Last year the first quarter had sales of 8.5mm which was much larger than the year before. If you assume a normal first quarter is about 5mm and you layer on 1/3 of the 15mm homeland security September contract and half of the 4mm current DHS contract you bring the revenue line to 12mm. Sales this year may be 50+mm compared to about 30mm last year. Second and third quarter could be $15-16mm each.
The market will punish a company that mises sales and should reward those with growth. I would think 60% should be enough growth to get the markets attention.
All of those companies that have rigs on order to be delivered in the year or so are buying assets that are worth only half of what they have paid or contracted price.
If a rig costs 750mm , were delivered today and you had a choice of purchasing the rig or repurchasing your own debt at 50 cents on the dollar, which would you do?
If you could purchase the rig at half price or repurchase your debt for 50 cents, which would you do?
I would think that companies would repurchase your debt. 100% chance of 100% return in five years. With a rig, who knows?
If this is the case, then should all assets be written down by 50%? Maybe a little extreme but others in this industry aren't going to make it and I bet their assets are sold for much less than half of book.
Patiently waiting, but surprised that NE bonds are selling off as much as they are. Some little rally in oil isn't going to turn things for this industry. Keep an eye on the bonds of companies of this industry. As long as they continue to fall there is NO chance the stock can have a meaningful recovery.
That''s usually the first thought of any wall street banker or analyst.
Up to now there was no need for any analyst to cover this stock. They weren't growing and had losses. But more importantly they did not need any financing. The big money on wall street is doing IPO's, secondary offerings debt issues or credit line fees.
ULBI spent their cash load on this recent $11mm acquisition. and indicated on the call that they were still looking for potential acquisitions. Any additional acquisitions will need financing
Ulbi has now had 4-5 profitable quarters with a good pipeline going forward. They may need additional financing in the near future and now have a good story for the analyst community. With the possibility of banking fees on the horizon we may now soon see some positive analyst coverage.
I will take the other side of your trade.
Company continues to control costs, Sg&a down to 3.2mm from 3.9mm last year. R&D was up 350k. If you adjust for the R&D and other 150k adjustment your earnings would be nearly the same as last year with lower sales in both divisions. This is a smaller company and has lumpy sales based upon government contracts that have uncertain timing.
The company took several years to make an acquisition. They didn't just make any acquisition to show growth but took their time to find the best opportunity. I suppose that they will be able to provide synergies with current operations and wring out cost as they have done with ULBI over the past few years.
I don't currently like the market but i seems that most people are cautious with the russell 2000 down 20% from its recent highs.
I am holding my position and plan to add id we dip below 5.
LOOK AT THE CHK BOND THAT MATURES IN 4 WEEKS.
company has 1.7 billion in cash and 4 billion in credit line availability. The bond has 475mm outstanding.
It only trades at 84 giving a yield to maturity over 200%.
the next CHK maturity is over a year later. Once they clear these bonds they have over a year's breathing room to have commodity prices recover or to restructure the company.
This market is spooked.
If CHK bondholders are selling at these levels you may find the NE bonds that mature in 2017 trade much lower than the current market.
YOU CAN BUY THE BONDS FOR ABOUT A PENNY.
If the company doesn't file for ch 11 you only get back 100 times your money.
If they do you still may get something.
But at one cent the matket telling you that you probably won't see anything. Secured holders will get everything.
Today ATW bonds fell 6 points (from 41 to 35) boosting the yield above 40%. At the same time the stock was up over 20%. You can bet your bottom dollar that the stock will retrace if the bonds don't rebound. Why would anyone own the risky stock when the bond has a yield that would double your money every other year (41% square root of two). In addition in the event of failure you may get cents on the dollar vs nothing with the common. (recent HERO ch 11 was an exception. Common got 3% of surviving company and bond holders 97%).
ATW is on the precipice of a revenue cliff. They had about 97% of their fleet on charter but all of it but one rig comes off this year. The bonds are saying that they may not have toe cash flow to service the debt in the next couple of years (I agree). If all of their rigs are released at current rates (about half of outstanding contracts) they will still have tight cash flow problems prior to maturity.
Paragon already in default, transocean bonds yield north of 21%. PBR the worlds largest rig user on a investment decline with 24 billion of bonds due in the next 24 months. North sea oil among the most expensive in the world.
I would think that only three quarters of the rig fleet will be deployed in the next 3-5 years and at only 1/2 of previous charter rates. This industry needs 10-15 year time line from bidding on tracts, doing simsic, preliminary drilling and evaluation, if oil is present then additional exploratory work to find the extent of the field then years and billions to develop the field. On the other hand fracking needs a good futures curve and the driller can hedge drill frack and produce within 3 months.
This market has changed. Bonds reflect this,
The market won't hit bottom until the excesses in this market are flushed out.
THEIR BONDS TRADE AT 17%.... cost of capital much higher than 10%
Equity cost by definition should be higher than bond cost because of higher risk.
THIS RIG COST 235MM TO BUILD IN 2014. iF YOU ASSUME A 10% COST OF CAPITAL AND A 10% DEPRECIATION RATE YOU NEED ABOUT 46MM A YEAR TO BREAK EVEN. 95k a day is only about 35mm a year. Better than nothing but doesn't provide a positive return.
Don't follow the stocks of this industry. Follow the bonds. google FINRA BONDS choose the morningstar bond sight , plug in the NE symbol into the search function. sort by maturity.
longer bonds yield over 17- 18%.
others in the industry are over 20-25%
THIS WILL GET VERY UGLY LATER THIS YEAR AS OTHERS HAVE RIGS COME OFF CONTRACT AND DEBT REPAYMENTS WILL COME INTO QUESTION. tHIS INDUSTRY MUST FIRST FLUSH OUT THE UNDERCAPITALIZED BEFORE IT CAN RECOVER.
Patiently waiting for an entry point.
4 YEAR BONDS NOW YIELD OVER 20%.
Too much debt.
Too many new rigs on order.
I bet by the end of the year riggs that were just built for over $600mm will trade in the secondary market for less than $200mm. PGN on the verge of ch11 (currently in default). Who will buy their riggs.
If a company can repurchase their 5 year debt for less than 50 cents on the dollar why would they buy a rig in the secondary market. They have a 100% chance of a 100% return in five years with the repurchase of their own debt . You can't say that about a rig purchased at a discount.
At least another year of misery in this sector.
This industry will see many companies fail in the next two years and many riggs will reenter the market but who will buy these assets. If a new rig costs $600mm and is available thru liquidation who will buy it and at what price? The market most likely remain soft for the next 2-3 years. What is a fair price for a new asset?
I would bet less than $200mm.
Today, Rig can repurchase 5 year notes for less than 50 cents on the dollar. Thats a 100% chance of a 100% return in 5 years. Can you say the same for a 200mm rig? It may double or even triple in the next 20 or 30 years on the other hand is may be a wasting asset for the next 5. Given this choice, management must first retire debt prior to bidding on cheap assets that may become available from others.
If these assets sell for $200 or less what does that do for the valuation of all of the assets currently held by the surviving drillers? We won't see the bottom until they start giving away riggs.
Not short but have been watching for an entry for over 2 years. I believe I have to wait for another year.
North sea oil is among the most expensive but temporary cuts aren't possible. Once cuts are made they would be perminimate and because they share infrastructure a cut in money losing wells in one field affect the prospects and cost for others sharing infrastructure cost and maintenance.
Canadian oil sands get less than $10/bbl at this time and cash costs are near $27. Instead of cutting, SU just added to capacity with an acquisition. They are looking at the 50 year prospects and losing $10mm a day cash costs seem to be ok with them.
Frackers are still locked into rig and pressure pumping contracts them may run another 24 months. They would rather not drill at this time but must pay for the riggs whether they use them or not. So they keep drilling.
GOM production expected to grow 500k /day this year
Brazil cutting back but that won't affect production until s few years from now.
The warm weather dropped demand by about 500k bbls/day.
Iran now pumping.
World economy / demand slowing.
Bond prices are projecting much more pain for most of the drillers. I don't know where the bottom is but this long slide down will turn to panic with some of the drillers (ATW has most of its riggs coming off contract this year) as revenue collapses later this year.
Patiently waiting for a bottom.
These things probably take about six months to negotiate. So things probably got started back last summer. I don't mind them using cash since it only earns about 1/4 of one percent return. I assume that cash will build fairly quickly when they fulfill the viper contract.
A quick look at the acquisition should provide some synergies and growth opportunities.
I sold about 20% of my shares when the stock was near 7 (always pays to take some off the table) and will use the current weakness to rebuild the position.
Things in this industry are getting worse. Dont kid yourself if you think we are near a bottom.
Last year Conoco returned a rig that was leased for 500+k a day and paid a $400mm penalty to get out of the lease that had about three years to go. I don't remember which offshore company made the lease but the math essentially said that COP was willing to lease a rig for 500K+/day in 2014 but wasn't willing to hang on for about 133k/day above the penalty rate (400mm / 1000 days).
Last month Statoil was willing to return a rig with one year to run and instead of leasing it for 370k/day and drilling they were willing to pay 90% of the lease revenues to end the lease early. In essence they are saying (that with oil prices where they are today , the shape of the forward oil prices and the uncertainty in the market they won't even drill for oil if they could get a first class drilling vessel for 37k a day.)
Thats right, only 37k a day and they could have kept that rig working but chose to return it early. The fleet status report shows that if they don't release rigs that come off contract between now and this April that daily revenues will fall between 2-3mm a day. Mid term bonds are now trading at about 75 cents on the dollar. Much better than some others but the pain will continue.
I still believe that this is the best horse in the glue factory but things are going too get very ugly in the next 6 months. Many others have rigs coming off contract but don't have the balance sheet strength of NE and will pollute the market by discounting much below costs just to generate some cash flow to make another interest payment in the hopes that things turn for the better. But that won't happen.
Way too many new rigs and too many mid aged rigs that have many good years to drill. This market is oversupplied for a good market, and we are not in a good market.
Cop and Statoil and others are looking to preserve cash flow. Onshore market is just as bad.
THE 1.5MM SHARES? ONLY THREE HOLDERS HAD A POSITION THAT LARGE. Fundamental had an average purchase price well above the sales price so I don't think they were the seller. Don Goebert had 1.7mm shares but I doubt that he was the seller. The only other holder Benchmark has 1.58mm shares and they have trimmed positions (only by a few shares) during the past 6 months. I belive that they have held the position for over 2 years and may have had a low entry price. I would bet that they were the seller.
The big question is who was the buyer of nearly 25% of the outstanding stock? We should see a SEC filing in the next 3 days.
The Privet sale should take pressure off the stock. The stock has been trending downward since Levensons departure from Relm as the market was concerned with Privets potential sale of their large position and no longer with board representation.
Now the stock may move higher to reflect the large contract win at the end of last quarter.
WHO IS THE BUYER? I DON'T think the company has a buy back program. So who wants nearly 16% of the company. This is probably why they changed their by-lays earlier this week.
I hope this takes off the selling pressure as it probably clears Privets position.
AT 4.01 AND 4.08 THEIR HIGHEST PURCHASE PRICE WAS 3.99 back in June 2014.
I assume that they will take their time to liquidate their position. They own about 16% of the company and will only hurt themselves it they try to dump a large amount in a short time frame. I further assume that the stock will have limited upside with potential sales from the firms largest holder.
Absent any bad news, I still plan to add to my positions if the stock has a downdraft.
The stock has been under pressure for about 7 months now. Its easy to see why.
1) lumpy sales have produces 2 quarters of yoy declines
2) margins in the second quarter were 10% lower than the prior year but bounced back in the third.
3) company wanted to change incorpation state and at last moment backed off
4) chairman was removed
5) 3 directors resigned (from largest investor, Privet fund)
6) change in accounting firm.
7) rising SG&A
A whole lot to chew on and the stock reflects this.
In addition, during the past two days a large seller 81k shares has been offering stock at 4.10. The stock amazingly traded 117000 shares in two blocks yesterday at 4.01... this may have taken out the large block held for sale. During the second quarter total volume of the stock was just over a million shares. according to WHALE WISDOM one fund liquidated their position (about 250k). During that time the stock fell from 6.75 to below 3.00. This shows just how tough it is to sell a nearly ill liquid stock
and I believe the offering of 81k shares over the past few days has kept a lid on this stock in spite of the good news of the new contract.
I believe the stock is worth between 5 and 8 A large range to be sure. The 16mm TSA contract should add about 25 cents to the bottom line next year. New radios should step up the pace of non lumpy sales and we should from time to time get the additional 3-5 mm contract to boost the bottom line.
The stock has underperformed for good reason but should bounce back nearly as quick.
I continue to add at lower levels but am keeping some powder dry in case we get some large gap down.