Anadarko find will set off Gulf of Mexico (black) gold rush

Yesterday, March 20, shares of Anadarko Petroleum (APC) rose 3.7% on news that the company had made a major discovery in the deep waters of the Gulf of Mexico. The find at the Shenandoah-2 well could produce more than 500 million barrels of crude.

As important as the discovery is for Anadarko and its partners (ConocoPhillips (COP), Marathon Oil (MRO), and Cobalt International Energy (CIE)—analysts estimated it was worth $3 a share to Anadarko investors—the find has even bigger implications for oil production in the Gulf of Mexico as a whole. It’s large enough to turn the efforts to explore the entire Lower Tertiary trend into a gold rush. The Lower Tertiary trend, with sub-regions such as Walker Ridge and the Shenandoah formation, is a very deep water play that could hold up to 15 billion barrels of oil. By deep I mean deep and expensive. The Shendoah-2 well was drilled through almost six miles of rock in water 5,800 feet deep. Wells that deep cost big bucks—a deep-water well can cost $130 million and dry holes easily run to $10 million. That makes spending money on the best available seismic imaging technology a no brainer.

Anadarko’s discovery in the Shenandoah formation isn’t an isolated event. Since 2010 Exxon Mobil (XOM) has found the 700-million barrel Hadrian field, Royal Dutch Shell (RDS) has discovered the 500-million barrel Appomattox field, and Chevron has found the 200-million barrel Moccasin field, all in the Gulf of Mexico’s Lower Tertiary trend. BP (BP) estimates that its Mad Dog field could hold up to 4 billion oil-equivalent barrels.

Can investors already pick some winners from the Lower Tertiary trend discoveries?

Let me suggest a few. Read more

SeaDrill is expecting 10 new rigs in 2013 and another 8 over the next two years–no wonder market are willing to look past today’s earnings miss

The rigs are coming. The rigs are coming.

And in yet more of SeaDrill’s (SDRL) aggressive use of its balance sheet, the company will fund its purchase of new higher margin ultra deepwater rigs by selling lower margin tender rigs in a deal that will close in April

It’s that aggressive increase in assets—and its ability to find a low cash cost way to fund it—that has made today’s shortfall on fourth quarter earnings irrelevant to the market. Shares of SeaDrill were up 0.24% as of 1:30 p.m. New York time today. EBITDA (earnings before interest, taxes, depreciation, and amortization) climbed just 5% for the quarter to $604 million. That missed analyst expectations—lowered in recent weeks on increased downtime for the company’s deepwater rigs—of $619 million in EBITDA. Total downtime for the company’s fleet came to 100 days in the fourth quarter. That resulted in a $60 million hit to revenue in the period. (The day rates that oil companies pay to hire SeaDrill’s fleet have stabilized at $580,000 to $620,000, SeaDrill reported.)

And here’s why the market has been willing to look past these quarterly numbers Read more

Catching up on the bookkeeping for my July 3 buy of SeaDrill in my dividend income portfolio

When I posted my most recent update of my Dividend Income portfolio http://jubakpicks.com/2012/07/03/if-you-want-to-earn-more-dividend-income-youll-have-to-put-up-with-more-volatility-what-you-want-to-avoid-is-a-permanent-impairment-of-capital/ on July 3, I promised that I’d make the required changes to the online portfolio http://jubakpicks.com/jubak-dividend-income-portfolio/ within a couple of days.

Talk is cheap. (Or writing in this case.)

Here it is early September and I’m just updating the portfolio now. My bad.

For those of you without perfect recall (or who have better things to stuff their brains with than changes in my portfolios) on July 3 I added SeaDrill (SDRL) to that portfolio. The price on July 3 was $36.25 a share.

How you feel about SeaDrill as a dividend income stock depends on what you think about the company’s high leverage strategy. SeaDrill current pays a dividend of 8.2%, but the company has a history of borrowing on a drilling rig as soon as it can so that it can invest in an additional rig. That strategy has helped SeaDrill build one of the biggest and newest deepwater drilling fleets in the world. But it does expose the company—and shareholders—to significant downside risk if the market for deepwater rigs should take a nosedive.

Right now that’s not a problem. Read more

SeaDrill reports a record backlog of $20.3 billion as deepwater rig market stays fully booked

SeaDrill (SDRL) reported second quarter earnings on August 27 that showed the company growing both revenue and operating earnings. Revenue for the Norwegian deepwater drilling specialist—a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ — grew to $1.12 billion in the quarter from $1.05 billion in the first quarter. Operating earnings increased to $483 million from $456 million in the prior quarter. At the end of the quarter the company had a record backlog of $20.3 billion.

Year over year earnings fell by 14% on higher operating expenses. Operating margin fell slightly to 43% from 43.2%. Earnings of $1.09 a share, down from $1.29 in the second quarter of 2011, were ahead of Wall Street projections for 78 cents a share. Year over year revenue climbed by 13%.

Just as importantly (or maybe even more importantly) SeaDrill reported continued momentum on day rates and demand for its deepwater drilling rigs. Read more

Ensco (ESV) goes on the Jubak Picks watch list today

AllianceBernstein upgraded a bushel of energy sector stocks this morning. Halliburton (HAL) went to outperform from market perform; Talisman Energy (TLM) went to outperform from market perform; Anadarko Petroleum (APC) went to outperform from market perform; SeaDrill (SDRL) went to market perform from underperform; and Ensco (ESV) went to outperform from market perform. (AllianceBernstein did downgrade Weatherford to market perform from outperform.)

The one I’d like to highlight from that list is Ensco.

I understand the upgrades—since my Jubak’s Picks portfolio http://jubakpicks.com/watch-list/ is already long energy with positions in Schlumberger (SLB), Statoil (STO), SeaDrill (SDRL), and Western Gas Partners (WES). The energy sector is cheap right now and these stocks are a good long-term investment if you think the global economy will ever pick up and lead to stronger demand for oil.

But I also understand that the timing of that turn in demand is very unclear and the sector has been pounded in the last year—Schlumberger, for example, is down 25.5% in the last 12 months—and could get pounded some more on fears that the economies of China and the United States are slowing. That’s why I’ve favored energy stocks with dividends—with the exception of Schlumberger, which yields just 1.8%, all the energy stocks in Jubak’s Picks yield more than 4%. You get paid a good yield while you wait.

On a dividend basis Ensco (ESV) is more aggressive than most of my picks since it’s dividend is a relatively low 3.4%. But I like the way that the company has continued to pursue its strategy even through the downturn in the sector. On June 26 Ensco announced that it would buy an additional advanced ultra-deepwater drillship from Samsung because of stronger than expected demand from oil companies for the most advanced deepwater drilling platforms.

Ensco’s strategy has been to build the youngest deepwater fleet in the sector and to, as much as possible, standardize that fleet. Read more