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	Maturity	YTM	CY	Mcap
XCO	2018	167%	23%	$29
CIE	2019	85%	10%	$50
REXX	2020	41%	20%	$22
BONT	2021	38%	20%	$11
HOS	2021	32%	12%	$115

Hornbeck Offshore Presentation Validates Bullish Conrad Thesis

Latest investor presentation [pdf].

See slides 19 ("Deepwater Wells are Greater Distances From Shore") and 20 ("GoM: Post-Macondo 'Short Squeeze' Now Underway").

Hornbeck Offshore Investor Presentation - May 2013 ($HOS $CNRD)

Hornbeck Offshore gave a presentation that's worth reading if you're interested in oil supply or Gulf of Mexico oil services capex [presentation, appendix, transcript]. Some highlights from the transcript:

One of the things we noted on our last call is a bit of a bright spot or so, favorable surprise is to see how strongly some of the independents are coming back into the Gulf, conventional wisdom right after Macondo is that it was going to be a major oil company game with the new owners’ rags in the high risk profile, but looks like the independents are going to be able to get back into the game and that’s good for us with more customers.

And since then, we now are above pre-Macondo levels with 37 active rigs. Conventional wisdom is that we’ll have as many as 60 active floating rigs in the Gulf by the end of 2015, that’s 23 incremental rigs at a 3 to 4 a boat to rig multiply that’s 75 to 90 more vessels on the margin needed and there are only 62 under construction today including our 24.

[Regarding the Jones Act] If anything we feel that Jones Act is getting stronger. It’s not a trade protections act, it’s a homeland security and national security act, it was the fourth act passed by the Constitutional Congress in 1789, and it’s only gotten stronger overtime. [...]If anything, the Jones Act – the government agency that is charged with enforcement of it has only recently doubled down on public rhetoric about even going after the 42 foreign flagged MPSVs that are operating in the Gulf today...

Then, from the presentation on page 41 - OSV dayrates have hit record highs. You would suspect that to be bullish for OSV repair / maintenance vendors in the Gulf. Higher dayrates and utilization means that the margins your repair shop makes are less of a concern than proximity, speed, and reliability.

From the appendix - page 61, see how one tank barge (100k bbl which is big) equates to 162 rail tank cars or 439 tank trucks. Also good chart on 64 of retiring single hull tank barges. Should be quite a bit of capacity being scrapped in 2013 and 2014.

Comments from Hornbeck Offshore Earnings Call Q4 2012

From the transcript,

"We’ve resisted natural temptation to overly subscribed long-term charters in a low-rate environment and elected to keep a number of our vessels available in the spot market. This was based on our positive view of the Gulf of Mexico’s resiliency as a core region and its expected turnaround. The same view that propelled the November 2011 launch of our most recent newbuild program.[...]

In the Post-Macondo Gulf of Mexico we see this Jones Act preference as a long term trend not only for construction vessels but for vessels of all types working offshore. Part of this preference may stem from the comfort that our customers in the Gulf of Mexico drive from the high operating standards of the US vessel owners and crews who are regulated by the US Coastguard one of the most exacting marine regulators in the world. [...]

The month of December was a month most active, we can remember in terms of customers’ enquiries and tender activity for upcoming drilling programs in and outside of the US Gulf of Mexico."

Hornbeck Offshore Announces Fourth Quarter 2012 Results ($HOS)

Just released:

• The sequential increase in dayrates was primarily driven by improved market conditions in the GoM and Puerto Rico.  Utilization for the double-hulled tank barge fleet was 99.3% for the fourth quarter of 2012 compared to 87.3% for the year-ago quarter and 93.4% for the sequential quarter.  The increase in utilization over the prior-year quarter is primarily due to increased demand for the Company’s tugs and tank barges driven by the activity in the Eagle Ford Shale and a tight market for clean petroleum product capacity in the Northeast U.S.
• After adjusting for 71 days of fourth quarter downtime for regulatory drydockings, the Company’s commercially available high-spec OSV fleet achieved an effective utilization of 98.8%.    
• Fourth quarter 2012 revenues increased 8.6% to $133.2 million compared to $122.7 million for the fourth quarter of 2011
• 4Q2012 utilization for the Downstream fleet was 99% up from 87% in 4Q2011 and 93% in 3Q2012
• Improved market conditions have allowed the Company to recently increase leading-edge spot dayrates for its 240/265 class DP-2 OSVs to the $38,000 to $42,000 range, up from $30,000 to $36,000 range last quarter.
• The Company announced today the expansion of its fifth OSV newbuild program by four vessels, as well as its intentions to ultimately build up to eight Jones Act-qualified MPSVs as a subset of its growing OSV newbuild program to service the subsea construction and IRM market that is expected to expand significantly in the GoM beginning in 2015.

Bullish for Conrad - high barge utilization and more activity coming to the GOM. The moronic drilling ban has probably created a gigantic pent up demand for projects that will last years regardless of what oil does.

It's funny because a surge of activity is better for suppliers / vendors than steady constant activity would be. It should mean that capacity is constrained and so they get more of the rents as opposed to the producers. Shipping product is obviously costing more now that barge fleets are fully utilized.

I've written up the GOM market color before, but here are highlights:

• [Sep 2012]"The Gulf of Mexico, which saw deepwater backlog fall 10% in 2011 following the Macondo moratorium, is back at record backlog and we expect further supply commitments in the coming months."
• [Oct 2012] "Hercules Offshore backlog per rig is at a 5 year high. Slide 6 shows shallow GOM lease block sales back to early 2008 levels."
• [Oct 2012] "Both Schlumberger and Baker Hughes had good things to say of the Gulf of Mexico. Calling it 'the fastest growing deepwater market in the world...'"
• [Oct 2012] "Gulf of Mexico is still one of the best places in the world to invest [...] This is clearly another bright spot in the U.S. for future activity"
• [Oct 2012] "in the U.S. Gulf of Mexico, we are expecting 2013 demand for our service and product lines that support deepwater drilling to surpass the level we experienced before the Macondo incident in April of 2010. [...] subsea tree installations in the Gulf are not expected to reach the prior peak level of 2008 until 2016.""
• [Nov 2012] "A resurgence in the Gulf of Mexico offshore markets, spurring both newbuild and conversion projects, and augmented by substantial U.S. government spending, has resulted in shipyard backlogs that are as good as they have been in some time; carrying well into 2014 and beyond"

Historically, oil and gas related work was a big component of Conrad's business. However, the oil price crash and then the post-DWH moratorium resulted in a string of bad years for this segment. Luckily they were able to replace this business with other types of projects. But if both inland barges and energy related business are booming at the same time, revenue and profit margins should both increase substantially.