(SCP : TSX : $3.04), Net Change: 0.05, % Change: 1.67%, Volume: 205,132
WHAT’S IT WORTH AS A PUBCO?
Texas-based Independence Contract Drilling (IDC) has filed a registration statement with the U.S. Securities and Exchange Commission for a possible initial public offering. Several big name Wall Street bankers have been tasked with underwriting the deal. IDC is an investee company of Sprott Resource. Sprott owns 31.7% of IDC and made their $49.4 million investment in IDC in Q1/12.
IDC was formed in 2011 as a vertically integrated premium land drilling services provider. From its wholly owned API certified manufacturing facility in Houston, Texas, IDC provides E&P operators the ShaleDriller series rigs. The ShaleDriller is designed to target longer-reach horizontal wells that are technically demanding and more efficiently drilled by high-specification, programmable AC rigs, which precisely control key drilling parameters. In
addition, the ShaleDriller series have “walking” capability to allow the rig to be quickly moved to a new drilling location on a pad without disassembling and reassembling the rig.
As of Q1/14, ICD had six rigs fully contracted two additional rigs under construction, and one rig in the manufacturing facility for upgrades. The oil & gas drilling industry has entered a land rig replacement cycle because much of the current U.S. land drilling rig fleet is old and technologically inefficient. Some 40% of the fleet was built before 2000, and more than 50%are mechanical and below 1,000 HP.
Posted by Jack A. Bass on June 24, 2014
Diamond Offshore raised at Morgan Stanley as floater availability has peaked • 11:27 AM
- Diamond Offshore (DO +1%) is upgraded to Equal Weight from Underweight with a $57 price target, up from $47.50, at Morgan Stanley, which says earnings risk has largely played out and shares have an attractive yield.
- The cycle is turning and floater availability has peaked, the firm believes, expecting trading to be driven increasingly by the reduction of floater availability through a pickup in fixtures rather than the confirmation of negative data points on dayrates.
- Stanley sees negative sentiment on the offshore drillers group reversing to the extent that ballooning floater availability is absorbed from upcoming contract announcements.
- Also: ATW +1.4%, HERO +1%, NE +0.8%, ESV +0.8%, RDC +0.5%, RIG +0.4%.
Posted by Jack A. Bass on May 29, 2014
TOT : TSX : $21.71
Total Energy Services provides surface rental equipment,
contract drilling and natural gas compression and
processing equipment in western Canada. The company
has the largest rental fleet of its type in the WCSB and is
the second largest provider of natural gas compression
packages in Canada
Energy – Oilfield Services
Q1/14 IN LINE, CAPEX BUMP REFLECTS IMPROVING RENTAL
Total recently reported in line Q1/14 operating results and increased its
2014 capital program (refer to our First Link note published on May 12).
We believe Total’s first quarter results and commentary confirm our
thesis that the company’s Rental & Transportation Services (RTS)
segment is gaining positive momentum. We are making modest estimate
adjustments, increasing our target price to C$27.00 and reiterating our
Management believes RTS pricing has bottomed following a
competitive Q1/14. Total’s increased 2014 RTS capex is highly
focused on larger project activity, which should lever the company’s
strong market position and capital resources.
Management reported that the sequential decline in Q1/14 backlog
in Compression & Process Services (CPS) was largely seasonal as
this unit’s backlog has subsequently climbed.
Despite Total’s increased 2014 capital program, we expect Q1/14
net debt to fall through 2015. This leaves Total well capitalized to
take advantage of improving fundamentals.
Valuation and recommendation
We are making modest estimate revisions, which takes our EPS outlook
to $1.75 from $1.70 this year while leaving our 2015 view unchanged at
$2.60. Concurrently, we are raising our target price to C$27.00 (from
C$26.00) based on a 5.5x multiple applied to our 2015 estimates. We
continue to believe that consensus expectations meaningfully
underestimate the earnings potential of Total’s RTS segment as WCSB
completion activity improves, and are reiterating our BUY
Posted by Jack A. Bass on May 14, 2014
Shares of Seadrill (SDRL) have dropped despite the Europe-listed shares getting an upgrade atSociété Générale today, as the investment bank still sees better opportunities in Noble (NE),Ensco (ESV) and Rowan (RDC).
Société Générale Guillaume Delaby andEdward Muztafago explain why they raised their rating on Seadrill and why they’re still not fans of the offshore driller:
Our previous Sell rating (report link, 28 October), was partly based on the risk of floaters oversupply post 2013, which has now materialized. Assuming a “normal” and “gentle” scenario, we believe that: 1) 2014, 2015 and 2016 consensus might now be a bit too low and, 2) the current $3.92 annual dividend (11% dividend yield) might also be secure. In that context, and even assuming a slightly more grim 2014 (before a pick-up in 2015), our Sell rating is no longer warranted in our view. But in the event of an unexpected harsher scenario of declining oil prices and/or higher interest rates, we find little reassurance at Seadrill whose net debt, according to our forecasts, could rise to $17.5bn by the end of 2015 (237% gearing), a high level even by Seadrill’s own standards.
Delaby and Muztafago explain why Noble, Rowan and Ensco are better bets:
All in all, and while Seadrill is no longer a “Sell” or our “least preferred stock” (now SBM Offshore), we believe that US competitors like Noble, Rowan and Ensco (covered by SG analyst Edward Muztafago out of the US) are much more attractive given: 1) 6-8% expected dividend yields (2015-2016e), 2) above 15% FCF yields and 3) reasonable 35-50% gearing levels. Put another way, they offer only slightly less expected financial rewards for a much lower degree of financial risk in our opinion.
Still, not everyone’s a fan of even those drillers–yesterday Barclays cut its price targets on Rowan and Ensco, among others.
Shares of Seadrill have fallen 0.7% to $34.74 at 10:20 a.m. today, while Noble has dropped 0.8% to $31.03, Rowan has declined 0.9% to $31.30 and Ensco is off 0.5% at $50.39.
Posted by Jack A. Bass on April 10, 2014
Morgan Stanley has looked at the sector and sites the likely decline of rates as a reason to be more conservative about the sector. $ 100 oil is not a sufficient offset to the new rigs competing in the same markets.
The future looks OK, the present not so much, Morgan Stanley says •
- Bearish talk about offshore drillers has abounded recently (I, II, III, IV), and Atwood Oceanics (ATW) latest quarterly results won’t ease those concerns, Morgan Stanley says.
- The firm is now modeling a rollover at $400K/day on ATW’s next rig to rollover in Equatorial Guinea in Aug. 2014, down substantially from the rig’s current dayrate of $516K/day (fixed in July 2013), as it sees increased competition in securing new work.
- ATW does remain positioned to deliver steady earnings growth, the firm says, and beyond well-documented near-term floater market choppiness it still forecasts marketed utilization to pick up in 2015.
- ATW (-2.1%) results pulled down other offshore players: HERO -7.9%, DO-3.2%, NE -2%, RIG -1.9%, SDRL -1.8%, ESV -1.6%, RDC -0.9%.
Posted by Jack A. Bass on February 5, 2014
(NKO : TSX : $1.34), Net Change: -1.28, % Change: -48.85%, Volume: 7,510,858
Ability to continue as a going concern?
Following Niko‟s Q2/F14 results, and its announcement of a potential $340 million high-yield debt facility, Canaccord Genuity Oil & Gas Analyst Christopher Brown has downgraded his rating on NKO shares.
In Brown‟s view, if the company secures the proposed debt facility, the majority of its operating cash will be directed toward high interest debt payments. Moreover, the debt would be on a first priority basis, secured by substantially all of NKO‟s assets.
As such, if the company is unable to secure additional funds through asset sales, Brown believes it is likely that NKO‟s assets will revert to the new debt holder. His sentiment is echoed by NKO‟s financial auditor, which states it has significant doubts about the company‟s ability to continue as a going concern.
Also announced, NKO has signed a letter of intent with Diamond Offshore (DO) relating to a settlement of the company‟s payment commitments and obligations relating to the Ocean Lexington and Ocean Monarch rigs.
Posted by Jack A. Bass on November 18, 2013
A petroleum drilling rig capable of drilling thousands of feet (Photo credit: Wikipedia)
TDG : TSX : C$7.06
TDG.DB : TSX
Trinidad Drilling Ltd. is a Canadian based drilling contractor with operations in western Canada, southern US and Mexico. Trinidad’s rig portfolio is largely comprised of deeper rigs. The company also operates coring rigs, surface hole rigs and barge rigs.
All amounts in C$ unless otherwise noted.
EPS (ex-FX gain) of 29c came in ahead of consensus of 26c. EBITDA of $85 million beat consensus of $80 million but was just shy of our $88 million forecast. The consensus beat is attributed to better than expected results from the company’s Canadian drilling division. TDG’s Canadian fleet realized 73% utilization vs the industry average of 58%, due to both high demand for the company’s relatively high performance fleet and management’s ability to crew virtually all of its rigs in a seasonally busy period. The division’s result drove overall company outperformance, as TDG’s -3% y-y decline in total company revenues and -8% y-y decline in total company EBITDA represented outperformance vs peers (other drillers active in both Canada and the US reported flat to -21% y-y declines in revenues and -10% to -27% y-y declines in EBITDA over the quarter).
However, we note that in order to satisfy high customer demand, TDG pushed the repairs and maintenance costs it typically incurs in the first quarter into the remainder of the year. Considering this near-term cost reallocation, but also our belief that TDG has a higher performance rig fleet that should continue to outperform longer term, we have revised our 2013/14E EPS from 60c/75c to 57c/80c. Rolling forward the estimates used to derive our target price from 2013 to 2014, our target price increases from C$8.10 to C$8.50. We note our revised target price reflects 4.5x 2014E EV/EBITDA and 10.6x 2014E P/E target multiples.
Divergence between higher vs lower performance fleets continues to surface:
On TDG’s 1Q13 results call, management noted that “older style equipment is being particularly impacted” during softer pockets of demand. We note not only are higher-performance rigs competing for the same work as lower-performance ones, but also that the ownership of NAM oil and gas assets is generally shifting towards larger-cap E&Ps, NOCs and supermajors who place higher value on top-tier equipment vs their small-mid cap E&P peers.
Posted by Jack A. Bass on May 13, 2013
English: Transocean Wildcat (Aker H-3 design) drilling rig in Cromarty Firth, Scotland. (Photo credit: Wikipedia)
RIG : NYSE : US$58.17
I wonder what Bill Ackman thinks?
Carl Icahn disclosed his stake in Transocean increased to 5.6% late Friday, sending shares of the offshore driller higher. Additionally he has asked management to declare a dividend of at least $4 per share, and has said that if the company doesn‘t, he will propose it at the next shareholder meeting. He said, in a filing, ―Under Swiss law and the Issuer’s Articles of Association, a shareholder has the right to propose a dividend at a company’s annual meeting, and if a majority of shareholders support the proposal, the dividend is declared, whether or not the company’s board supports such proposal.
Transocean responded in a statement that read, ―We will review Mr. Icahn’s filing carefully and respond in due course. We appreciate the opportunity to hear from our shareholders and look forward to continuing a dialogue with Mr. Icahn.
As always, the Transocean Board of Directors will set dividend policy on the basis of financial prudence and the best interest of
shareholders.‖ Transocean initiated a dividend in 2011, but was forced to abandon the payouts in an effort to maintain its
balance sheet and investment-grade rating on its debt
Posted by Jack A. Bass on January 30, 2013
Halliburton 1 (Photo credit: friendofdurutti)
(HAL : NYSE : US$39.76)
Halliburton’s fourth-quarter earnings shrank 26% but beat analysts’ expectations as growth in the oilfield-services company’s international activity helped offset weakness in North America.
Halliburton reported a profit of $669 million, or $0.72 a share, down from $906 million, or $0.98 a share, a year earlier. Earnings from continuing operations were $0.63, down from $0.98 while revenue improved 3.2% to $7.29 billion. Analysts had projected earnings from continuing
operations of $0.60 a share on revenue of $7.06 billion.
Chief Executive Dave Lesar cited an “unusually high post-Thanksgiving decline in activity levels” in North America and remaining stock of high-priced guar gum, a material used in hydraulic fracturing that surged in price last year due to a shortage. Halliburton’s revenue in North America fell 5% from the third quarter and operating income fell 22%.
Posted by Jack A. Bass on January 29, 2013
Helmerich & Payne
HP : NYSE : US$48.85
BUY Target: US$62.00
Helmerich & Payne, Inc. is a contract drilling company that owns and operates land rigs in the US and international markets and some offshore platform rigs mostly in the Gulf of Mexico.
EPS of $1.39 beat consensus of $1.23 and our $1.24 estimate. On July 30,
we wrote “given that the spread between the dayrates/utilization/margins
commanded by HP’s unrivalled fleet of high-performance rigs relative to
lower-quality rigs typically increases in softer markets, we expect HP to
outperform peers and are upgrading the company to a BUY rating”. As
evidenced by HP’s very strong CY3Q12 as well as by the relatively strong
3Q12s reported by other land drillers with high-performance rig fleets (PD-T,
TDG-T, WRG-T), this growing divergence in demand for high-quality versus
lower-quality rigs has materialized. We expect this trend to continue and
continue to believe that HP offers investors “relative insulation within a
softening rig market.” Despite considering NAM activity levels lower than
previously forecast, we have slightly increased our 2013E EPS from $4.85 to
$4.95. We maintain our $62.00 target price, based on 12.7x CY2013E P/E,
in line with the range (10.2×-17.4x) we assign to peers.
We believe the ongoing rig replacement cycle will benefit HP:
Management notes over the past year, the US industry rig count is down 230 rigs while the AC-drive rig count is up 70. Moreover, utilization of AC-drive rigs is over 85% while utilization of SCR and mechanical rigs is below 60%. We expect this rig bifurcation trend to continue as efficiency
drives E&P rig demand. 234 of HP’s 239 NAM rigs are AC-drive rigs.
No premium for a premium rig fleet? HP trades at 9.9x CY2013E P/E, in line with peers at 9.7x. However, given its historic outperformance,
unrivalled current fleet quality and the ongoing trend of rig bifurcation, we believe HP warrants a premium valuation. Moreover, strong CY3Q12
results and signing of 10 new E&Ps to FlexRig contracts in the past year confirm HP’s strong relative performance should continue near-term.
Posted by Jack A. Bass on November 19, 2012