Deepwater Pathfinder
 

Just read online that Transocean is moving the Deepwater Pathfinder from cold stacked to scrap. The articles seemed confusing, after reading several times, I'm not sure if they ment from warm stacked to cold stacked. But, not from cold stacked to scrap.

Seems crazy, even with low day rates from rigs that RIG would scrap a $400M 4th generation drillship.

Going to look at the company website.

Yes the news was 9/22 on the website. How did I miss that. Been trading ATW now ESV. Haven't paid attention to the news with ESV purchasing ATW.

I used to work for a company that provided voice and network access via satellite to the oil industry in the Gulf of Mexico and all over the world. We had at times when I was with the company provided the connectivity for the Pathfinder and the Horizon and a bunch of Transocean's stuff. It was an interesting and educational job even though I never went out on anything.

I invested heavily into R&B Falcon about 17 yr ago and sold about 2007. It was a nice ride and been trading ATW since 1985.

Looks like a long rounded bottom for the drillers. Great time to accumulate. Been picking up ESV in intervals. It takes a lot of guts to hold through multiple years on the bottom but, eventually, pays off big.

Offshore floater market is still massively oversupplied (thanks to lower oil prices brought about by incremental US shale oil production), and stacked rigs still cost to maintain - - steel sitting in salt water doesn't keep well indefinitely, and offshore drillers are cash strapped. To that end, rig owners have have scrapped dozens of old rigs - - anything older than a ~2005 build date is at risk (that includes 3rd, 4th, and 5th gen floaters, as well as some weaker 6th gen assets). I agree that the the offshore sector is appearing to have bottomed - - the question is how long can the drillers stay solvent until a real recovery occurs. Pay attention to balance sheets. While levered names have the most ups, they are still at very much at risk of going bankrupt (as ATW would have gone had ESV not bought them). There's a lot of money to be made if you get the names/timing right, but it could be a long volatile road.

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ESV should be solvent for 5yrs. It's a risk and more risky than the last cycle, though. Still hard to believe the Deepwater Pathfinder is now scrap.

Indeed. Ensco scrapped similar rigs (DS1 and DS2) last year. Lots of iron will not see the designed 30 years of service. Technology has evolved too quickly for the older stuff to hang around unused.

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Good for the long term future of the industry. Last cycle my cost basis for RIG was $10 and sold at $122. Hopefully, share prices will remain depressed for a couple years. I understand things won't be the same with clean energy. But, it seems the industry realizes that, too, and is over reacting and scraping to many rigs. There's a lot of political instability, and it might not be a bad idea to add drillers to the portfolio. Inventories have dropped 15% since the peak; much faster than I'd expected; partly helped by exports and the spread between WTI and Brent. Supplies see tightening. Who ever is left offshore will benefit $$ big time.

Brainz, what are your thoughts?

Gary

But, you have to be patient.

I generally agree with your thesis, but there are lots of risks, so I wouldn't bet the farm. The beauty and horror of the oil and gas industry is cyclicality from unexpected shocks. But for the advent of large scale shale oil development in the US, we'd still be rockin' $80 or $100 oil, and the offshore would be doing great. Right now, as far as the market is concerned, the shales (namely the Permian) will continue to be the marginal barrel of oil for the foreseeable future, and the shales are cheap compared to the offshore (deepwater in particular). But, there are thousands of engineers focused on reducing that offshore cost structure. Also, it seems unlikely that the Permian can keep the world balanced for too long, so prices are likely to go up and offshore projects will increase. We're seeing more offshore activity lately, but it's still a buyers market for offshore drilling and margins are basically break even, and will likely stay there until industry utilizations increase above 75-80%. Thus scrapping of older rigs may help actually return the market to profitability sooner. How long all this takes is unknown, and then there's always the risk that EVs reduce global demand for oil, extending the pain (but I personally think the latter risk is still far away). But if you believe the world needs offshore oil eventually (and I do), then companies with newer rigs and better balance sheets with as much liquidity runway as possible should eventually be worth multiples of what they are today. The offshore downturn is now finishing its third year. I sure hope we're not debating when the offshore recovers three more years from now. Seems reasonable to leg in to the drillers (that aren't bankrupt, i.e, SDRL and PACD) and add as the industry utilizations continue to increase. Good luck.

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Thanks Brainz. Going to burn some 100 octane ethanol free gas tomorrow. Hope you have a good week end and lets keep in touch with the drillers.

Inventories are down and price/bbl. is going up and I've been accumulating ESV since the first of the year. I've been trading ATW since the early 80's and see profits in the future. That is 10x cost basis on money invested in ESV. It takes a lot of intestinal fortitude, but, around 2024 the investment will return hudge sums.

Trading the cycle has been my main source of investment income.