Over the past eight months, a number of articles have appeared on The Rational Walk related to the Deepwater Horizon disaster and related investment opportunities. Value investors know that times of stress and uncertainty create opportunities in the financial markets whether the turmoil is due to natural disasters, political unrest, or the fallout from accidents such as the Deepwater Horizon incident. In this article we revisit our bullish investment thesis for Noble Corporation and explain our decision to sell shares at the current valuation.
The official moratorium on deepwater drilling in the U.S. Gulf of Mexico was lifted in October 2010, but has been replaced with what can only be described as a quasi moratorium as new permits continue to languish in a byzantine approval process that has frustrated the industry. Investors and industry participants have every reason to be confused. On Monday, The Wall Street Journal reported that major players did not expect new permits to be issued until late 2011 or 2012. This was followed today by another article in the Journal indicating that certain projects could receive a go-ahead within weeks. It seems like the Obama Administration either does not know how to proceed or an internal power struggle is taking place as competing interest groups influence policy. Read this article for our views of Diamond Offshore as a potential opportunity to profit from the market’s current view of offshore drilling.
Noble reported third quarter 2010 earnings of $86 million, or $0.34 per share, compared to $426 million, or $1.63 per share for the third quarter of 2009. Contract drilling revenues fell precipitously to $584.9 million for the third quarter of 2010, down from $875 million for the third quarter of 2009. Contract drilling revenues were $687.5 million for the second quarter of 2010. Read this article for more information and a forecast of likely Q4 revenues.
Noble Corporation Chairman and CEO David Williams believes that uncertainty in the Gulf of Mexico will continue to impact the offshore drilling industry for some time to come. Mr. Williams, speaking today at the Barclays Capital Energy and Power Conference in New York, updated investors regarding the company’s operations and future prospects in light of continued regulatory uncertainty in the Gulf of Mexico in the aftermath of the Deepwater Horizon disaster involving the blow out of the Macondo well. Read this article for a summary of the presentation.
A quick look at the chart for Atwood Oceanics shows a familiar pattern for those who have been following the price action of companies in the offshore contract drilling industry. Shares of Atwood have declined by approximately 30 percent from the trading levels that prevailed in the weeks prior to the April 20, 2010 Deepwater Horizon disaster. However, Mr. Market is generally incapable of evaluating the details behind specific situations and appears to have unfairly discounted Atwood based on one surprising fact: Less than two percent of the company’s revenues in the current fiscal year were derived from activities in the Gulf of Mexico. Read this article for more details.