Nothing has changed except that the majors are cutting cap ex. The esv/cop early rig termination says more about the outlook for the next few years than anything else. COP was willing to pay $400mm early termination fee rather than complete the 3 year contract for about $600mm. The one year old drill ship which was contracted for %550k per day was terminated rather than spend the additional $200 million for 3 years. Thats about $180k per day. the choice was pay $400mm and get nothing or pay 600mm( Additional 200mm) and use a brand new drillship for over 1000 days. Cop is saying that even at 180k per day it doesn't pay to look for oil at current prices. About 300 older rigs will come off contract or nearly 100 newer rigs will come on the market in the next few years. What will earnings look like when only about 50-60% of these rigs will be contracted closer to the $180k level rather than rates above 500k per day of the last few years. Sure, many older rigs will be scrapped but the over supply will continue and day rates will continue to fall.
In my opinion NE is in the best shape with a newer fleet, good contracts,low commitments and great debt structure. But every day that goes by the company is one day closer to getting lower day rates if they can can find a company that is even willing to rent their rigs.
If you really want to get a feel for the market follow the debt of these companies. I usually look at a 5 year bond. You can get bond prices (google finra bonds morningstar) Look at the rig bonds due 2021. They are falling back to new lows. When the bond market looses confidence many will not be able to refinance. We are not that bad yet but follow the bonds of these companies to get a better insight of the industry.
I should have said "deep water" offshore production is only about 6% of world wide production.
The dry baltic index fell nearly 90% from 2008 highs. The oversupply of shipping drove prices well below long run equilibrium. The same will hit the platform and drill ship market. Great company, great assets, good contracts, low new build commitments, great debt structure but still the wrong time.
I expected the good numbers but the outlook is NOT cloudy. The outlook stinks for this industry and the down cycle will last much longer than most stocks reflect. With 30-40 years of growth offshore only produces about 6% of world oil. Fracturing shale (about 6-7 years old) produces about 4-5%. It's tough to spend 3/4 of a billion for a 30 year asset when marginal production will be determined by a sector of the industry that is still in its learning curve.
Hero has assets with book of 1.7 billion and debt of 1.2 billion that trades at 35 cents on the dollar. The bond holders will get 96+% co the company in a restructuring, meaning that the whole company is worth only about 25% of book. Many others (NE NOT included) will go thru this same process depressing the value of those companies that are in good shape.
No chance that the stocks in this industry may run away (up) from current levels. The best you could expect to is to scalp a point or two from time to time.
I haven't seen any announcements of any large (1mm +) contracts this past quarter. We all like to see results when these lumpy contracts hit the bottom line but it looks as if this quarter may be a disappointment. The stock may have been telegraphing for the past few months. I still believe that the company will show some good growth later this year and am using the selloff to add to positions. Net working capital is over 2 bucks a share and 12 month trailing earnings is 13 cents a share. Thats only about 12x earnings if you subtract the net working capital. The stock was too cheap a few years ago and may have got ahead of itself a few months back but if you believe( as I do) that the company has a good chance in picking up some 3-5 million dollar contracts in the next 12 months then the stock has the possibility of moving above the recent highs as much of the supply has now been acquired by a few large funds. The recent selloff has also moved shares from weak hands which should provide a good base in which the stock price may rebound quicker than many expect.
I don't like the market in general but without and other alternative investment the market will probably continue to grinding higher until it becomes much more overvalued. Its a poor excuse to be invested, but its the reality created by the fed during this economic cycle.
This ship was 1 (one) year old. COP would rather pay $400 million in early termination fees than spend nearly 600mm and use the ship for the next 3 years. If things are this bad how does the industry expect to sign or resign any new contracts as the old ones expire. The ESV/COP contract was for three years at 550k per day. By walking away COP is saying that they think the day rate on new rigs should be less than 183k per day. (1/3 of 550). What will the price of an older rig be? who knows?
I believe NE is the best in the industry (see seeking alpha article) but the COP/ESV announcement leads me to believe that there will be more pain prior to the bottom.
THE PROBLEM WITH RIG AND DO is the age of the fleet. Do has a fleet with an average age somewhere near 30-35 years old. If this slowdown last a few more years the fleet will average 35-40 years in the next upturn. Rig is in nearly the same shape. This slowdown will retire more rigs than any other slowdown in history. Revenues from older rigs will be very tough to find. ATW has a newer fleet but too much debt for the revenue base and when a few of the current rig contracts expire and are not replaced or replaced with much lower day rates they will have a cash flow pinch.
HERO a major player in the jackup market displays how bad it can get. The company currently has book value of 560mm and debt of 1.2 billion. The company is going thru a prepackaged bankruptcy In which bonds (currently trade a 35 cents on the dollar) will get about 97% of the company. Therefor rigs and other assets worth 1.7 billion on the books are only worth 420mm. Others will follow (NADL PGN) and additional companies may not be able to roll debt as it becomes due. Some companies have huge commitments for new rigs (some under contract some not) which will chew up cash and cash flow from current rigs that have cash flows form above market contracts. When these contracts expire most in this industry will still have too much debt and not enough cash flow. Weaker more desperate players will discount prices to generate cash flow lowering the returns for the whole industry.
In my opinion Ne is in the best shape with age of fleet, debt structure and and commitments for rigs under construction.
the bottom isn't in yet. Too many new rigs entering the market without a contract and the majors are still in a slowdown. Oil price is now set by the market and not OPEC. All markets in the long run price at the marginal price of production. This near 70 a year ago and closer to 60 today and will probably drop to the low $50s in the near future. Rig count has fallen by more than half but production hardly moved. My benchmark is not the number of drilling rigs but the number of drill bits. DOV indicated that their bit demand had only fallen 15%
in the first quarter. Thus the number of rigs may be down over 50% but the number of feet drilled is only down 15%. They have kept the most productive rigs in the most productive regions and output has remained steady. This will lead to a longer downturn in the offshore market an continued falling prices in day rates and stock prices. Ne is stoill my best pick but now is not the time.
Read the lending agreement. Cash raised from any asset sales must be used to repay loan balance.
current assets 292mm current liabilities 316mm. 24mm deficit, long term debt with guarantees for Peaks and other loans over 210mm.
Sure the company earned about 10mm in the quarter. At this rate in two years you will still have a negative position (ca-cl) and debt of about 130mm. That assumes that revenues and earnings don't deteriorate.
Debt agreement requires 2.5mm to be repaid each q for first year, then 5mm a quarter for next year and 7.5mm /q for third year. At end of the loan about 40mm of origional 100mm still remaining with all of the companies assets pledged against the balance.
In addition to all debt and guarantees you can bet the government regulators and lawyers for borrowers will extract their pound of flesh. These future liabilities are not yet on the balance sheet. But the stockholder must figure these into the time horizon.
The stock may remain under pressure for the next year or two. Current liabilities still exceed current assets and much of the cash flow for the next two years will be used to pay down long term debt and bad loan write offs. Overall debt to equity levels will improve but liquidity ratios will not. Naturally, the stockholder still bears the risk that enrollment and revenues could fall short of expectations. I have a small long position and don't expect to make any quick short term profits. This situation took years to develop and will take years to unwind. Current p/e annualized (4-5) means nothing until some of the debt and loan guarantees are put behind us. Shorts probably wont cover until enrollment and revenues show a few quarters of advancement. That may be a year or so down the road.
this is a bet on the long haul and not a short term trade.
ABOUT 1.3MM SHARES.
I still think that RWC would be a good fit for TASR. They both chase the same clients and TASR could argue that they could purchase both the relm radios and taser body cameras for the same price as a Motorola radio. Synergies and growth for a combined company. Taser stock would be a cheap currency to complete the transaction.
bringing total to 13.1% of outstanding shares.
It may be enough for a bounce in the stock back to the 6-8 range. Many shorts may have been betting that the company would not survive (they may be right). The latest release provides some breathing room for the company to maneuver its finances and hopefully provide another few quarters to produce cash flow to pay down some of these loans. The company based upon core earnings may be worth about $20 a share but subtract the debt and potential suit liabilities and I would think at this time you would be hard pressed to get to 6 or 8. The shorts are down nearly 100% today. Some will cover but I expect most to play out the the long term uncertainty.
Small position but fun to watch.
COMPANY indicated that they expect earnings by month end. The fact they haven't released them by now indicate to me that the earnings will disappoint and will be released after the close on Friday, or worse yet, not be released by month end.
Thats more than 5% of outstanding but still no SEC filing.
read the loan document (december 4 or 5 ) sec filing.
They repaid about 86mm revolver and knew they would pay 60-70 mm in peaks loans. If you read other filings you see that they have to add about 140mm in other than PEAKS loan guarantees to the balance sheet. This is the delay and the reason they are 6 months behind their filings. These credit union loan guarantee losses above 35% and the actual losses have been in excess of 61%. Total losses from these off balance sheet loan guarantees may be near 50mm ( 61% -35% )* 190mm initial loan amount.
ARE YOU KIDDING....Buy back program....
They Just (December) pledged every asset they have with very onerous conditions. They had to pay 3% up front. over 10% annually 2% pre-pay penalty,
with limitations on EBIDTA leverage.
This may be the last loan the company ever gets. Nothing left, no other asset to lend against. Peak loans are over 10% this loan is over 10%. any unexpected loss on PEAKS or other off (soon to be on) balance sheet loan guarantees and this company will violate loan covenants. The lender may be able to demand full repayment with no chance for the company to get additional funding.
I have a small long position and am just hoping they can survive the next few years and repay some of these loans. Maybe in a year or two they may be able refinance at more reasonable rates and then use the savings to pay off these debts. I think nearly a billion in stock repurchases for a company with $50 million market cap has been enough.