Valeris and Tidewater are compelling investments in the offshore sector due to their low valuation compared to new build economics.
Sustained increase in day rates, sector tailwind, and resolution of shareholder dislocation are the key catalysts for Valeris and Tidewater stocks to start performing.
Compelling activism can create change in the corporate world by gaining traction, generating support, and pushing for positive changes within a company.
Deep dives
Valeris and Tidewater are the best plays in the offshore space
Valeris and Tidewater are currently the top picks in the offshore sector. They continue to successfully roll contracts, with day rates ranging from $450,000 to $500,000. The valuation of both companies is significantly lower than new build economics, making them compelling investments. The key to seeing these stocks perform is a sustained increase in day rates, potentially driven by higher offshore capital expenditures. This, combined with a positive sector tailwind and resolution of shareholder dislocation, could be the catalysts needed for these stocks to thrive.
The potential obstacles and catalysts for Valeris and Tidewater to start performing
There are a few factors that could impact the performance of Valeris and Tidewater. Both companies need to see day rate momentum and an increase in offshore capital expenditures. Day rates need to jump to a point where they go beyond marginal costs and enter into percent of well economics. This shift could create a bidding war and drive day rates higher. The sector also needs to have a positive momentum and a tailwind, which might require new money coming into the sector. Additionally, shareholder dislocation needs to be resolved, with distressed debt holders and a large shareholder potentially selling off their positions. Overall, sustained increase in day rates, sector tailwind, and resolution of shareholder dislocation are the key catalysts for these stocks to start performing.
The importance of compelling activism in driving change
Compelling activist letters have the potential to create change in the corporate world. While traditional governance protections may not be as effective, well-written letters that raise valid points can gain traction and be forwarded by larger shareholders. This can lead to meaningful discussions with management and potentially influence their decision-making. Activism allows smaller shareholders to have a voice and hold management accountable, especially when the arguments presented are strong and supported by data. The power of compelling activism lies in its ability to gain attention and generate support, ultimately pushing for positive changes within a company.
The risks and potential disruptions in the offshore sector
While there are risks in the offshore sector, such as potential disruptions from political turmoil or internal scandals, the overall outlook remains positive. The sector's success is driven by an increasing demand for offshore rigs, and procurement from companies like Petrobras reinforces this trend. While Petrobras may face its own challenges, its large-scale oil production is tied to the success of the offshore industry. Additionally, the commitment to offshore capital expenditures and a sustained increase in day rates can help mitigate potential disruptions and pave the way for a stronger and more profitable offshore sector.
The risk of overabundance of oil supply
The podcast episode discusses the risk of an overabundance of oil supply due to increased drilling and production efforts. The speaker highlights the strategy of countries like Brazil and the US to drill and pump as much oil as possible, leading to a potential surplus of oil. This increase in supply could have negative implications on oil prices and the market as a whole. The speaker also mentions the importance of China's demand in balancing the oil market.
The potential of offshore drilling and political implications
The podcast episode explores the potential of offshore drilling and its significance in the oil industry. The speaker mentions that offshore rig rates have increased, indicating a positive trend. They also discuss the Gulf of Mexico and the impact of political stability on drilling investments. The speaker suggests that a Republican administration could encourage more drilling in the Gulf of Mexico, leading to increased demand for rigs. The episode also touches on the economics of offshore wells and the low depletion rate, as well as the potential opportunities in West Africa.
Judd Arnold, Lake Cornelia Research Management @CorneliaLake, joins the podcast to discuss the offshore drilling space, $TDW update, activism, $VAL, $RIG, $NE, Petrobas risk, macro risks, reflecting on recent positions with lessons learned and what Judd is focused on for 2024.
For more information for Lake Cornelia Research Management and Judd Arnold, you can can Follow on Twitter/X @CorneliaLake: https://twitter.com/CorneliaLake
Chapters:
[0:00] Introduction + Episode sponsor: Fundamental Edge
[2:24] Offshore drilling space and $TDW update
[13:12] Offshore drilling space - market correction? and $VAL $RIG
[22:56] Why $VAL might not exercise options and Judd's newsletter explaining why $VAL should ($VAL ultimately did) + discussion on activism
[35:38] What's it going to take for $VAL to start working
[40:25] New build
[43:48] Petrobas risk?
[45:19] Macro risks: OPEC, Oil prices, geopolitics, US Election
[51:52] Gulf of Mexico
[55:48] What Judd is focused on; activism; reflecting on recent positions and lessons learned
Today's episode is sponsored by: Fundamental Edge
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