Sell GulfMark (GLF)
I’m going to take my own advice (see my post http://jubakpicks.com/2010/03/09/stocks-show-signs-today-of-having-more-fuel-in-the-tank/ ) and use this rally to sell GulfMark. I think fundamentals in the oil industry have turned, if not against, at least away from this provider of offshore service vessels to drilling operations.
Oil drilling failure rate surges at the Western majors
It’s not a factor now in the climbing price of oil but the trend certainly doesn’t portend cheaper oil down the road. Or a rosy future for the Western oil giants.
In 2009 Chevron’s (CVX) drilling failure rate climbed to 35%. More than one-third of exploratory wells came up dry. That compares to a 10% failure rate in 2008.
And that’s by no means an isolated increase in the drilling failure rate. ConocoPhillips (COP) saw its failure rate climb to 43% in 2009 from 32% in 2008.
Higher failure rates mean that it gets more and more expensive to find new oil to replace what’s been pumped out of the ground. Chevron’s target is a modest 1% increase in oil and gas production this year. ConocoPhillips is forecasting a 2.7% drop in production in 2010.
The reasons for the climbing failure rate are pretty simple.
Update Transocean (RIG)
Have you got the patience to hold this one for the turn in the off-shore drilling market?
It’s clear that many investors in Transocean (RIG) don’t. The stock was down 5.5% for the day (February 24) after the company yet again pushed out the recovery for its deep-water and mid-water drilling rigs when it reported fourth quarter 2009 results.
For the quarter the company reported earnings of $2.24 a share and revenues of $2.55 billion. Given all the one-time items in the quarter (such as a $48 million charge related to taxes and the GlobalSantaFe merger), it’s not clear to me how the reported $2.24 compares to Wall Street’s projection of $2.56 in earnings. What is clear is that revenues, which fell 10% from the fourth quarter of 2008, came up short of the Wall Street consensus by about $280 million.
But I think it’s the conference call that did the real damage to shares on the 24th.
Update GulfMark Offshore (GLF)
Lots happening at GulfMark Offshore (GLF) over the last quarter. Much of it good. But nothing that yet indicates the decisive turn in the company’s business that I’ve been looking for. The best I can say is that it feels closer.
First, at the end of October the company announced a restructuring, scheduled for completion in the first quarter of 2010, that would merge the existing GulfMark Offshore with a wholly owned subsidiary New GulfMark Offshore, in order to limit the percentage of stock owned or controlled by non-U.S. citizens to a maximum of 22%. This is intended to preserve the company’s status as a U.S. citizen under the Jones Act, which governs maritime activity in U.S. ports. I’m sure this has engendered confusion and probably some selling but the reorganization is a neutral event (other than for the confusion that led to selling) for most investors since each common share of the existing company will be converted into one share of New GulfMark Class A stock. The new stock will be governed by the ownership provisions of the Jones Act.
Second, on December 17 GulfMark Offshore announced that it had arranged a new $200 million term-loan facility to replace the prior loan facility of $220.6 million.
Update Transocean (RIG)
No real surprises in the third quarter earnings reported by Transocean (RIG) on November 4.
The company continued to stack jack-up rigs as that segment of the offshore drilling market showed continued weakness. Deep water activity continued to heat up in the waters off Brazil but that wasn’t enough to offset the decline in the shallow and mid-water markets.
For the quarter Transocean reported earnings of $2.19 a share, down from $3.30 in the third quarter of 2008. Revenue dropped to $2.82 billion from $3.19 billion.
Earnings per share, excluding one-time items, were 2 cents a share above the Wall Street consensus.
Those drops in earnings and revenue were clearly forecast in Transocean’s fleet report in the days before the earnings release.
