New SeaDrill Purchase (SDRLF, SDRL.OL)
I picked up some additional shares in SeaDrill (SDRL in Oslo, SDRLF on the pink sheets) this morning -- the Norwegian drilling company founded last year by John Fredriksen has been pummeled, along with the rest of the Oslo Bourse, over the past week or two and is now down more than 25% from its highs, and nearly 20% from when I made my initial purchase about a month ago. I bought my shares this morning at $14 on the Pink Sheets, a price that is about 20 cents above the Oslo close at the current exchange rate.
There has been relatively little news since my first purchase, and no negative news, so I consider this pullback to be a reasonable buying opportunity -- even though there's every chance that it could decline further in the short term. As I noted when I mentioned UBS's recent upgrade (very badly timed in retrospect) of SeaDrill, I think the return-of-capital potential of this company is great over the next three or four years given Fredriksen's penchant for dividending out cash flow to shareholders, himself included.
The Oslo exchange is extremely volatile at times, and is dominated by oil and oil service names and by companies with a penchant for maritime risktaking -- SeaDrill is certainly one of the more volatile of these, and it fell about 10% yesterday before rising nearly as much today (I wish my order had been filled at a lower price yesterday afternoon, but that's the curse of the Pink Sheets).
In the short term, these shares will likely continue to be buffetted by moving oil prices, temporary changes in the rig demand picture (lower quality jack-ups are dropping rates a little at the moment, according to Rigzone, but that shouldn't impact SeaDrill's newer, higher capability jack-ups and semisubmersibles for deeper water, and in my inexpert opinion any slack in demand should be short term), and, perhaps most importantly, any acquisitions news or the lack thereof.
SeaDrill is trying very hard to build itself into a large industry consolidator, but it also, as befits a Fredriksen company, doesn't share any information that it doesn't need to (with the exception of a slipup a few weeks ago when a new executive appeared to overstep his bounds with the press). Watching for the next Fredriksen acquisition is a sport in Norway, and certainly SeaDrill holders are all waiting to see what happens next. Will Indonesia really allow SeaDrill to buy Apexindo? Will Fredriksen find a US target that's reasonably priced, or will he overreach in his attempts to expand westward? Will they be able to surprise anyone else again the way they did with Noble in the Smedvig deal? All open questions that are probably hurting the stock a little.
It is possible that the shares will decline simply because no new acquisition is announced, or that there will be significant selling on any acquisition news, good or bad. Either way, I plan to hold these shares for at least the next couple years as Fredriksen tries to build a deepwater ocean drilling empire. They aren't cheap today by most metrics, but if you look out a few years when the newbuildings have hit the water and the efficiencies Fredriksen brings to the table have a chance to impact the bottom line and the shareholder return, I'm willing to bet that this price will seem to be a bargain.
Of course, I'm only betting with my own money. And I might be crazy.
There has been relatively little news since my first purchase, and no negative news, so I consider this pullback to be a reasonable buying opportunity -- even though there's every chance that it could decline further in the short term. As I noted when I mentioned UBS's recent upgrade (very badly timed in retrospect) of SeaDrill, I think the return-of-capital potential of this company is great over the next three or four years given Fredriksen's penchant for dividending out cash flow to shareholders, himself included.
The Oslo exchange is extremely volatile at times, and is dominated by oil and oil service names and by companies with a penchant for maritime risktaking -- SeaDrill is certainly one of the more volatile of these, and it fell about 10% yesterday before rising nearly as much today (I wish my order had been filled at a lower price yesterday afternoon, but that's the curse of the Pink Sheets).
In the short term, these shares will likely continue to be buffetted by moving oil prices, temporary changes in the rig demand picture (lower quality jack-ups are dropping rates a little at the moment, according to Rigzone, but that shouldn't impact SeaDrill's newer, higher capability jack-ups and semisubmersibles for deeper water, and in my inexpert opinion any slack in demand should be short term), and, perhaps most importantly, any acquisitions news or the lack thereof.
SeaDrill is trying very hard to build itself into a large industry consolidator, but it also, as befits a Fredriksen company, doesn't share any information that it doesn't need to (with the exception of a slipup a few weeks ago when a new executive appeared to overstep his bounds with the press). Watching for the next Fredriksen acquisition is a sport in Norway, and certainly SeaDrill holders are all waiting to see what happens next. Will Indonesia really allow SeaDrill to buy Apexindo? Will Fredriksen find a US target that's reasonably priced, or will he overreach in his attempts to expand westward? Will they be able to surprise anyone else again the way they did with Noble in the Smedvig deal? All open questions that are probably hurting the stock a little.
It is possible that the shares will decline simply because no new acquisition is announced, or that there will be significant selling on any acquisition news, good or bad. Either way, I plan to hold these shares for at least the next couple years as Fredriksen tries to build a deepwater ocean drilling empire. They aren't cheap today by most metrics, but if you look out a few years when the newbuildings have hit the water and the efficiencies Fredriksen brings to the table have a chance to impact the bottom line and the shareholder return, I'm willing to bet that this price will seem to be a bargain.
Of course, I'm only betting with my own money. And I might be crazy.
This article posted by One Guy @ 5/23/2006 10:47:00 AM 0 comments
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