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Posted by: expectingrain (IP Logged)
Date: October 27, 2007 04:10PM
Anyone have any thoughts on the drillers? NBR in particular. They look SO cheap right now, and they just got done doing a ton of CapEx that they won't be doing next year. Probably have about a billion in FCF next year. Its also a guru holding (Marty Whitman) I don't own it, but I am thinking about it. I do own PTEN and PDC which also look cheap. What's up with these drillers?
Posted by: peter123 (IP Logged)
Date: October 27, 2007 08:22PM
Maybe record oil prices ...?
IMO, the drillers are like a call option on oil prices. As long as oil stays high, they will do well. If oil goes back to $50 it is a different story. Personally I do not like high capex and low returns on capital and the cyclicality with oil prices. Buying them at 10 times trough earnings would be better than peak earnings... LOL.
Whitman has owned NBR forever and it is a solid stock at a fair price.
Posted by: bpgamecock (IP Logged)
Date: October 28, 2007 03:21AM
Mgmt team that know how to create shrhldr value is key = return FCF to shareholders during boom times.
Deepwater offshore fundamentals better than onshore = you want RIG or DO. I prefer DO b/c capital allocation strategy of high dvds & ownership...thinks like biz owners vs. typcial energy owners.
Land drillers like NBR cheap on PE & EV/EBITDA, but haven't found mgmt team I really like. Plus, land = mostly nat gas, and nat gas has too many alternatives = coal, nuke, hydro. Deeph20 offshore = mostly oil, which has little substitutes as a transportations fuel.
Posted by: harison (IP Logged)
Date: October 28, 2007 05:32PM
I like nat gas. It burns clean, coal is the bane of Nancy Pelosi's existence and nuclear power is quite a ways off. I own GW, I think the peak earnings plus capex thing is holding these companies down. Remember though, they owns tons of assets, and rigs can be resold so I think that they are trading at or under liquidation value. The big capex numbers were an example of smart capital allocation, and fcf should return next year as capex winds down. Even if we are at peak earnings, if GW's earnings fell by 36% it would trade a 9x today's price. Marc Faber and Dennis Gartman are bullish on NG, I am slightly positive and am bullish on drillers as a result, although the sentiment for onshore drillers is very negative(I like that). As for the risk premium built into crude, when it was at $70 everyone said it should be at $45, now it's at $90 people say it should sell for no more than $60. Just making an observation. NBR, HP, and GW should do well, NBR has exposure to Canada though. I own GW.
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