Green King Posted May 13, 2013 Share Posted May 13, 2013 I think Awilco will make TONS & TONS of money for the next 24 months or so. Beyond that? 50/50, who is to say? I don't think anybody will know what will happen then. I agree. I don't think the thesis depends on the long-term economics of the North Sea, whether these rigs last 10 or 20 years, or the price of oil in 5 years. These are contracted for 1-2 years, we know how much Awilco will make in this time (barring an accident), and provided management isn't lying we know about how much we'll get in a dividend. If we get that dividend, a yield hog will pay more for it than the share price now. Can't an investment be just that simple sometimes? To make money here, you don't have to Buffett and buy this company and hold it forever. We have the luxury of buying now and hopefully selling it to someone else for more. Just look at some of the crappy royalty trusts out there that are going to stop cashflowing in a couple years - they still get bid up based on the dividend. This situation is at least as good. Very good counter argument, this was my thesis with ROIC and it worked out well. Its also why I find myself drawn to this thread. With 2 rigs though not alot of room for error, downtime or any major accident by any major rig company would pretty much kill / maim the company in the short term. wouldn't than be a better time to buy ? when it becomes extremely miss priced. It feels like its fully priced in right now. If you buy it means you know the bad things above will not happen. Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted May 13, 2013 Share Posted May 13, 2013 - I think the real risk here is rig rates collapsing. A decade ago they used to be $50k/day. I think that the chance of a major accident is remote. *I have no idea where rig rates are headed. They could go up. You can figure out how many newbuilds are about to hit the market (a lot of them will hit the market 2013-2015). Historically in the drilling and shipping industry, there are these boom/busts cycles. Record profits leads to some players going crazy with new supply, which causes prices to crash and years of people losing money which leads to underinvestment, setting up a new boom. - Awilco's presentations are worth reading as they contain day rate information not found in their annual and quarterly reports. Link to comment Share on other sites More sharing options...
HJ Posted May 13, 2013 Share Posted May 13, 2013 - I think the real risk here is rig rates collapsing. A decade ago they used to be $50k/day. I think that the chance of a major accident is remote. *I have no idea where rig rates are headed. They could go up. You can figure out how many newbuilds are about to hit the market (a lot of them will hit the market 2013-2015). Historically in the drilling and shipping industry, there are these boom/busts cycles. Record profits leads to some players going crazy with new supply, which causes prices to crash and years of people losing money which leads to underinvestment, setting up a new boom. - Awilco's presentations are worth reading as they contain day rate information not found in their annual and quarterly reports. But the general environment is So different now vs. 10 years ago. In the aftermath of Asian crisis, oil went as low as $9, dollar was king, and oil companies have sustained a decade of relatively low oil prices, and are not quite as flush with cash as they are today. Today, the environment is almost the exact opposite. As long as oil stays above some generic number, say $80, it's very difficult to see day rate collapsing, certainly not within the forseeable future? The new builds are primarily in the ultradeep category, and looking for day rates into $600k per day, a very different class of equipment. That's where economics seem to be suspect on a 30 year horizon. These guys are probably due for regulatory inspection after the next 2 years, so an off year in utilization rate is up coming. Link to comment Share on other sites More sharing options...
Olmsted Posted May 13, 2013 Share Posted May 13, 2013 Very good counter argument, this was my thesis with ROIC and it worked out well. Its also why I find myself drawn to this thread. With 2 rigs though not alot of room for error, downtime or any major accident by any major rig company would pretty much kill / maim the company in the short term. Congrats on ROIC! Watched for a while but never bought. Yeah, the main risk here is any unexpected incident that results in downtime and/or a sudden need for cash. wouldn't than be a better time to buy ? when it becomes extremely miss priced. It feels like its fully priced in right now. If you buy it means you know the bad things above will not happen. Yes, it would be a better time to buy. And I'm going to size the position so that if there is a better buying opportunity I can still take advantage of it. - I think the real risk here is rig rates collapsing. A decade ago they used to be $50k/day. I think that the chance of a major accident is remote. *I have no idea where rig rates are headed. They could go up. You can figure out how many newbuilds are about to hit the market (a lot of them will hit the market 2013-2015). Historically in the drilling and shipping industry, there are these boom/busts cycles. Record profits leads to some players going crazy with new supply, which causes prices to crash and years of people losing money which leads to underinvestment, setting up a new boom. - Awilco's presentations are worth reading as they contain day rate information not found in their annual and quarterly reports. Rates might go up, and we get optionality on that upside. But we know what rates will be for at least a year for one rig, two for the other. They won't collapse over that duration. And I think that duration is enough for this stock to get priced on dividend yield. Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted May 13, 2013 Share Posted May 13, 2013 As long as oil stays above some generic number, say $80, it's very difficult to see day rate collapsing, certainly not within the forseeable future? If you look at the drybulk shipping sector, commodity prices recovered in 2009/2010 but drybulk shipping rates have stayed low ever since. The crazy thing about the drybulk sector is that there was a huge order book even after prices crashed 97% and there were very few cancellations. The massive oversupply of drybulk ships may keep rates down for years. http://www.dryships.com/images/graph/chart1.jpg http://www.dryships.com/pages/report.asp The drybulk shipping industry has been a terrible one historically- I believe it hasn't made money. Offshore drilling may be slightly better. And I think that duration is enough for this stock to get priced on dividend yield. What happened to value investing? ;) Link to comment Share on other sites More sharing options...
Hielko Posted May 13, 2013 Share Posted May 13, 2013 Wrote some of my thoughts on Awilco Drilling on my blog at http://alphavulture.com/2013/05/14/awilco-drilling-awdr-ol-cheap-with-a-catalyst-redux/ (cliff notes: I'm tempted to buy, but not so sure that it's a big enough bargain given the riskiness of the asset) Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted May 13, 2013 Share Posted May 13, 2013 Nice writeup! Link to comment Share on other sites More sharing options...
Olmsted Posted May 14, 2013 Share Posted May 14, 2013 And I think that duration is enough for this stock to get priced on dividend yield. What happened to value investing? ;) Ouch! ;) Link to comment Share on other sites More sharing options...
Hielko Posted May 14, 2013 Share Posted May 14, 2013 I'am wondering: is there anyone who has an idea how much it would cost to build a new rig comparable with Wilhunter/Wilphoenix? How profitable it would be to build a new rig at current day rates? In theory this should determine what will happen with day rates in the long run. Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted May 14, 2013 Share Posted May 14, 2013 I think that the relationship between the cost of a new rig and day rates vary wildly. Personally, I think that the best way to value these companies is too look at the public versus private market value for these assets. If there is a discrepancy then there is room for arbitrage. After that, look at whether or not you want to buy drilling assets at current market prices. This would be based on your forecast of future drilling rates. You have to look at supply versus demand. The supply side is easier to figure out because there are many places to get information on new supply and expected scrapping. The demand side depends on the economics of using these rigs. Link to comment Share on other sites More sharing options...
Radio Free Cash Flow Posted May 14, 2013 Share Posted May 14, 2013 Earnings just reported. $0.82 cents per share for the quarter. Up 7.9% from Q4. And the board declared a $1.00 dividend to be paid in June! Link to comment Share on other sites More sharing options...
DTEJD1997 Posted May 14, 2013 Author Share Posted May 14, 2013 Wow: Looks like I was wrong. Looks like $1/share dividend PER QUARTER? Earnings were just a bit better than I was expecting... Looks like money does grow on trees, or maybe on drill ships. HAHA Link to comment Share on other sites More sharing options...
Olmsted Posted May 14, 2013 Share Posted May 14, 2013 Sweet! The board approved a dividend distribution payable in Q2 of USD 1.0 per share. The Company’s intention is to pay a regular dividend in support of its main objective to maximise returns to shareholders. A dividend payment on a quarterly basis will commence in Q2 2013. In the case of attractive growth opportunities the company will endeavor to maintain a meaningful dividend distribution. Efficiency was down slightly due to a repair on WilHunter: Revenue efficiency for the quarter was 85.1%. This was due to an extended period of waiting on weather whilst conducting a small repair. I guess this does somewhat highlight the main risk here - one of the rigs going offline for whatever reason. This was just a small repair. Link to comment Share on other sites More sharing options...
Myth465 Posted May 14, 2013 Share Posted May 14, 2013 Yes thats the major risk I see. With 2 assets, there is not alot of wiggle room Link to comment Share on other sites More sharing options...
matjone Posted May 14, 2013 Share Posted May 14, 2013 Maybe you could just make it a smaller position if you think it's cheap but are worried about the size? Link to comment Share on other sites More sharing options...
SharperDingaan Posted May 15, 2013 Share Posted May 15, 2013 With earnings beating estimates, most of the FCF being distributed, & very little wiggle room - what do you think is going to happen the first time the yield hogs experience either an earnings miss, or a distribution cutback. Enjoy the ride, but be prepared for some wild swings. SD Link to comment Share on other sites More sharing options...
Hielko Posted May 15, 2013 Share Posted May 15, 2013 I joined the party today, but with an (imo) prudently small sized position given the risks involved. Link to comment Share on other sites More sharing options...
matts Posted May 15, 2013 Share Posted May 15, 2013 What's going on with the ADR today? Down 30+% on big volume while the local in Oslo is up 3.5%. Link to comment Share on other sites More sharing options...
BG2008 Posted May 15, 2013 Share Posted May 15, 2013 Looks a bit like flash crash to me, volume was only 1,000 shares. Someone got a lucky fill Link to comment Share on other sites More sharing options...
Hielko Posted May 15, 2013 Share Posted May 15, 2013 Market order + illiquid stock => this. Wonder if the lucky buyer is a forum member. Link to comment Share on other sites More sharing options...
Olmsted Posted May 15, 2013 Share Posted May 15, 2013 As soon as I saw that I put in a bid at 11 to see if the price was real or whether it was a fat-finger. The bid has not been filled. Link to comment Share on other sites More sharing options...
Myth465 Posted May 16, 2013 Share Posted May 16, 2013 Thanks for the idea. Ended up buying ORIG with a similar thesis. http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/95109 If they convert to an MLP we have a similar yield convergence play. Link to comment Share on other sites More sharing options...
tytthus Posted May 20, 2013 Share Posted May 20, 2013 i also picked up some of this based on otcadventures blog. thanks...and the discussion here finally motivated me to get registered....not sure why it took so long....other than the impossibility of keeping up to date on all the discussions going on.... anyway, does anyone have further understanding of the relationship between Awilco and Awilhemsen? from what i can tell, Awilhemsen formed Awilco & brought it public and provide management services? now that Awilco is paying out a dividend, Awilhemsen is getting their payout from the risk of stealing buying the drill ships from RIG. is there any indication that Awilhemsen will look to sell down their stake? if the market reprices the 25% dividend to something in the teens, they will have a pretty nice profit on their hands. thanks again! Link to comment Share on other sites More sharing options...
Hielko Posted June 4, 2013 Share Posted June 4, 2013 Saw that someone wrote a piece on Awilco @ Seeking Alpha: http://seekingalpha.com/article/1476181-awilco-drilling-high-seas-dividends-make-this-driller-a-long?source=google_news Link to comment Share on other sites More sharing options...
DTEJD1997 Posted June 4, 2013 Author Share Posted June 4, 2013 Hey all! I was just thinking today about risk on Awilco. Specifically, the risk of them only have two rigs. Yes, it is a risk, no doubt. HOWEVER, just how big a risk is it? Could it possibly be that it is LOWER risk? As an example, after the BP & RIG explosion the Gulf of Mexico, RIG's stock went down by approximately 2/3. RIG has a much larger fleet of rigs than Awilco. Thus, you could make an argument that RIG is a bigger risk than Awilco. They numerically have more rigs, and thus more chances of catastrophe. Any thoughts about this? Link to comment Share on other sites More sharing options...
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