Thursday, October 2, 2014

Offshore Drilling Crash?

Check out this chart from StockCharts.com for SDRL

Visit StockCharts.com to see more great charts.

What an ugly chart!

SeaDrill is just an example; an offshore drilling services provider with 15 semi-submersible rigs, 7 drillships, 20 jack-up rigs, 3 tender rigs, and 24 units under construction. Here is one perspective on what's happening in offshore drilling:
"[T]he industry is suffering from falling oil demand and the sudden influx of new vessels is increasing capacity beyond optimal levels, leading to overcapacity. The vessel influx happened because orders for vessels were placed during the industry boom, but are being delivered now.

There are still pending orders for new ultra-deepwater rigs, equal to half of the quantity of the existing fleet. Analysts estimate that a third of these new rigs will be delivered over the next three to four years, and they will not have orders for oil drilling.

In addition to these factors, rig rates have also fallen substantially in the last 18 months, because oil and gas companies are cutting capital expenditures and are increasing cash reserves to pay higher dividends."
One thing noteworthy is that Conrad's prospects are closely tied to offshore oil and gas. So far, there has been no big decline in Conrad, but in May it broke decisively below its longstanding ascending trendline and below its 50-day moving average. In August, it fell below the 200-day moving average and the 50-day crossed below the 200. I've closed out of Conrad - I hope it goes back to the $20s.

Also, these company managements can't seem to stop themselves from being procyclical and making bad bets. Same thing that happened with Walter.

4 comments:

Anonymous said...

Overbuilding in offshore drilling rigs reminds me of overbuilding in container ships/dry bulk ships. That *still* hasn't recovered.

eah said...

Generally energy-related stocks have sold off recently -- but they had a big run-up before that. I thought it was normal market rotation -- 'hot money' taking profits and moving elsewhere. But maybe not...

Anonymous said...

$END is at the end of the rope...

CP said...

http://www.creditbubblestocks.com/2015/08/big-drop-in-conrad-industries-income.html