jch548 Posted June 12, 2014 Share Posted June 12, 2014 Songa Offshore trades in Oslo. This company recapitalized last year in an effort to secure financing on four new Harsh Environment semi-submersibles that will come with eight year contract with Statoil. They have three older rigs operating on the NCS. Additionally they recently sold two rigs operating in SE Asian waters. Their current fleet is pretty old but they have spent over $400mm in recent years refurbishing them. Two of the new rigs are already financed. The stock was up over 6% the other day. It might be news regarding the financing of the last two rigs is leaking. The new rigs cost over $660mm apiece. They will begin taking possession of the rigs in Q414 with one rig taken down each qtr. Once their new fleet is operational Songa should be drowning in cash flow. I think the shares have a good chance of doubling. Link to comment Share on other sites More sharing options...
petec Posted June 12, 2014 Share Posted June 12, 2014 How are you valuing this? Link to comment Share on other sites More sharing options...
jch548 Posted June 12, 2014 Author Share Posted June 12, 2014 Its pretty easy to model the numbers working off the company's P&L. The day rates on the new rigs are known. They could do I believe around $200mm in FCF with the new rigs. That number is probably high as it is based on a very high utilization rate so say $150mm. The current market cap is around $350mm. They also have a $150mm convertible issue that will probably convert. So a $500mm market cap. So a 30% FCF yield on the common post conversion. This is probably a two to three year hold to realize the potential upside. Also, You might have heard about Rosneft buying a piece of North Atlantic drilling. The Russians want to develop their arctic waters. This should translate to higher demand for HE rigs such as those operated by Songa. Link to comment Share on other sites More sharing options...
yadayada Posted June 12, 2014 Share Posted June 12, 2014 These rig stocks all sound like valuetraps to me. How do you know they still get 150mm a year from these things after 3 years? why are they so cheap? I understand safety and reliability is an issue with these type of things, so oil company's tend to pay up for this kind of thing. But what are the risks after 3 years and how cyclical is this industry? Link to comment Share on other sites More sharing options...
jch548 Posted June 12, 2014 Author Share Posted June 12, 2014 They have 8 year firm contracts with Statoil for the new builds. I believe the older rigs entered long-term contracts at the bottom of the market. The NCS rig market has better fundamentals as HE type rigs are required. The Russian arctic could create significant demand also. Link to comment Share on other sites More sharing options...
xxx1313 Posted June 12, 2014 Share Posted June 12, 2014 Thanks for sharing this idea. All 4 newbuilds have 8 year firm contracts but at rather low dayrates. The company will have to take on about USD 2 billion of new debt to finance the newbuilds. Only newbuilds no. 1 and 2 are already financed, 3 and 4 are not yet. They will have to pay really high interest. It will be difficult (and probably rather expensive) to mobilize all four rigs in a short period of time, because they need 700 new employees. So there is really high uncertainty here and together with high financial leverage much can go wrong for shareholders. In spite of price/book of 0.3, this is rather an option than a stock with a margin of safety. Can you share your calculations? Link to comment Share on other sites More sharing options...
jch548 Posted June 12, 2014 Author Share Posted June 12, 2014 I read that 700 new employees number and was surprised that they need so many and wonder the impact on margins for the new builds. I mean I did some calculations in my head and it seems rather excessive. So it could be a concern but I'm going to see how this develops. They are already training new employees and this is being expensed through the quarterly operating costs on a couple of their rigs. Here are my QUARTERLY numbers for Songa if and when they get the four new semi-submersibles and sans the Asian rigs. (000) Revenue $295,179 Op exp -130,712 SG&A -26,925 Other -3,868 Ebitda 133,674 I have sustaining Capex at $31,750 and interest of $49,200. Taxes $3,500. That gives a QUARTERLY FCF number of $49,224. This is a very high utilization type number. I.E. no rigs are in the yard etc. The numbers are pretty easy to extrapolate. Songa gives us the revenue and operating expenses for the three NCS rigs. We know what day rate the new rigs will be getting so just bump this up by the premium over the old rigs. For op-exp I just used 110% of what the old rigs are incurring. The new-builds have more beds so I'm assuming higher costs which is a swag. Sustaining Cap-ex is 3% or so of gross assets. I pulled this number from RIG. Songa FCF could approach $200mm annually. Current Market cap is $350mm. FD add the $150mm convert. Link to comment Share on other sites More sharing options...
xxx1313 Posted June 13, 2014 Share Posted June 13, 2014 Thanks for sharing your numbers. I realized that terms of the syndicated loan are quite reasonable for Songa (3m LIBOR +2.75 % and + 3,25 % margin). So, your numbers on interest and FCF seem realistic to me. However, the financial leverage still scares me. I think I will stay with good old and conservative Fred Olsen. :-) Link to comment Share on other sites More sharing options...
jch548 Posted June 28, 2014 Author Share Posted June 28, 2014 A couple of important announcements from Songa on Friday. Financing firmed up for the last two new builds. The sale of the two SE Asian rigs should de-risk this quite a bit as they build up their cash and wait on the arrival of the new rigs. Shares were up ten percent on the news. Cyprus. Songa Offshore SE : Songa Offshore secures USD 1.1 billion credit facility for Cat D 3 and 4 Friday, 27 June 2014 Songa Offshore SE (the "Company") has received a firm commitment from banks and an Export Credit Agency for the financing of the Cat D 3 and 4 newbuilds with a pre-delivery financing of USD 90 million per rig and a post-delivery financing of USD 550 million per rig. The terms of the financing are at competitive terms and the Company plans to complete final documentation of the transactions in third quarter 2014. The commercial tranche of the senior secured credit facility is underwritten. Limassol, Cyprus 27 June 2014 AND...... Songa Offshore SE : Sale of Songa Mercur and Songa Venus By GlobeNewswire, June 27, 2014, 02:45:00 AM EDT Closing of the sales of the rigs Songa Mercur and Songa Venus from Songa Offshore SE to companies within the Opus Offshore Group, previously contemplated to take place within second quarter 2014, is now scheduled to take place within the end of July 2014. Limassol, Cyprus 27 June 2014 Link to comment Share on other sites More sharing options...
ATLValue Posted January 23, 2015 Share Posted January 23, 2015 any new thoughts on Songa? They have lost about half their value since the last post on this thread Link to comment Share on other sites More sharing options...
jch548 Posted January 23, 2015 Author Share Posted January 23, 2015 As Songa operates in a high cost offshore environment the crash in oil prices has hurt the long-term viability of the business. They have a number of old rigs that could get taken out and stacked or salvaged. Statoil has reneged on a number of drilling contracts. If Songa loses these rigs it could mean insolvency. I have sold all my shares. Link to comment Share on other sites More sharing options...
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