considered the Songa deal partly because of the increased relationship with Statoil, Thigpen said. Songa’s contracts with Statoil extend as far out as 2024.

"We see a lot of opportunities with Statoil, both in the Norweigan market, but also globally," Thigpen said on the call. "This just gives us even more exposure to them and more opportunity to demonstrate our differentiated performance."

— With assistance by Mikael Holter

Gaston Lagaffe 8 september 2017 16:20

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Hierbij een oproep aan de lezers van deze postings (800 bezoeken in augustus is boven verwachting !) om aan te geven welke informatie ze graag zouden zien. Het valt niet mee veel relevante / interessante informatie over Transocean te vinden dus geef maar aan wat je mist. Graag hoor ik ook of jullie nu reeds aandeelhouder zijn of waarom (nog) niet.

Gaston Lagaffe 12 september 2017 15:48

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Transocean Says Deepwater Is Competitive With Shale At $50 Oil

Seeking Aplha : Sep. 12, 2017 2:17 AM ET ,Vladimir Zernov

Summary

Transocean publishes a presentation where it says that deepwater is competitive with shale at $50 oil. I go through the company's arguments.

I arrive to the opposite conclusion from the same numbers.

Transocean (RIG) has recently published an interesting presentation that is worth a close look. Among other things, the company laid out its views on the “magic price” at which deepwater is competitive with shale. There is no secret that despite stabilization in the oil market this year, oil producers continue to prioritize short-cycle projects with faster paybacks. Unfortunately for the offshore drilling industry (and especially the deepwater market), it is not competitive on this front because of lengthy lead times of offshore projects. However, Transocean claims that deepwater competes with land at $50 oil. Is it true? Let’s walk through Transocean’s logic. Transocean states that cost reductions in the offshore drilling space have led to a dramatic decrease of the breakeven price of major offshore projects. According to the company, the breakeven price for a number of major offshore projects has declined from $91 per barrel to $46 per barrel. The biggest contributor for this decline was the decline in the price of floating rigs.

I’m sure this slide was meant to be a support for the bullish case for Transocean. Unfortunately, the interpretation is exactly opposite – based on Transocean’s own numbers, deepwater is in big trouble at $50 oil.

There are two main reasons for this. First, the breakeven price of $46 per barrel is not sufficient enough to lead to any major investment when the assumed price of oil is $50 per barrel. The 4-dollar margin is definitely not sufficient enough to cover all risks.

Second, the breakeven price depends on horrific concessions from offshore drillers. If I were to assume that current dayrates will stay the same indefinitely, I’d call each and every offshore drilling company bankrupt. Current dayrates are near cash-breakeven levels for drillers and are not sustainable. The industry can push expenses down through M&A and some rationalization, but rig opex has likely reached its bottom for any firm in the market. Thus, the breakeven price stated by Transocean is based on very low rates for the offshore drilling industry and is not sustainable in the long run.

The next slide that I want to discuss is Transocean’s view on its biggest competition – the shale industry. Transocean expects that shale costs will continue to rise and sees a 20% price inflation in the next 12 months. In Transocean’s bull case, this leads to a breakeven price for shale of $46 per barrel. In the conservative case, the number drops to $43 per barrel. Assuming these numbers reflect reality, deepwater will remain highly challenged in the near term.

Transocean became a pure floater play following the deal with Borr Drilling. There is no surprise that the company wants to convince investors that it was the right move. It may be – but in the longer run. In the short term, the deepwater market remains under severe pressure. Frankly, the numbers that Transocean put in its presentation speak against deepwater. Current oil price is just not sufficient enough to justify the risk, especially for frontier projects. This year, Brent oil fluctuated between $44 per barrel and $58 per barrel. If can break above $58, I see an upside case for the deepwater market. In the current range the near-term future does not look great. One cannot anticipate a flurry of new deepwater jobs while oil stays near $50 per barrel, so offshore drillers will continue to operate without any pricing power.

Recent oil price upside fueled some positive movements in the strongest names – Transocean, Rowan (RDC) and Diamond Offshore Drilling (DO). It looks like the market strongly favors solid balance sheet and/or backlog over anything else. At the same time, Noble Corp. (NE) and Ensco (ESV), which is punished for its merger with Atwood Oceanics (ATW), did not catch any bid because as their finances are in a worse shape. In my view, offshore drilling stocks will continue to offer speculative opportunities. However, they need higher oil prices for a real major rally. As Transocean’s presentation showed, deepwater is hardly competitive with shale in the short-term at $50 oil. I’m sure the company wanted to say the opposite, but it is what it is – you cannot rely on a breakeven price that depends on dayrates that make the whole industry bankrupt in the longer run.

While the timing of the recovery remains uncertain, the best bet seems to be the “bet on the balance sheet and backlog”. The stock market seems to recognize this, sending Transocean, Rowan and Diamond Offshore up and forgetting about other drillers.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I may trade any of the above-mentioned stocks.

Gaston Lagaffe 12 september 2017 16:04

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Bovenvermelde analyse door Vladimir Zernov laat eigenlijk zien wat we in eerdere postings al hadden geconcludeerd. De belangrijkste punten :
1 - een olieprijs van $ 50,- is niet voldoende om de offshore drillers er weer bovenop te helpen. De olieprijs moet gedurende langere tijd boven de $ 60 - $ 65 komen wil er een situatie kunnen ontstaan die gunstig is voor deze markt. Dit zal nog jaren kunnen duren en niemand weet hoe dit proces zal verlopen.
2 - Schalieolie/-gas blijft voornamelijk door de kleinere schaal / beperkte kosten / eenvoudiger op-/afschalen de voorkeur houden boven offshore drillers
3 - de schaalvergroting zal doorzetten doordat zwakkere bedrijven het alleen niet zullen overleven.
4 - "bet on the balance sheet and backlog" (onderaan artikel). Bedrijven als Transocean / Rowan / Diamond Offshore behoren tot de (financieel) sterkste bedrijven in deze sector en lijken de beste keus. Als er uberhaupt bedrijven deze slechte tijd (zonder een herstructurering) overleven dan zullen deze 3 er waarschijnlijk bij zijn.

Gaston Lagaffe 21 september 2017 12:18

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Hierbij een analyse van Vladimir Zernov / Seeking Alpha

Chevron Terminates Transocean's Discoverer Clear Leader

Seeking Aplha : Sep. 21, 2017| Transocean Ltd. (RIG),Vladimir Zernov

Summary

Transocean receives a notice of termination for Discoverer Clear Leader.

The company will receive a full termination payment.

The termination should not hurt the stock much. At the same time, it's a vivid example that the offshore drilling recovery is still fragile.

Discoverer Clear Leader

Transocean (RIG) has just announced that Chevron (CVX) decided to terminate the current contract for Discoverer Clear Leader effective November 2017. The company will receive a lumpsum payment of $148 million in contract termination fees.

Discoverer Clear Leader was working for Chevron in the U.S. Gulf of Mexico at a dayrate of $575,000. Luckily, for Transocean, the contract was strong enough to provide the necessary defense – the company will receive the present value of the operating dayrate less the operating costs per day.

Now Transocean will have to find work for Discoverer Clear Leader or stack the ship. From a financial point of view, the termination is still a hit for Transocean, as it will likely have to pay for stacking costs while searching for a suitable job. If we were to assume stacking costs of $40,000 per day (they may be higher), a year of stacking a ship costs almost $15 million. This is not a big sum compared to the $148 million that Transocean would have lost if its contract did not provide the opportunity to receive termination fees, but every penny counts in the current market environment.

The bigger problem is that Discoverer Clear Leader will join the ranks of stacked ships instead of being “hot” up until October 2018, when the demand for floaters is expected to increase. This may eventually turn into a bigger problem than the loss on stacking costs as customers prefer rigs that have just ended their previous job. Yes, there were precedents when stacked rigs were chosen for a project, but we do not know the exact dayrates and I suspect that price was a big contributor to oil companies’ decisions in these cases.

Nevertheless, I do not expect that the news can cause any material downside for Transocean shares, which have lately been on the rise along other offshore drilling stocks, which are considered survival candidates. What’s more important here is the dynamics of the oil price. Hurricanes helped oil prices come close to their resistance at $57.50 for Brent (BNO), but the existence of a catalyst that may push oil even higher remains a big question. In my opinion, the oil rally is getting a bit stretched with no meaningful pullback since mid-June.

Fundamentally, seeing another termination is a sobering sign that the offshore drilling market recovery will not be easy. The budgeting season is already underway, and it will be very interesting to hear what Chevron would have to say about its plans for the next year when it reports its third quarter results in late October.

Near term, I expect a tight correlation between the oil price movement and Transocean’s stock. In case Brent oil is able to stay above $55, Transocean shares will have more room for momentum upside as traders will be betting on drillers ahead of the anticipated oil price upside breakout. Should Brent dip below $55 and head to $50, recent gains may quickly vanish.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I may trade any of the above-mentioned stocks.

Gaston Lagaffe 21 september 2017 12:39

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In bovenstaande analyse van Vladimir Zernov komen (nogmaals) enkele eerder vermelde punten naar voren :
1 - Olieprijs van Brent (BNO) mag dan wel gestegen zijn naar ca $ 57,5 / vat maar dit is (nog) niet voldoende om de markt voor drillers echt in beweging te krijgen.
De prijs moet gedurende langere tijd boven de $ 60 - $ 65 / vat komen.
2 - Transocean behoort tot de betere drillers, men is in staat gebleken om in het verleden "waterdichte" contracten te sluiten met de grote oliemaatschappijen (Shell, Chevron, Total, Exxon enz. enz)
Het contract met de Transocean Dicoverer Clear Leader ($ 575.000,- per dag was een fantastische prijs <> huidige prijs "slechts" $ 150.000 tot $ 200.000 per dag, als er al een opdrachtgever te vinden is !) mag dan afgekocht worden. Chevron is er niet in geslaagd dit goedkoop te kunnen doen. Dit geeft aan dat Transocean zijn zaken, ondanks eerdere kritiek, goed voor elkaar heeft. Zowel technisch als juridisch was er geen mogelijkheid voor de opdrachtgever om kortingen af te dwingen. Onder de huidige omstandigheden een hele prestatie.
3 - Mocht de olieprijs weer dalen dan lijkt een herstel van de markt voor drillers weer langer te gaan duren. Op zijn vroegst 2019 lijkt mij nog steeds reeel. Een daling kan echter, voor wie tijd en geduld heeft, een goed aankoopmoment blijken te zijn. De olieprijs komt langzaam in beweging en het aantal beschikbare boorschepen zal door sloop blijven afnemen. Let wel : er moeten nog enkele nieuwe boorschepen afgeleverd worden plus er liggen er nog enkele schepen op de werf ter af-/overname.

Gaston Lagaffe 1 oktober 2017 14:28

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Tour Of Non-U.S.-Listed Offshore Drillers

Sep. 27, 2017 Vladimir Zernov

Summary

Recent deals and rumors in the offshore drilling space sparked interest in companies that are not listed on the major U.S. stock exchanges.

I highlight four of them: Borr Drilling, Shelf Drilling, Odfjell Drilling and Fred. Olsen Energy.

The market remains fragmented by the consolidation process that has already started. Expect more to come.

Recent events in the offshore drilling industry have sparked investor interest in non-U.S.-listed drillers. While for many investors these companies are out of direct reach, they play an important role in the industry. Recent examples are Transocean's (NYSE:RIG) deal with Songa Offshore and a fresh rumor that Rowan (NYSE:RDC) might be heading toward some kind of deal with Maersk Drilling. The goal of this article is to discuss some of the non-U.S.-listed companies and their potential role in future industry developments, such as being a buyout target or buying other companies themselves. We won't go deep into their finances or valuation for practical reasons - the majority of readers won't be investing in them, but are interested to know about the influence on their existing or potential investments in U.S.-listed drillers.

Borr Drilling

Borr Drilling is a newcomer to the industry and one of the most interesting companies to follow. I've briefly talked about the history of Borr in my recent article on the Atwood (NYSE:ATW)/Ensco (NYSE:ESV) merger, as Borr purchased a 9.7% stake in Atwood. Borr Drilling has recently started trading on the main Oslo Stock Exchange and the start has been smooth, supported by positive developments on the oil price front:

Source: Oslo Stock Exchange.

Borr is specializing in the jackup space, with a fleet of 12 jackups and five jackups under construction. Due to its access to equity market and the absence of debt, investors suspect Borr's involvement in almost any major deal or rumor. My view is that Borr will continue to grow extensively as long as the equity markets are open and asset prices remain suppressed. Currently, it looks as if Borr will be actively involved in the upcoming Ensco/Atwood merger. I do not believe that Borr bought a stake in Atwood just to be a passive investor in a combined Ensco/Atwood; I think that the real target is Atwood's jackup segment. I expect that we'll know soon whether such speculation is true or not.

Shelf Drilling

Shelf Drilling is another specialized jackup company. Shelf Drilling was formed back in 2012, when the company acquired 37 jackups and one swamp barge from Transocean. The company has recently been able to raise equity on the Norwegian OTC list to acquire three jackups from Seadrill (SDRL), which has recently filed for bankruptcy. Shelf Drilling finished the second quarter of 2017 with $173 million of cash and $525 million of debt. Key regions for Shelf Drilling are Saudi Arabia, the UAE, Egypt, and India. To me, the company's contract coverage looks sufficient, with some longer-term contracts spanning the next decade.

The company has already made its move this year with the acquisition of Seadrill rigs. In my opinion, there will be no acquisitions from Shelf Drilling unless the company is able to tap the equity markets once again. There seems to be a significant interest for offshore drilling in the Norwegian market, so I cannot rule out such a possibility. As for being someone's target, Shelf Drilling looks just too big.

The recent rumor involved a Chinese state-owned company searching for entry in the offshore drilling market, looking at Seadrill and Shelf Drilling. The rumor was refuted, but was plausible from the perspective that only a company with a very solid financial background can look at such a target. Leading U.S.-listed drillers -- be it Transocean, Rowan, Diamond Offshore Drilling (DO), Ensco or Noble Corp. (NE) -- do not have such resources.

Odfjell Drilling

Odfjell Drilling owns four harsh-environment semis and also manages two drillships (Deepsea Metro I and Deepsea Metro II) and one semi-sub, Island Innovator.

I want to step away from discussing Odfjell Drilling for a moment and discuss the Island Innovator, which is a very curious case that shows how fragmented the industry is. As mentioned above, Odfjell Drilling manages Island Innovator but does not own it. The owner is Island Drilling and it's their only rig. The latest annual report that I was able to find, the 2015 annual report, states the following: "The Company was formed in 2006, and in February 2007, ordered its first semi-submersible rig, the Island Innovator, based on the GM 4000 design, from Cosco Shipyard, China. The Island Innovator was delivered by the Cosco Shipyard Group on Sept. 28, 2012." As of Dec. 31, 2015, the company had two employees.

Despite having just one rig, the company has recently scored short-term contracts with OMV Norge and Centrica Norway. In my view, the entire story shows how offshore drilling industry badly needs consolidation. I believe that further cost cuts and supply rationalization will certainly be achieved through additional M&A. The process will likely be rather slow and painful, but it's the only way to go to ensure offshore drilling's prosperity in the years to come.

Now, back to Odfjell Drilling. The company had a tough period in 2015, but was able to refinance in 2016 and its shares scored a major comeback:

Source: Oslo Stock Exchange.

To my understanding, the company is leveraged and does not have the resources to expand and this time. At the same time, it's not on sale either. I'd be surprised to find out that Odfjell Drilling is being pursued by other players as the company also comes with "drilling and technology" and "well services" segments, so any prospective buyer would be buying a rather complicated business rather than just rigs with their backlogs.

Fred. Olsen Energy

Fred. Olsen Energy has five semi-subs and two drillships. The company is in real trouble for several reasons. The first is the complete lack of contracts for the fleet:

The second reason is the composition of the fleet. If you are looking at the fleet through the eyes of a potential buyer, the only interesting vessel is Bolette Dolphin, a sixth-generation drillship built in 2013 (however, we should keep in mind that the segment is oversupplied). Other rigs are just not interesting. Belford Dolphin is a drillship built in 2000, a type of drillship that in my view will soon become extinct. The semis are old: there's Blackford Dolphin (1974/2007), Bideford Dolphin (1975/1999), Borgland Dolphin (1977/1999), Bredford Dolphin (1976/2007), and Byford Dolphin (1974/2010). Without new contracts, the company is a candidate for dissolution. The market has clearly gotten this idea:

Source: Oslo Stock Exchange.

This article is by no means a complete excursion into the world of non-U.S.-listed drillers. Instead, I showed the versatility and fragmentation of the industry - an audacious newcomer (Borr Drilling), an established jackup operator (Shelf Drilling), a turnaround story (Odfjell Drilling), and a company on the verge of dissolution (Fred. Olsen Energy).

What is the takeaway for U.S.-listed drillers? Generally, the competition remains very intense. The market is fragmented and badly needs consolidation. However, there's a significant chance that the cleanup process will speed up in the next several years. Those that survive this downturn will thrive.

Disclosure: I am/we are long DO, RDC.

Gaston Lagaffe 1 oktober 2017 14:35

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Seadrill 'Kicks The Can Down The Road'

Sep. 29, 2017 geplaatst op Seeking Alpha
Summary

SDRL's debt will likely remain at junk levels after its proposed debt restructuring.

It might have to return to the trough if is operations do no improve in the near term.

I suggested a $6.6B debt-for-equity swap could make the company investment grade.

If debt is still at junk levels post-restructuring then investors should avoid the stock.

Highly indebted Seadrill (SDRL) has been skating on thin ice ever since oil prices diverged to the downside nearly three years ago. Earlier this month it finally succumbed to its $10 billion debt load, announcing a comprehensive restructuring plan:

Seadrill Limited ("Seadrill" or the "Company") has entered into a restructuring agreement with more than 97 percent of its secured bank lenders, approximately 40 percent of its bondholders and a consortium of investors led by its largest shareholder, Hemen Holding Ltd.

The agreement delivers $1.06 billion of new capital comprised of $860 million of secured notes and $200 million of equity. The Company's secured lending banks have agreed to defer maturities of all secured credit facilities, totaling $5.7 billion, by approximately five years with no amortization payments until 2020 and significant covenant relief. Additionally, assuming unsecured creditors support the plan, the Company's $2.3 billion of unsecured bonds and other unsecured claims will be converted into approximately 15% of the post-restructured equity with participation rights in both the new secured notes and equity, and holders of Seadrill common stock will receive approximately 2% of the post-restructured equity.
The company believes the plan is a comprehensive solution to Seadrill's liabilities and debts. However, I believe Seadrill is simply kicking the can down the road.

Seadrill's Debt/EBITDA Would Still Be At Junk Levels

The company believes the agreed upon plan addresses Seadrill's liabilities, including funded debt and other obligations. I beg to differ. The current plan entails $1.06 billion of fresh capital, but only $200 million of new equity. The additional $860 million would comprise new debt that would not come due until later. An additional $2.3 billion of debt would be swapped into equity.

The following chart illustrates the $2.5 billion reduction in debt (debt swap and equity infusion), which brings total debt to 6.5x run-rate EBITDA (Q2 2017 results annualized).

Seadrill's debt/EBITDA has been at junk levels since year-end 2016. Debt/EBITDA was 5.3x at year-end 2016. Debt/run-rate EBITDA at Q2 2017 had deteriorated to 8.9x. The current structure would reduce the metric to 6.5x - still junk levels. In my opinion, the optimal structure would be one that would provide the company with sufficient working capital and bring debt/EBITDA down to investment grade levels.

March 8, 2017 article highlighted how a $6.6 billion debt for equity

I estimate a debt-for-equity swap of $6.57 billion could relieve Seadrill's liquidity strain and help rightsize its capital structure. Its debt of $3.36 billion would be less than Transocean's (RIG) Q4 2016 debt of $8.26 billion. Its 2017E 3.0x debt/EBITDA multiple would be less than Transocean's which is now around 3.9x EBITDA.
With a $6.6 billion debt-for-equity (or some other type of equity infusion) Seadrill's debt/EBITDA would have declined to 3.0x. It would also have given the company breathing room to maintain its investment grade rating even if its EBITDA continued to slide amid a slump in deepwater E&P.

Seadrill Might Have To Return To The Trough

In my opinion, Seadrill's current capital structure appears to be a stop gap measure. It pushes some of its debt obligations out into the future and provides some amount of debt reduction. However, debt/run-rate EBITDA of 6.5x would be higher than it was at year-end 2016 (5.3x). Secondly, it likely does not give the company much breathing room if its EBITDA continues to slide. Any hiccups in its operations or if the deepwater E&P continues to slump and Seadrill's credit metrics could deteriorate further into junk territory.

That is a long-winded way of saying the company might have to return to the trough for more money. I believe management has better negotiating power now than it would at a later date. It would behoove the company to negotiate a deal that could keep the company out of bankruptcy. Having to re-negotiate with creditors at a later date could create an additional distraction for management and negative sentiment for all stakeholders involved.

Conclusion

Seadrill's current debt restructuring appears to be kicking the can. If it re-emerges from a restructuring with debt still at junk levels then investors should avoid the stock.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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The Shock Exchange has a B.A. in economics and MBA from a top 10 business school. He has over 15 years of M&A / corporate finance experience. He sifts through hundreds for financial statements to find mispriced stocks. He currently heads the New York Shock Exchange, a financial literacy program based in Brooklyn, NY.

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Gaston Lagaffe 1 oktober 2017 14:39

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Get ready for the deepwater revival in Brazil

By: David Carter Shinn , Sep 27, 2017 gepubliceerd door Bassoe Offshore

Brazil won’t save the deepwater market, but it’s going to help it. Petrobras will resolve their rig deficit, and IOCs will develop new acreage. That means more drilling.

The Brazilian offshore rig market will probably never see a return to its halcyon days of 2012. But these days, the market needs any increase in demand for deepwater rigs it can get, and Brazil is one of the best bets through the rest of this decade.

Two factors support a positive outlook for offshore drilling in Brazil. The first is Petrobras’ need for more rigs as their current contracts start to expire. The second, which may be even more significant, is the opening of up new acreage to international oil companies.

We’ve reached a point in Brazil where things are about to change direction from getting worse to getting better. Petrobras has tried to clean itself up from its corruption scandals. They have downsized and streamlined and have accepted (along with the Brazilian government) that the only way forward is to open up their resources to foreign operators.

There’s a lot of oil in Brazil, and even at today’s oil prices (which are higher than they were a few months ago), there’s a lot of wealth under their ocean floor. And after a series of questionable state-sponsored decisions, the government won’t let the opportunity to reap that wealth slip away from them again.

A slimmed-down Petrobras still needs rigs

As we noted earlier this year, the number of drilling rigs in Brazil has gone from over 80 to under 30 during the past five years. Currently, 26 rigs are on contract (all for Petrobras), but only about 20 are on full dayrate and drilling due to Petrobras’ reduced effective demand. By the end of 2018 – assuming no new contracts or contract extensions – Petrobras will have 14 rigs working for them. By 2021, this number becomes three.

We estimate that Petrobras has a minimum requirement of around 20 rigs to sustain production through 2021. Assuming no incremental production increases, they need to award 17 new drilling contracts over the next two to three years. And if the oil price holds above Petrobras’ break-even of around $50, demand could eventually surpass our estimated 20-rig minimum.

obrázek

Petrobras wants more efficient rigs at lower dayrates

Even though we see a series of new drilling contract awards coming from Petrobras, dayrates are likely to remain in the $150,000–200,000 range until around 2020.

While Petrobras seeks lower rates (and has committed to reduce offshore capex), they will also seek more efficient rigs. Just as most international oil companies these days look for newer rigs with modern equipment, Petrobras will do the same. Out of the 26 rigs working in Brazil, 10 are either more than 15 years old or have DP2. These rigs are less likely to secure contract extensions than newer, higher-spec rigs.

For rig owners currently operating rigs in Brazil, reduced dayrates will hit hard. Today, legacy contracts still provide rigs with rates ranging from $300,000 to over $500,000 per day. Petrobras knows they are paying too much for rigs, and although we don’t expect them to pursue further contract terminations (as they’ve not had a lot of success with this recently), they will use the market to their advantage and secure rigs at lower rates going forward.

But with the oversupply in the deepwater and ultra deepwater fleets, rig owners are unlikely to pass up an opportunity to generate cash when the alternative is stacking. Owners of new rigs, who are able to operate efficiently at lower dayrates, will find work in Brazil.

Sete rigs will eat into some of the demand

We estimate that up to six Sete rigs could end up being delivered; delivery of four is virtually guaranteed. Negotiations with Petrobras are still ongoing, but the Arpoador drillship and Urca semisub are complete enough to be able to start working within a few months and are very likely to secure work with Petrobras soon.

The future for the remaining four rigs still under construction is more uncertain. These rigs, which are owned by the shipyards (KeppelFels and Jurong), could be sold off to other owners if no agreement is reached with Petrobras, but we see it as likely that at least two of them will also go to work in Brazil.

Assuming Petrobras awards contracts to four of the Sete rigs, there are still opportunities for at least 13 additional contracts (based on the total of 17 we estimate up to 2021).

Petrobras is the only real source of rig demand in Brazil. But not for long.

Brazil’s first of nine oil and gas bidding rounds opened this week with 110 offshore blocks offered (out of a total of 287). At the end of October, the 2nd and 3rd Pre-Salt bidding rounds will open.

Petrobras estimates that over 300 offshore wells could be developed and over $80 billion in new investments could flow into the country as a result of the 2017–2019 rounds. All this, according to their estimates, could lead to “up to 20 drilling rigs working simultaneously.”

The entrance of international oil companies could change the market in a way that was unthinkable back in 2010. With the reform of local regulations, participation is set to be high as oil companies will compete for acreage that has higher potential for being developed compared to past rounds.

The involvement of IOCs in Brazil should increase toward the end of the decade, and this will drive further demand for rigs beyond what we’ll see from Petrobras alone.

Brazil has become more pragmatic and more commercial with respect to the future of their oil industry. Future rig demand in the country may not be enough to revive the global deepwater rig market on its own, but it will regain at least some of the massive amount of power it once had.

Gaston Lagaffe 1 oktober 2017 14:41

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If only all offshore drillers acted like Transocean

By: David Carter Shinn , Sep 22, 2017 gepubliceerd door Bassoe Osshore

The rig market won’t fix itself. So Transocean (and a few others) are doing what they can to help.

It’s Friday, so we’ll keep it short, but the news released by Transocean today warrants some attention. If you haven’t already read about it, Transocean announced the retirement of six deepwater and ultra deepwater floaters. Along with that, they swallowed an impairment of $1.4 billion.

Transocean, plus other rig owners like Diamond and Ensco, have made significant contributions toward reducing oversupply (and written down assets in the process), but there's still a long way to go.

Looking at the rigs, it’s interesting to see that moderately “newer” rigs (built or upgraded in the late 1990s and early 2000s unlike the slew of 70s and 80s built rigs we’ve seen go recently) in the deepwater segment are being disposed of. With the current state of the deepwater market, it shouldn’t be surprising that these rigs have had no future, but it’s not always easy (or possible) for owners to recognize this.

Out of nearly 100 rigs scrapped over the last three years, only 13 were delivered after 1998 – this includes three from Transocean, six from Ensco, three from Noble, and one from Odebrecht.

Our RVT has had values of these rigs at scrap levels for several months, but asset values on Transocean’s books were significantly (very significantly) higher than this. Considering the $1.4 billion impairment, we’re looking at around $230 million per rig.

Transocean should be applauded for this – and there could be further impairments coming as they have another 14 cold stacked floaters on their hands – but the real question is why aren't more owners following this trend?

The simple answer is that some of them probably can’t. Transocean has the financial power to do this, but what about the small rig owner with a fleet of a few rigs who’s full up on debt? Such a move would be extreme.

This, along with the fact that banks and investors don’t want to realize deterioration in asset values, is why we aren’t seeing more scrapping. But as the rig market continues to reset, we see more write-downs and retirements coming as more (especially larger) owners clean up their books.

Gaston Lagaffe 12 oktober 2017 15:08

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Jackup rig values to rise further on back of market-moving deal

By:David Carter Shinn,Oct 11, 2017 ++ BASSOE OFFSHORE ++

Borr Drilling runs the jackup market right now. Look for rising jackup values and continued investor interest in rig acquisitions as others try to catch up.

We’ve talked about Borr Drilling so much over the past few months that it may appear that they’re the only active rig owner in the jackup market. In this case, appearances don’t deceive.

Apart from Shelf Drilling’s acquisition of three Seadrill jackups and the four jackups included in Ensco’s takeover of Atwood in May of this year, 26 of the 33 jackup transactions this year have been initiated by Borr.

Although liquidity (sales) in the market for jackups is significantly higher now than it was during the past 2 years, Borr has contributed to nearly 80% of it. With over 60 jackups stranded at shipyards, high oversupply, and low jackup values, you’d think more acquisitions would be happening.

The problem has been, as we’ve said before, that rig owners (including shipyards with rigs under their control) have been reluctant to sell assets at the extraordinarily low values which most buyers have been willing to pay for them.

Borr, however, has found market-clearing levels for jackups at values which are still attractive compared to original build cost. The fact that Borr raised another $650 million in equity in a matter of days (in an oversubscribed transaction) shows that market agrees with their outlook.

As such, Borr is the jackup market right now, and they dictate values. Being the highest-volume player practically allows them to create a self-fulfilling prophecy for valuation trends.

The PPL transaction validated the market

If you’re going to buy a similar jackup today, you’re going to have to pay at least what Borr paid (in normalized terms, plus or minus based on specification and build quality) as pricing levels in the PPL transaction have crystalized a new, but higher, reference point for rig values.

Although shipyards and owners of stranded jackups in China and Singapore have been holding out for higher relative prices than the $139 million per rig price Borr and PPL agreed on, Borr’s transaction has narrowed the bid/ask spread with movement on both sides. But it’s more likely that, over the next few months, the bid will be forced to move toward the ask as sellers become more confident in a renewed, genuine interest for rigs at higher values.

But shipyards must be willing to accept more creative or flexible deal terms

PPL's willingness to finance around $800 million of the total purchase price of rigs was a key element to the deal. With that, Borr effectively received a seller's credit for two thirds of the cost of the rigs which includes no debt amortization until five years after delivery of each rig. PPL, in return, has secured some upside based on future values of the rigs where they can share an eventual appreciation in asset values.

We expect to see more conditions like this in future deals as yards are able to use them to entice owners to pay higher values for stranded assets. Yards which endeavor to be cooperative on risk sharing (as opposed to requiring buyers to bear all the risk on the timing of the market recovery) will offload their rigs earlier and at price levels which preserve more value than yards who cannot or will not assist buyers.

Rig Valuation Tool premium jackup values up over 30%; likely to trend even higher

Based on previous values in our Rig Valuation Tool, we’ve increased values for premium jackup rigs, with a bias toward new (or newbuild) 400ft rigs, by over 30% as a result of Borr’s transaction and our short-term outlook on the jackup market.

We see strengthening preferences (and higher values) for rigs with delivery dates one or more years out as the time to reach a full market recovery may still be years away.

As newer rigs continue to take work away from older rigs by accepting lower dayates, more old rigs will be forced out of the market. Eventually, this will lead to higher utilization and higher dayrates. The length of time this trend will take will determine how fast and how far rig values will rise, but there’s probably more room for jackup values to run.

The jackup market looks stronger than we’ve seen so far this year. That should also support further asset value growth as more owners attempt to secure newbuild jackups over the next six months.

Gaston Lagaffe 12 oktober 2017 15:12

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Offshore rig market to reach 85% utilization again

By:David Carter Shinn, Oct 02, 2017 ++ BASSOE OFFSHORE ++

High rig utilization isn’t just a dream. It’s a requirement for a meaningful recovery in dayrates.

When utilization in the offshore rig market reaches around 85%, dayrates start to rise significantly.

As utilization moves from 60%, for example, up toward over 80%, dayrates increase, but once 85% utilization is reached, dayrates normally kick into a higher gear and rise at a faster rate relative to before 85% was reached – and vice-versa.

Take drillships as an example. During 2014, utilization was nearly 100% during the early part of the year. Dayrates were also at cycle highs, with some fixtures above $600,000. As utilization declined toward 50%, dayrates crashed to around 30% of their highs.

Even if dayrates never reach their highs again (because the market is fundamentally different now as efficiency and cost-savings dominate), they must somehow increase to levels that generate “investor-friendly” amounts of cash. The problem is that until utilization rises sufficiently, the rig market will be stuck with more or less cash break-even dayrates – which are unsustainable if rig owners are to thrive again.

Right now, utilization for all rig types (jackups, semisubs, and drillships) – based on the full potential supply of rigs which includes those under construction – ranges between 50% and 60%. We’ve seen an increase in demand for newer rigs lately, but we’re far from the optimal 85% utilization that every rig owner wants to see.

A quick note on bifurcation

There’s a lot of talk about bifurcation (which has been going on for years), and strengthening preferences by oil companies for new rigs will continue to solidify this phenomenon. Bifurcation might create better effective utilization for certain segments of the market, but it doesn’t completely negate oversupply. Even with the bifurcation we're seeing, old rigs still win contracts (especially in the Middle East and India), and there are simply too many newer rigs with respect to demand.

In other words, bifurcation exists partly because the market is oversupplied.

So will the market ever see 85% or more utilization again?

Yes, it will – if the right things happen.

Superficially, it’s pretty simple: there needs to be a reduction in rig supply and an increase in rig demand. But what combination of these factors is realistic, and what’s even feasible?

Although this is a numbers game with endless possibilities and scenarios, we’ve tried to illustrate a few of the scenarios which can achieve 85% utilization.

Current rig supply requires an unrealistic increase in rig demand

We recently wrote that up to 340 offshore drilling rigs could be scrapped by 2020. That exercise identified all rigs which weren’t viable in today’s market due to age or technical specification.

But we didn’t look into how many rigs need to be scrapped. We’ll do that here, but first, let’s assume that only minimal scrapping takes place (say 20% of our 340).

Jackups would require demand growth of over 65% to reach 85% utilization. This equals a demand of 498 rigs and a required supply of 586 rigs (354 + 232 in the graph below). For reference, the all-time high for jackup demand was 397 rigs in 2013–2014.

Semisubs require demand growth of nearly 80% to reach 85% utilization. This equals a demand of 127 rigs and a required supply of 150 rigs (84 + 66 in the graph below). For reference, the all-time high for semisub demand was 163 rigs in 2013–2014.

Drillships require demand growth of 100% to reach 85% utilization. This equals a demand of 118 rigs and a required supply of 139 rigs (69 + 70 in the graph below). For reference, the all-time high for drillship demand was 86 rigs in 2013–2014.

For simplicity, we assume that all rigs currently under construction are eventually delivered at some point. While there is a risk that some rigs won’t ever be delivered (especially certain jackups in China), most of the rigs under construction are either complete or close to it and will attempt to enter the market if demand starts to improve.

Finding the right balance of scrapping and increased demand

If we assume demand increases to “realistic” sustainable levels (without exceeding previous all-time highs), we can derive the amount of scrapping required to leave the market with 85% utilization.

For jackups, a 32% increase in demand would get us to 397 rigs (the all-time high) and a required supply of 467 rigs (i.e., total supply at 85% utilization). To reach that level of supply, 172 jackups would have to be scrapped. This equals about two thirds of the 258 potential jackup scrapping candidates we identified previously in our 340 total scrap rig number. This is doable – especially if some of the Chinese newbuilds are never delivered.

And if all 258 jackups were scrapped, the market would reach 85% utilization with only a 7% increase in demand.

Semisubs don't look too bad either. The current supply of 163 semisubs is equal to their all-time demand high of 163, but demand would have to increase by a less realistic 130% to reach the current required supply of 137 rigs. That said, if you assume that semisub demand increases by around 50% (or 107 rigs), then only 38 semisubs (out of a potential scrap pool of 65 rigs) must be scrapped to reach 85% utilization.

If all 65 old semisubs are scrapped, then demand only needs to increase by around 20%.

And if you look at harsh environment segment specifically, the numbers look even better as we’ve noted in a previous article.

Drillships, however, have the most difficult path to 85% utilization. An increase in demand of 46% is needed to reach the all-time demand high of 86 rigs, but not even demand at this level would be enough to cope with the extreme overbuilding, and subsequent oversupply, of 6th and 7th generation drillships.

We don’t see demand for drillships increasing beyond its all-time high due to the limited number of deepwater programs expected over the next few years. Areas such as Brazil, Mexico, and West Africa will add to demand, but a 46% demand increase is still far from conservative. Nevertheless, if we assume 46% demand growth, then 41 drillships must be scrapped to reach 85% utilization. After aggressive scrapping over the last three years, there are only 15 drillships either built before year 1990 or before year 2000 and are cold stacked.

This means that 26 (41 total minus 15 old) modern drillships will have to be scrapped (in addition to the 46% assumed demand increase) for the drillship market to regain a state of health.

85% will happen eventually

We can run scenarios until our models explode, but the fact is that, while there’s a lot of work to be done to get the rig market back up to 85% utilization, the path forward is achievable.

Rig owners have control over the supply side. A realistic approach to fleet attrition would go a long way toward solving the problem of oversupply.

At the same time, increasing drilling activity driven by higher oil prices and the weak, unsustainable capex programs pursued by oil companies since 2015 which will likely need to be compensated for over the next few years will help on the rig demand side.

We don’t know exactly when we’ll see 85% utilization across the rig market. But we expect that the jackup and semisub markets will balance first. And once someone decides to scrap the first modern ultra deepwater drillship, we’ll know we’re getting close.

Gaston Lagaffe 12 oktober 2017 15:14

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Jackup rig owners watch as Borr Drilling takes control

By: David Carter Shinn, Oct 08, 2017 ++ BASSOE OFFSHORE ++

Borr’s latest acquisition of nine jackup rigs should be of interest (and possibly concern) to their competitors.

We’ve talked a lot lately about the need for consolidation in the jackup market and the emergence of dominant owners.

Borr Drilling’s name comes up every time.

Now they’ve taken another large bite out of the supply of stranded newbuild jackups. This time, they targeted nine Pacific Class 400 jackups at PPL (previously ordered by Perisai, Oro Negro, and the yard itself – and later all controlled by the yard).

In around 10 months, Borr has gone from owning zero rigs (nonexistence) to owning 26 jackups. They’ve raised money, made money (on paper), and secured conservative amounts of debt financing. Today, Borr has the ability to move markets; they seem to be in control while other owners – even the major US contractors – either sit and watch or try to react, but never execute.

Borr has a positive view on the premium jackup market, and what they’ve done is what other owners – assuming they also believe in a material recovery in rig demand and dayrates – should have been doing too. Instead, Borr has been left, essentially unhindered by real competition, to pick and choose rigs and build up one of the largest jackup fleets in the market.

If Borr can do it, why can’t anyone else?

Over the past year or so, all major rig owners have been looking at the pool of jackup acquisition candidates. In many cases, sellers of rigs (including shipyards), have held firm on pricing. This has led to large bid/ask spreads for rig values and little transaction activity – apart from Borr’s, of course.

Borr’s usurpation of their competitors’ power in the market started with their first acquisition. The two Super A Class rigs they acquired during Hercules Offshore’s liquidation process is their best deal by far. These rigs are the highest valued in their fleet and, at $65 million each, were acquired at around 50% of the cost of all subsequent rigs they purchased.

But Borr has played the market differently than everyone else. In simple terms, they’ve paid more than others are willing to pay, and in some cases more than the estimated market values of the rigs.

Their competitors could have acted as Borr has, but were either unwilling or unable to do so. Preservation of financial resources had been so much of a focus during the downturn that most owners lost out on opportunities to Borr. And now, formerly powerful established rig owners have a major new competitor to reckon with.

Borr’s lower cost base (with no legacy costs and financing commitments) gives them the ability to be competitive at lower dayrates than their competitors. They’re acquiring premium rigs at discounted values – although their subsequent acquisitions have been less “discounted” – and combining that with efficient operational and financial strategies. That’s why they’re where they are today.

The PPL deal: buy more rigs for less than it cost to build them

Considering Borr’s business model, we think the recent PPL rig acquisition makes sense for them. At the time of the transaction, our Rig Valuation Tool put values on the PPL rigs at around $85–96 million (if delivered today). While these values are much lower than the $139 million Borr paid, Borr won’t be taking delivery of these rigs all at once and they’ve secured five-year debt financing for around 50% of the total $1.256 billion purchase price.

In effect, Borr has purchased forward contracts (with delivery through early 2019) on the rigs. If you think values for rigs will rise over the next year or so, you can justify paying more than current market values. And you still secure assets at levels much lower than replacement cost.

Borr’s market assumptions are reasonable, but risks remain

We provided our outlook on future rig supply and demand in our previous article. For the jackup market to be balanced (85% utilization), we think that up to 172 rigs need to be scrapped and that demand needs to rise to 397 rigs.

Borr believes that 171 rigs are already noncompetitive (so it doesn’t matter if they’re scrapped or not) and, more importantly, that only 38 newbuilds will be delivered.

We don’t disagree with the assumption that there are many jackups in the market that are noncompetitive, but unless they’re scrapped, a number of old jackups will remain competitive in places like the Middle East and India especially if dayrates start to rise. Even Borr has four North Sea jackups built in the 80s and 90s, which, according to their outlook, should be noncompetitive.

Borr also estimates that only 38 of the 83 comparable jackups under construction will be delivered. There is, however, a risk that if the market improves as we believe it will, it's likely that other owners will attempt to acquire more newbuilds and bring them into the market. They won’t simply disappear.

Add to this the real possibility that the Saudi Aramco-Rowan joint venture will build 20 newbuild jackups and the number of newbuilds coming into the market could be much higher than Borr’s 38-rig estimate.

Risks aside, we support Borr’s strategy. We also believe the jackup market will see much higher utilization, although possibly via a different path. The competitive landscape in the jackup market may not resolve itself exactly as Borr expects, but for Borr, that may be less relevant due to their low-cost profile.

Borr has taken control, but other owners may wake up

So far, Borr’s empire-building has been met with very little competition. As more owners see that the market is improving and become more willing to invest using Borr as their proof of concept, we think that Borr will be challenged – at least more than they are today.

But the way things are going now, Borr is unlikely to let that stop them.

Gaston Lagaffe 12 oktober 2017 15:22

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Transocean May Soon Get A Job From BHP

Oct. 9, 2017, Vladimir Zernov ++ SEEKING ALPHA ++

BHP is reportedly looking for a rig for its project in Mexico.

In all likelihood, the job will be given to a major international driller.

I believe that Transocean is the major canditate for this job.

Oil producers are already in their budget season, which means that right now offshore drillers' fate for 2018 is decided. Judging by the recent stock market action, the market anticipates some improvement for the industry in the next year. I also share this view - the year 2018 will bring more contracts, as oil producers rush to replenish their reserves and to take advantage of low day rates. In this light, it is very interesting to evaluate the possible jobs that may be given to offshore drillers. I previously discussed the recent auction in Brazil, where Exxon Mobil (XOM) and Petrobras (PBR) made a major bet which should soon turn into new jobs for drillers.

They are not alone. BHP Billiton (BHP) is soon going to drill in Mexico and is reportedly searching for a rig. According to the report, BHP plans to make the job award by the end of this year and is in talks with several international and Mexican contractors about providing the drilling rig.

So, which driller will be chosen for the job? BHP is going to drill in the deepwater Trion field, and I expect that the company will use a modern drillship for this work. There are many drillships without work nowadays; so I see no reason why the rig will travel from elsewhere other than the Gulf of Mexico. This limits the scope of our search - it must be a modern drillship owned by a major international operator that is warm stacked or close to the end of contract in the Gulf of Mexico.

Noble Corp. (NE) has two drillships, Noble Tom Madden and Noble Sam Croft, warm stacked in the U.S Gulf of Mexico. These rigs are sister ships of Gusto P10,000 design.

Besides Noble Corp., Rowan (RDC) has three drillships in the area - Rowan Renaissance, Rowan Resolute and Rowan Relentless. These rigs are also sister ships of Gusto P10,000 design. Aside from Noble Corp. and Rowan, Diamond Offshore Drilling (DO) has rigs of this design in the Gulf of Mexico, but its rigs are on long-term contracts.

However, I do not think that Noble Corp. or Rowan are front-runners in this competition. In my view, Transocean (RIG) has the biggest chance to secure the work with BHP. Currently, Transocean's Deepwater Invictus is working for BHP in the Gulf of Mexico and its contract ends in November 2017. This rig will be as hot as possible and will be ready to get to work immediately. In addition, the rig has already worked with BHP, which is always a factor in decision-making. To outbid Transocean, Noble Corp. and Rowan will have to offer significantly lower pricing. It remains a big question whether they are ready to do this as day rates are already low and going lower will mean that they get zero cash flow or even negative cash flow from the contract.

All in all, I believe that Transocean has very good chances to secure an upcoming job from BHP. I do not think that anything will be announced in the upcoming fleet status report ahead of the third-quarter financial report, but I expect news closer to the end of the year. Meanwhile, the price of oil will remain the main factor that will determine whether the current rally in Transocean's shares will continue or a correction starts. In my opinion, $55 per barrel of Brent is the crucial price - if oil goes lower, long trades in offshore drillers will be closed by many market participants.

Disclosure: I am/we are long DO, RDC.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Gaston Lagaffe 12 oktober 2017 15:25

0

Offshore Drilling Has Finally Bottomed. Buy Transocean.

Oct. 9, 2017, Dividend Stream ++ SEEKING APLHA ++

Transocean posted another quarter of declining revenue, however, industry fundamentals appear to be improving.

The economics of offshore drilling continue to be stable, while cost inflation persists in some places onshore.

Transocean is a solid choice for an offshore recovery, which I believe has already begun.

Regular readers of my articles will know that I've been watching the offshore rig market, looking for 'green shoots' in this industry and not finding them in any meaningful way for about three years. As of right now, I finally believe that we can sound the 'all clear' in offshore rig leasing, and the latest quarterly conference call from Transocean shows a lot of the 'green shoots' sprouting up from the rubble - green shoots which patient investors have been waiting for.

I believe now is the time to start wading into the offshore drillers, and Transocean is the most obvious way to get back into this industry. This article looks at Transocean's latest quarter and, more specifically, several key observations from this last quarter which tell me that the bottom is already in.

Declining but profitable

Revenues last quarter were $751 million, compared with $943 million in the same quarter last year. Revenue has continued to decline as the company's long-term contracts, many of which were still agreed upon in days when rig dayrates were considerably higher, have rolled off. EBITDA was $347 last quarter, so although the company's revenue continues to decline, Transocean remains profitable enough.

What is more insightful, at least in this instance, is the contract backlog activity. Year to date Transocean completed 12 contracts and added $221 million to the backlog. The Deepwater Nautilus received a four-well drilling contract for work offshore of Asia. Nautilus has been working with Shell for 17 years in the Gulf of Mexico. The ship is by no means a new rig, and so it is encouraging that Transocean was able to find work for it. Transocean also got a contract for the Paul B. Loyd with Hurricane Energy in the North Sea.

More interesting is the fact that Transocean has been re-activiating cold-stacked and warm-stacked rigs. The ultra-deepwater semi-submersible GSF Development Driller was brought out of cold stack and will resume work in Australia for Quadrant Energy. Deepwater Asgard was brought out of warm stack and brought back to the Gulf of Mexico, where it has been operating now for the last three months. Overall, four ships were brought back onto the market.

This illustrates that the offshore drilling market is alive. There is active demand for drilling offshore, and in fact, offshore is becoming increasingly competitive for capital versus onshore shale. In fact, I believe there will be a shift in capital from onshore shale to deepwater, and this will effectively kick off the recovery in offshore.

Here's why: While capital costs have begun re-inflating in the shale, there has been no cost inflation in deepwater. I've heard that anecdotally not only from Transocean but also from several of the super major oil drillers who are on the other side of the negotiation table from the rig lessors such as Transocean. Dayrates have been stable (a good sign for the lessors only because they have ceased to decline) and other operating costs have been stable to down. This quarter Transocean reports that off shore break evens have dropped well below the $50 Brent estimated last year and are now actually closer to $40.

This would also explain why management was able to anecdotally claim that dayrates have ceased to become a downward source of pressure in negotiations. According to Transocean, producer customers are interested in locking in these good rates for the long term. Considering how competitive economics for offshore drilling have become, I don't blame the big producers for trying to lock in these contracts for as long as possible.

Long story short, I believe we will see a some kind of shift in capital expenditure from the shale to offshore, and that will mark the first real 'green shoots' in the offshore rig leasing industry. Also, the fact that Seadrill Ltd (SDRL) has had to declare bankruptcy, and the acquisition of Atwood Oceanics (ATW) by Ensco (ESV), are both big signs that the market has bottomed.

A worthy buy

Courtesy of Google Finance.

I've said in a number of previous articles that Transocean has ample liquidity and isn't going anywhere. That remains true. While Transocean is paying no dividend, the company has been using the excess cash flow to deleverage - not a bad idea in this environment.

For income investors, which I most certainly am, I would not expect Transocean to reinstate its dividend anytime soon. It may be one year or a couple years before the company starts paying a dividend, but I believe it will come, and it may come sooner than what many think. I also believe that when the dividend is eventually reinstated, those who buy at this price will be quite pleased with the yield.

If you're interested in Transocean Inc, feel free to follow me here on Seeking Alpha. I have been following this stock, and this industry, for awhile, and I will continue to write update articles when doing so is both material and relevant. Also, I have a Marketplace service which focuses only on dividend investing strategies and investments. In it I am able to write many articles which I would not otherwise be able to write.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Gaston Lagaffe 12 oktober 2017 15:27

0

Can Transocean Survive?

Oct. 4, 2017 , Disruptive Investor ++ SEEKING ALPHA ++

Current credit metrics for Transocean are healthy with smooth debt servicing.

Front-end loaded order backlog will ensure decent EBITDA and cash flows to keep balance sheet strong.

Cash buffer of $5.5 billion is a big positive and I see debt repayments being extended to preserve the cash buffer.

Transocean will navigate challenging times without significant strain related to credit metrics.

Investment Overview

The offshore drilling sector has experienced a sustained period of depressed sentiments characterized in the form of lower rig utilization and EBITDA margin compression. Among the major players in the industry, Seadrill (SDRL) has failed to stay afloat with excess leveraging being the factor for the bankruptcy filing.

In the current market condition, an analysis related to potential growth for offshore drillers is unimportant. The important analysis is to determine if offshore drilling stocks can navigate another 12-24 months of challenging industry conditions without prospects of bankruptcy.

I recently discussed Diamond Offshore (DO) from that perspective and my conclusion was that the company is well positioned to emerge from the crisis with a healthy balance sheet.

This article will discuss another offshore drilling major from a credit perspective. Transocean (RIG) has declined by 30% for YTD17 even as the stock has recovered from 2017 lows of $7.3 and currently trades at $10.3.

Credit Analysis Conclusion

The article will discuss the company’s balance sheet and cash flow outlook for the next 2-3 years and the key conclusion from the discussion is that Transocean is well positioned to navigate the crisis.

Even with a debt of $7.4 billion as of June 30, 2017, Transocean is likely to emerge from the crisis without any prospects of bankruptcy.

Of course, the key assumption is that gradual recovery in the industry will be seen over the next 24 months in terms of rig utilization. Significant EBITDA margin expansion is unlikely even in the next 24 months.

Debt And Credit Metrics

Moving to the key analysis, the table below gives the key credit metrics for Transocean as of 1H17.

Transocean Credit Analysis 2017

Even with a debt of $7.4 billion and leverage of 4.7, Transocean’s EBITDA interest coverage ratio comes to 3.1. This implies smooth debt servicing. To further elaborate on the company’s sound financial health, the following points are worth mentioning –

As of June 30, 2017, Transocean had cash and equivalents (pro-forma for Songa Offshore acquisition) of $2.2 billion. Through 2019, the company has $1.7 billion in debt repayment. Even with the current cash buffer, the company can comfortably repay debt due in the next 30 months.
According to Transocean’s estimates (refer latest09/07/17 investor presentation slide 29), operating cash flow of $1.0 to $1.4 billion is likely through 2019. Assuming the lower end of the estimate, operating cash flow of $1 billion is likely in the next 30 months. With capital expenditures of $700 million for the same period, Transocean will have a cash buffer of $300 million as additional balance sheet cash or potentially for debt repayment.
As of June 30, 2017, the book value of the company’s fleet was $18.9 billion. With a debt of $7.4 billion for the same period, the company’s loan-to-value is attractive at 39%. The point I'm trying to make here is that Transocean will emerge from the crisis with high financial flexibility.
Since July 2016, Transocean has been successful in raising debt worth $2.9 billion and this has been used to defer the debt repayment profile. I mentioned earlier that Transocean has $1.7 billion in debt repayment through 2019. With strong credit health, the debt maturity can be extended through new debt and this will ensure that the cash buffer of $2.2 billion remains on the balance sheet.
Transocean has a contract backlog of $14.3 billion as of June 30, 2017. The important point to note is that the backlog is front-end loaded with $8.0 billion in contract backlog through 2020. This will ensure that even if industry recovery is very slow, EBITDA interest coverage remains healthy for smooth debt servicing.
For Transocean, current cash position coupled with operating cash flow is likely to be sufficient for debt repayment and capital expenditures for the next 2-3 years. However, Transocean also has an undrawn credit facility of $3.0 billion that is maturing in June 2019. This takes the total cash buffer to $5.2 billion.
Considering these key factors, I see Transocean navigating the crisis without any major financial stress.

I would again like to emphasize here that during the next 2-3 years, EBITDA margin expansion is unlikely and I am not suggesting that Transocean will surge anytime soon.

However, in uncertain times, stocks do give sharp upside opportunities and Transocean already has moved higher by 41% from lows of YTD17.

Conclusion

Transocean is well positioned to emerge from the crisis with a decent balance sheet and my view is that any swing to negative sentiment can be used to consider small exposure to the stock.

As I mentioned above, the stock has already surged by 41% from YTD17 lows and investors should, therefore, wait for better levels of long-term exposure.

However, Transocean is not going the Seadrill way and that is the key takeaway from this analysis. Even if industry conditions remain the same for the next 12-24 months, Transocean will survive.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Vertraagd	30 jun 2019 17:30
Koers	6,220
Verschil	+2,220 (+55,50%)
Hoog	0,000
Laag	0,000
Volume	0
Volume gemiddeld	0
Volume gisteren	0

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