I am holding my SDRL and SDLP at a ratio of about 2 SDLP shares for each SDRL share. If SDRL has a big come back, I don't want to miss getting some of that action. If the dividend is cut I think the price drop could be modest, say 10-20%, and perhaps a good point to buy. I think any cut is likely to be short-lived.
Price difference between SDLP and SDRL is now over $3. This will increase each quarter as SDLP announces each successive distributio increase.
I see the year to year contracted percentages as standard stuff of the industry. Contracts are typically renewed with the same party, especially since they are modern to begin with, and often at higher rates. That is in contrast to the relatively ancient stock leased by AWLCF, one of which has a contract extension in place but at a lower day rate while the ssecond has an optional extension with it after contract expiration but nothing firm at this point. Russia remians the main concern for SDRL as a dividend cut may be in the future if the Russian deals fall through.
I wouldn't oppose all crude export, or at least the distilled version of the most recent approval. And with all the oil that will be coming out of Canada, one can afford to be flexible. But I do think it should be closely monitored and regulated by the government. You can't trust the free market to properly regulate anything. I still prefer to see the value added here in the USA and they fuels and products then exported.
Thanks. In fact, the September IEA report, released to the public on Sept 11, also speaks to the economic slowing of the European and Chinese economies and the effect on oil prices. As a result they lowered their projected increase in oil demand growth. But grow it will, as it declined from the norm (whatever that is) only during 2009 and increased the rest of the time.
I have a simple minded approach to investing, but I consider sector rotation and sector correction to be different phenomena. I heard a guy a year or two back (some Oppenheimer guy, I think) posit that while we had not seen the 10 or 20 % correction in the overall market that people look for, we nevertheless had had large moves or corrections in major sectors coming at different times and that that was essentially the equivalent of a single large market correction event. That seemed to compute with my personal investment experience.
On energy, I used to think of oil stocks as an inflation hedge, and they may well be, but since 2005, the primary determinant in my oil and gas investing has been the relative balance between global supply and demand for oil. Using the monthly IEA reports, one could actually see the coming of a serious under supply of oil and that led to $150 a barrel oil which foretold the arrival of the Great Recession. I was fortunate enough to be pretty much 100% invested in oil and gas from 2005 until 2008. I overstayed my welcome, but retained most of my profits and had good luck trading on core positions in the oil majors for another two years.
I'll continue to state the case for SDLP as a better play than SDRL. Future dropdowns must be quality assets with good contracts and highly visible future revenue. The benefits of an MLP with distributions taxed as regular dividends. 25% distribution growth forecast for 2015 by Wells Fargo analysts. The SDRL dividend is likely to be cut, IMO. It just doesn't make sense for SDRL shares to be priced for a 13% yield. The price gap between them is now over $2 and IMO it will continue to widen in SDLP's favor.
GLNG is a 12 course meal than comes out of the oven in 2015-16. The serving of the appetizers starts later this year. Investor gourmets have bought their tickets and are sitting at the table, waiting, drooling. There is more seating available but the prices will be higher.
How's that for an analogy?
I have taken profits in the past on GLNG, only to have to buy it back higher. I may never sell again. I still think $80 is there by the end of the year. Was that a short squeeze today? Was there news? I've been out of touch today.
GMLP was also better priced today. The FSRU charter with Jordan will be generating income soon.
I like your point about NADL being at pre-Rosneft levels, but how do you allow for the fact that they are now much closer to accepting delivery of the West Rigel and payment of the final installment? Are they thinking they can get the Rosneft contract or are they scrambling for a Plan B if the Rosneft contract falls through? They were also counting on new contracts for several rigs with expirations coming up. I like a lot about NADL but still have my doubts.
BTW, you may have noticed SDLP came back today. Aside from the general market rebound, I think folks have been forgetting that the assets SDLP acquires from SDRL come with longer term contracts. These contracts are executed and performing before they can be dropped down to the MLP and must be accretive to earnings.... and thus generate distribution increases. So, even if they acquire assets that have Russian ingredients, they must be performing assets which avoids the uncertainty over sanctions.
I think if SFL does a spo, it will be in about a month.
Also, the notion that "should there be no overt military action in Ukraine by Russia, the sanctions might end in a short time" is wishful thinking. Not actionable from an investor's standpoint. Putin will press his advantage in a measured way, but relentlessly.
My question is will loan covenants kick in and require even a small cut in the SDRL dividend. Another one is, how will NADL finance the delivery of the West Rigel before the end of the year? That should happen in the very near term. Will SFL do a secondary? Will SDRL provide interim financing? As an SDRL shareholder, that dosn't sound too appealing. My other questions are mostly about the implications of SDRL's Russian escapade. If anyone thinks they have that figured out, I think you're kidding yourselves.
Good day, Mr. Sarge. I just don't get apple and probably never will. I still have my flip phone. My loss, I guess.
But, I do have my GLNG. You know the saying... even a blind pig can find an acorn once in a while.
I agree. Sector correction is what's happenning in the energy sectors right now. At least refiners will reap some benefits from lower oil prices. With gas and oil(?) inventories low perhaps there will be major price spikes this winter if we get a cold one.
IMO, the weakness of the oil and gas infrastructure MLPs is a bonafide buying opportunity. Golar continues strong (another intraday high today), but it is only a subset of the larger midstream natural gas sector. KMR seems a bargain, pre-conversion to KMI. Other gathering/processing/pipeline MLPs should do well from where they are today. ETE also.
Thanks for noting that. Seems to me there is no way of knowing what sanctions mean for NADL and SDRL since we have no information on the nature and commitments of any existing contracts. Is there enough in the agreements that locks in future ancillary contracts for newbuilding rigs to be delivered in 2017? That would seem to be a stretch. Is the West Rigel covered through delivery, mobilization and operation? Time will tell but the picture has to be a lot clearer for me to continue to invest.
Yesterday, many good stocks got pulled down. BDCs like ARCC, HTGC, and TCAP yield 8% with reasonable chance of price appreciation. ETE is down (while ETP is up) so that is a buy. WMB and WPZ look like buys to me. One doesn't want to get too distracted by the fortunes of the drillers. ARP hit an OK price so I added because it fits my theme to accumulate high-yield upstream MLPs. I finished up for the day on that. Now it feels like I should put SDRL on the shelf. I'm thinking the dividend will be sustained but a temporary cut would not surprise me.
I agree, there should be a buying opportunity up ahead, but I will wait for the meaningful resolution before buying any more "JF" shares, except via dividend reinvestment. That probably includes GLNG and GMLP where I am overweight already. I am also overweight on SDLP but I like that one and will have a hard time resisting temptation if it goes under $29 or 30.
Here's another thought... Vladimir Putin will probably do his damnedest to make the Rosneft/NADL/SDRL deal work using whatever he has at his disposal. Very interesting situation, especially with the resources he is now committing to the fighting in the Ukraine. The only way to squeeze him and bring him in line is through financial means and unfortunately, North Atlantic Drilling and Seadrill have, of their own free will, walked into a minefield.
What knows about the sanctions. Not me, for sure. But the wording seems to prevent any financial transactions with Rosneft by any of the institutions bound by the sanctions so you have to start by subtracting ANY support or participation by banks in the EU, the US, and possibly NATO countries. That leaves what? Asian banks? And even if you are, say, a Chinese bank not bound by the sanctions, how do you underwrite a loan to SDRL, SFL, or NADL to pay the $454 million due on the West Rigel before the end of the year. NADL has no capital to bring to that, do they? They have done temporary loans from SDRL which are then refinanced through future borrowing and equity sales. Was some of the money they need to come from Rosneft? If so, how likely is that now?
Bottom line, I don't have a clue what will transpire and can't rely on my amateurish speculation. So, I hold my position and wait and see. This could be a great buying opportunity but not for me.
That could be. The JF brain trust is capable of handling complicated situations... the unwinding of the FRO charters with SFL, the restructuring of FRO, and the financing options with SFL and the MLPs. JF simply misread the change in the offshore sector and got overextended. He took a chance on the Russian deal and now is paying the price. Who knows? It could still be a brilliant deal 5-10 years from now. Exxon takes the long view in everything and are no doubt in Russia for the long haul, including the post-Putin era. But they have the resources to weather the storm. SDRL is solid and has resources, but not compared to an Exxon.
My thoughts, from the peanut gallery.
The new sanctions are now in place for one year. They can get worse. Putin is a KGB Colonel from the cold war. His vision is something from a different era. But assuming the present sanctions get no worse and assuming they are lifted on Sept 12, 2015, what are the challenges faced over the next 12 months by NADL, and SDRL which is the NADL majority shareholder and also has its own deal with Rosneft for a 30% stake in NADL.
On the plus side...
-- The Alpha is an existing contract and should continue to generate revenue as planned.
-- The Hercules is contracted to Statoil and has just been relocated to Canada for a new run.
-- The Venture and the Phoenix have contracts that expire in Aug and Oct 2015 and will need new charters.. nothing new there.
-- The two newbuildings are not scheduled for delivery until Apr and July 2017.
-- The Linus and the other jackups are under contract.
On the minus side....
-- Rosneft may not be a viable charterer for the Venture, Phoenix or the Navigator. NADL and SDRL may have to find other takers in a tough market.
-- Rosneft may not be able to close on the deal for the 30% of NADL. Where would they get the financing that may be needed. The deal was also based on an NADL price of $9.25 which is above today's close. Will that reduce any proceeds to SDRL?
-- Last and most important, is the contract for the West Rigel to Rosneft still viable? Will the sanctions prevent this from going through, one way or another? Perhaps even more important, the Rigel delivers in Q4 2014 and the final installment is $454 million. That money will have to come from new financing and that seems like a lot, given the debt they just took on for previous deliveries.
Bottom line, I hope they have a good path out of this mess by early Nov.