Roughly $85M USD? That's a nice down payment on the newbuilds. With a few of the 2013 deliveries already earning money, GLOG seems to be coming along nicely.
How does $2.65/$4.46/$5.92 sit with your current estimates?
I think it's all possible that NE will have the capability of generating $6 EPS in 2015, but won't believe it until the newbuilds start hitting their stride without the issues that plagued NE last year.
The operating costs for the Cat J in the North Sea are supposedly only $80K/day, which makes the annual EBITDA closer to $120M...making the returns about as attractive as a newbuild drillship. I'd say that was a win for Noble. Will likely stay employed with Statoil long beyond the initial contract...as the North Sea has taken on a new life in the last couple of years.
Here is an analyst report from C discussing this:
Lowering Estimates — We have lowered our 2013 EPS estimate from $2.85 to $2.65
after incorporating the additional planned downtime disclosed in recent fleet status
reports. We have also lowered our 2014 EPS estimate from $5.00 to $4.46 and our
2015 EPS estimate from $5.95 to $5.92 on utilization revisions due to previously
announced newbuild drillship contract commencement delays.
Revising Utilization Forecasts on Newbuild Contract Delays — We have revised
our utilization assumptions for the newbuilds Sam Croft and Tom Madden, both ultradeepwater drillships that are expected to commence contracts with Plains E&P in the
Gulf of Mexico in 2014 and 2015, respectively. We lowered our utilization assumption
from 75% to 40% for the Sam Croft to reflect the revised start date in August 2014
(previously 2Q14). For the Tom Madden, we have lowered our utilization assumption
from 50% to 0% in 2014 and from 95% to 80% in 2015, as the rig is now scheduled to
commence in February 2015 (previously 2H14).
Downtime Disclosed on Multiple Rigs — NE added downtime on a few rigs in 2013
and 2014. The Leonard Jones (390-IC’, jackup, Mexico) incurred 35 days and the
Clyde Boudreaux (10K’ semi, Qatar) is expected to incur up to 45 days of downtime in
2Q13. We have also incorporated 20 days of downtime due to a drawworks component
failure for the Danny Adkins (12K’ semi, GOM) in 2Q13. The Noble Jimmy Puckett
(300’-IC, jackup, Qatar) is expected to incur 75 days in 2Q14, and the Scott Marks
(400’-IC, jackup, Saudi Arabia) is expected to incur 45 days in 3Q14.
CJ70 High-Spec Jackup Contract Underscores Strong North Sea Market — Statoil
has contracted the newbuild CJ70 jackup from 3Q16 through 3Q20 at $447K/day. We
estimate only a 13%-14% ROI on the order (see our prior alert), but the newbuild
comes with a four-year contract, eliminating the risks of speculative construction.
I know a few other offshore contractors were bidding for the Cat-J newbuild, I wonder if that hurt the return? The cost of the unit is in line with drillship pricing, almost $700M, but the dayrate is closer to the trough UDW pricing, about $450K. The operating margin may be higher for the jackup...but I'll be interested in future NE presentations if they go over the rate of return for this project...
Having said that, I'm guessing it's in the mid double digits, assuming EBITDA of around $100M. With activity in the market still high (Atwood just fixed their drillship at ~$600k/day, Ensco just ordered a new drillship), and some free cash flow coming up around the corner (always around the corner)...would you rather see the cash returned to shareholders as regular dividends (ideally supporting the share price) or continue to add to the newbuild backlog? If returns on newbuilds stay at this level, newbuilds should lead to significant value creation.
I read an analyst report recently giving NE's payout potential in 2015 at nearly $3/share or over a 7% yield (paying out 1/3 of cashflow). That'd be ok...assuming all the bits are spinning then. The newbuild startups have been shaky at best, but the opportunities seem to still be out there. Either way, I'm a buyer, as always, in the mid 30s, and get a weak hand in the 40s. That will come back to haunt me some day.
I bought some on the first day of trading at $25.45, would add more if it falls below par. Had a large chunk (half!) of my 3 year old holding in TOO called away pre-distribution. Will be waiting on an offering or drop back below $30 to buy back any.
I bought some Sept $40 calls for $0.50 on Thursday, and have been selling June $35 puts at around $3, which will add more share to my holdings at roughly $32 if exercised.
I think any amount of good news, of which there are several possible sources, could send GLNG to 36.50 in a month:
- FLNG spin off / initial charter
- Announcing the expansion of their FSRU newbuild quanity from their LNGC orders
- Finalization of either the Chilean or Jordanian FSRU charter
- Any charters on the upcoming newbuilds, especially a 5+ year charter in conjunction with a dropdown to GMLP
- Recharter of the carriers coming available in 2013
Any of those happening would be another bounce like today. The fleet is going to look a lot different a year from now, and it seems likely they will be making money.
Definitely a far fetched idea, but TGP did go 52/48 on the JV to acquire Maersk's LNG fleet for $1.4B.
I used to have a lot more shares, but they got called away by Feb $12.50 calls that I sold for $0.50 (covering most of the shares I bought around $11 in November). I still hold some, and sold some May $12.50 puts (for $1.25 earlier in the year) hoping to get some more, but it looks like those may expire now.
Will be watching to add shares...on any dip but especially an offering. With mostly debt financing, additional newbuilds could be very attractive.
It all depends on what they do with the proceeds. It's not really dilution if you're dividing up a larger pie.
I think their long term contracts will help with the debt financing.
Where it will get interesting is on the shipyard options expiring in July. I cold see an equity raise in conjunction with ordering another ship or two, though there is likely very little money due upfront. Will be interesting to watch.
At current share prices, the return on newbuilds at $80k/day is pretty good...would not be surprised to see this acquired by TGP, given their focus on LT charters and need for growth.
There isn't a whole lot going on with GLOG, so right now I'm comfortable adding around 12 and waiting. Worst case is they don't grow the fleet beyond what is committed, and we end up around $14. Any new charters + newbuilds could put us way ahead of that.
A little off topic , but here is the sad denouement as a warning for anyone selling calls.
The difference between my LNG proceeds and what I would have made just holding the shares for the same six months stretched (just barely) into the five digits. Perhaps the worst single trade I've made, but hard to feel too cheated, I made 35% where I could have made 55%. My purchases were around 16 in September, and my calls gave proceeds of 21.60. The last few dollars of the run were painful, glad to have it wiped from my account.
With NE here I'm going to be patient through the mid-30s. Will add (via my sold puts) in the lower third of the 30s, and will start selling calls closer to 40.
I struggle buying back collapsed options, especially when margin is available. Is it worth $150 to buy an option for a few pennies? Aren't there nicer things I can buy with $150? Pfft, I should probably get outside more.
I'm biting...in addition to the short puts over April and May, I purchased some shares this morning with proceeds from my LNG that got called away over the weekend (bit of a heart break there...). I may cover with calls or buy back the puts if we move much higher...but I'm learning my lesson on selling calls: don't do it too early or too often.
The two companies:
"Spinco. Our analysis assumes Noble spins off 21 older jackups, six floaters, and three other rigs. These rigs account for roughly 12% of our published 2014 EBITDA estimate, and we then apply a 4.6x 2014 EBITDA multiple. This represents the median multiple for Hercules Offshore's multiple, which has much-lower-spec jackup assets, and Rowan's multiple, which has more premium rigs."
"Noble parent valuation. With respect to the remaining parent company, we believe it should trade similarly to higher-spec deepwater leveraged offshore drillers. Accordingly, we use a 7.1x 2014 EBITDA multiple, which is equal to the median multiple for Atwood Oceanics (NYSE: ATW), Seadrill (NASDAQ: SDRL), Ensco PLC (NYSE: ESV), and Ocean RIG (NASDAQ: ORIG)."
I'm back in the game, as well. Over the last few days I've layered on NE Apr $34s and May $35s...which I half hope to be put to me. I've also added some ESV Apr $55s this week. Smaller premiums, but after having it called away at $60 in January, I'm interested in getting back in.
This could be a blip, or the start of seasonal weakness, but I can't see NE staying in the low 30s for long without a deterioration in market conditions or operating performance (bar is set pretty low there right now...).
Looks like they're still talking about fleet rationalization, so any announcement there might unlock value...