Author Topic: AWLCF - Awilco Drilling  (Read 202950 times)

Packer16

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Re: AWLCF - Awilco Drilling
« Reply #20 on: May 12, 2013, 06:03:46 PM »
If Transocean had a choice of what to sell, they probably sold their highest cost/oldest rigs.  If that is the case, does anyone know enough about these rigs to know if they are lemons or hidden diamonds.  I don't know but maybe someone here with more O&G experience would know.

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ItsAValueTrap

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Re: AWLCF - Awilco Drilling
« Reply #21 on: May 12, 2013, 06:13:43 PM »
I'd look at the private market value of these rigs and the drilling contracts.  If there is a large difference between the public and private market values, then there will be an arbitrage opportunity that you don't want to be on the wrong side of.

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HOWEVER, so what if rates go down?  These things are not going to be worthless, even if they are scrapped.  I doubt they will be scrapped after two years though....There is an argument to be made that ocean drilling is going to be a big thing for the foreseeable future, as the world needs more oil.  Eventually that might change, and holding this for 10+ years might not be the best thing...but the next few years could be very lucrative.
Take a look at Seahawk's history.  Too much debt + lower rates spelled their death.

I don't think that Awilco has enough debt to push them into bankruptcy if rates were to fall a lot. 

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If that is the case, does anyone know enough about these rigs to know if they are lemons or hidden diamonds.
Over time, maintenance/operating costs of the rig will go up.

Eventually there will be a point where the rig isn't cash flow positive.  So then you can idle the rig or sell it for scrap metal (Awilco's financials puts residual value at $15M).  These are all *estimates*.  The ultimate lifespan of the rig depends on drilling rates (and prices of scrap metal).
« Last Edit: May 12, 2013, 06:18:32 PM by ItsAValueTrap »
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Myth465

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Re: AWLCF - Awilco Drilling
« Reply #22 on: May 12, 2013, 07:20:53 PM »
You might want to consider why TransOcean sold these particular rigs, & not something else.

Just maybe ... TransOcean didn't think they could keep the rigs in service long enough to earn their minimum WACC? Hence to get the rigs, Awilco may have overpaid for them.

Just maybe ... Awilco did nothing more than luck out? They bought the rigs just as the market turned, & got their rates & utilization because they were the only ones with available rigs? It does occasionally happen, as Ari Onassis found out in the tanker trade.

Just maybe ... Awilco's CF is also being boosted by cutbacks in maintenance?, because they expect to resell/scrap these rigs as soon as the cycle starts to turn again?

They may well be able to hype themselves higher over the near term ... but one has to think that one may well make more, & do it more reliably, by progressively betting against them. Even Ari couldn't avoid  the pullback, & it eventually crippled him.

If you inverted; you would be looking at longer term investments in the Repsol's of the world, & have rig exposure at much less risk. Is this really worth that additional risk?

Sharper has some good points. I would have sold some crappy rigs, and not top assets.
Also scrap value isnt worth anything in the Drilling Business. Ask Hercules and Seahawk about it.

Its interesting but there are alot of ways to lose inmo.

Olmsted

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Re: AWLCF - Awilco Drilling
« Reply #23 on: May 12, 2013, 08:04:16 PM »
I think Awilco will make TONS & TONS of money for the next 24 months or so.  Beyond that?  50/50, who is to say?  I don't think anybody will know what will happen then.

I agree.  I don't think the thesis depends on the long-term economics of the North Sea, whether these rigs last 10 or 20 years, or the price of oil in 5 years.  These are contracted for 1-2 years, we know how much Awilco will make in this time (barring an accident), and provided management isn't lying we know about how much we'll get in a dividend.  If we get that dividend, a yield hog will pay more for it than the share price now.  Can't an investment be just that simple sometimes?

To make money here, you don't have to Buffett and buy this company and hold it forever.  We have the luxury of buying now and hopefully selling it to someone else for more.  Just look at some of the crappy royalty trusts out there that are going to stop cashflowing in a couple years - they still get bid up based on the dividend.  This situation is at least as good. 

Myth465

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Re: AWLCF - Awilco Drilling
« Reply #24 on: May 12, 2013, 10:37:29 PM »
I think Awilco will make TONS & TONS of money for the next 24 months or so.  Beyond that?  50/50, who is to say?  I don't think anybody will know what will happen then.

I agree.  I don't think the thesis depends on the long-term economics of the North Sea, whether these rigs last 10 or 20 years, or the price of oil in 5 years.  These are contracted for 1-2 years, we know how much Awilco will make in this time (barring an accident), and provided management isn't lying we know about how much we'll get in a dividend.  If we get that dividend, a yield hog will pay more for it than the share price now.  Can't an investment be just that simple sometimes?

To make money here, you don't have to Buffett and buy this company and hold it forever.  We have the luxury of buying now and hopefully selling it to someone else for more.  Just look at some of the crappy royalty trusts out there that are going to stop cashflowing in a couple years - they still get bid up based on the dividend.  This situation is at least as good.

Very good counter argument, this was my thesis with ROIC and it worked out well.
Its also why I find myself drawn to this thread. With 2 rigs though not alot of room for error, downtime or any major accident by any major rig company would pretty much kill / maim the company in the short term.

Green King

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Re: AWLCF - Awilco Drilling
« Reply #25 on: May 13, 2013, 12:56:08 AM »
I think Awilco will make TONS & TONS of money for the next 24 months or so.  Beyond that?  50/50, who is to say?  I don't think anybody will know what will happen then.

I agree.  I don't think the thesis depends on the long-term economics of the North Sea, whether these rigs last 10 or 20 years, or the price of oil in 5 years.  These are contracted for 1-2 years, we know how much Awilco will make in this time (barring an accident), and provided management isn't lying we know about how much we'll get in a dividend.  If we get that dividend, a yield hog will pay more for it than the share price now.  Can't an investment be just that simple sometimes?

To make money here, you don't have to Buffett and buy this company and hold it forever.  We have the luxury of buying now and hopefully selling it to someone else for more.  Just look at some of the crappy royalty trusts out there that are going to stop cashflowing in a couple years - they still get bid up based on the dividend.  This situation is at least as good.

Very good counter argument, this was my thesis with ROIC and it worked out well.
Its also why I find myself drawn to this thread. With 2 rigs though not alot of room for error, downtime or any major accident by any major rig company would pretty much kill / maim the company in the short term.
wouldn't than be a better time to buy ?  when it becomes extremely miss priced. It feels like its fully priced in right now. If you buy it means you know the bad things above will not happen.
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ItsAValueTrap

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Re: AWLCF - Awilco Drilling
« Reply #26 on: May 13, 2013, 01:14:30 AM »
- I think the real risk here is rig rates collapsing.  A decade ago they used to be $50k/day.  I think that the chance of a major accident is remote.

*I have no idea where rig rates are headed.  They could go up.  You can figure out how many newbuilds are about to hit the market (a lot of them will hit the market 2013-2015).  Historically in the drilling and shipping industry, there are these boom/busts cycles.  Record profits leads to some players going crazy with new supply, which causes prices to crash and years of people losing money which leads to underinvestment, setting up a new boom.

- Awilco's presentations are worth reading as they contain day rate information not found in their annual and quarterly reports.
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HJ

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Re: AWLCF - Awilco Drilling
« Reply #27 on: May 13, 2013, 06:01:29 AM »
- I think the real risk here is rig rates collapsing.  A decade ago they used to be $50k/day.  I think that the chance of a major accident is remote.

*I have no idea where rig rates are headed.  They could go up.  You can figure out how many newbuilds are about to hit the market (a lot of them will hit the market 2013-2015).  Historically in the drilling and shipping industry, there are these boom/busts cycles.  Record profits leads to some players going crazy with new supply, which causes prices to crash and years of people losing money which leads to underinvestment, setting up a new boom.

- Awilco's presentations are worth reading as they contain day rate information not found in their annual and quarterly reports.

But the general environment is So different now vs. 10 years ago.  In the aftermath of Asian crisis, oil went as low as $9, dollar was king, and oil companies have sustained a decade of relatively low oil prices, and are not quite as flush with cash as they are today.  Today, the environment is almost the exact opposite.  As long as oil stays above some generic number, say $80, it's very difficult to see day rate collapsing, certainly not within the forseeable future?

The new builds are primarily in the ultradeep category, and looking for day rates into $600k per day, a very different class of equipment.  That's where economics seem to be suspect on a 30 year horizon. 

These guys are probably due for regulatory inspection after the next 2 years, so an off year in utilization rate is up coming.


Olmsted

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Re: AWLCF - Awilco Drilling
« Reply #28 on: May 13, 2013, 07:00:46 AM »
Very good counter argument, this was my thesis with ROIC and it worked out well.
Its also why I find myself drawn to this thread. With 2 rigs though not alot of room for error, downtime or any major accident by any major rig company would pretty much kill / maim the company in the short term.

Congrats on ROIC! Watched for a while but never bought.

Yeah, the main risk here is any unexpected incident that results in downtime and/or a sudden need for cash.

wouldn't than be a better time to buy ?  when it becomes extremely miss priced. It feels like its fully priced in right now. If you buy it means you know the bad things above will not happen.

Yes, it would be a better time to buy.  And I'm going to size the position so that if there is a better buying opportunity I can still take advantage of it.

- I think the real risk here is rig rates collapsing.  A decade ago they used to be $50k/day.  I think that the chance of a major accident is remote.

*I have no idea where rig rates are headed.  They could go up.  You can figure out how many newbuilds are about to hit the market (a lot of them will hit the market 2013-2015).  Historically in the drilling and shipping industry, there are these boom/busts cycles.  Record profits leads to some players going crazy with new supply, which causes prices to crash and years of people losing money which leads to underinvestment, setting up a new boom.

- Awilco's presentations are worth reading as they contain day rate information not found in their annual and quarterly reports.

Rates might go up, and we get optionality on that upside.  But we know what rates will be for at least a year for one rig, two for the other.  They won't collapse over that duration.  And I think that duration is enough for this stock to get priced on dividend yield.

ItsAValueTrap

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Re: AWLCF - Awilco Drilling
« Reply #29 on: May 13, 2013, 02:41:34 PM »
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As long as oil stays above some generic number, say $80, it's very difficult to see day rate collapsing, certainly not within the forseeable future?

If you look at the drybulk shipping sector, commodity prices recovered in 2009/2010 but drybulk shipping rates have stayed low ever since.  The crazy thing about the drybulk sector is that there was a huge order book even after prices crashed 97% and there were very few cancellations.  The massive oversupply of drybulk ships may keep rates down for years.


http://www.dryships.com/pages/report.asp

The drybulk shipping industry has been a terrible one historically- I believe it hasn't made money.  Offshore drilling may be slightly better.

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And I think that duration is enough for this stock to get priced on dividend yield.
What happened to value investing? ;)
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