Peter

2025 Outlook: Semisubs $ODL.OL $RIG $VAL $NE $SDRL $NOL.OL Link in Bio. Free. Summary: Semisubs are generally designed for more harsh environments such as the Norwegian Continental Shelf, whereas drillships most often work in more benign conditions in the Golden Triangle (US GoM, LatAM and West Africa). Many differences exist amongst semisubs, notably including eligibility to work in Norway. The largest market for semisubs, Norway, was viewed as a mature market during the last newbuild cycle 10+ years ago. Accordingly, fewer newbuild semisub orders were made than drillships which foresaw more growth in Brazil and West Africa at the time. As we head into 2025, the Norwegian semisub market is healthy with strong utilization and recent dayrate prints in the mid-$400k’s to low-$500k’s. Semisub eligibility in Norway is a good club to be in but has premium dues (SPS) every five years. Semisubs without eligibility to work in Norway come in different shapes and sizes but are more likely to be idle and earning discounted dayrates due to weaker option value. The Norwegian Offshore Directorate published research in 2024 stating Norway’s offshore discoveries over the last 20 years are valued at 3x the costs incurred on a NPV basis. Norway generally does not have headline discoveries, although benefits from a high quantity of smaller discoveries to support lower cost infrastructure-led capex often cited with ~$35/boe breakevens. Exploration drilling is trending positively and is likely to continue in coming years based on Norwegian E&P public commentary. H/T @EivindEnd and recommended follow

$RIG $NE $VAL and $SDRL account for ~61% of the global fleet of modern floating rigs. Within the global fleet are various sub-segments by rig type: Transocean has the 2.8mm lbs hookload drillships mostly in US GoM ($500k rates). Noble, Valaris and Seadrill own ~90% of global supply of 7G drillships with 2.5mm lbs hookload and 2 BOP’s mostly demanded in US GoM, Brazil and West Africa though is expanding to other markets. $ODL.OL has an admirable position in the Norway harsh environment semisub market where Transocean also operates. There is room for additional consolidation in this industry. While the rumored Transocean/Seadrill merger makes sense on paper there are details to be ironed out. There are likely differences of opinion on the valuation of a few of Seadrill’s rigs (i.e. West Phoenix). Also, Seadrill’s 7G drillships are its most valuable assets, although four of them have dayrates ~$200k below current market through at least Nov ‘25. That’s an estimated valuation discount of >$60mm per rig. Seadrill is net cash although has its own HY bond and a convertible. (1) Economics: The industry has cost inefficiencies with too many sub-scale drillers. Transocean stated this week it can add 10-15 rigs with little incremental fixed costs. Noble is demonstrating this with a smaller Diamond acquisition with ~$75mm in annual synergies. As evidenced by existing, below market fixtures, Seadrill is arguably not as price disciplined as Transocean. While the market has demonstrated pricing discipline in 2024, a 7G drillship needs >$600k rates to earn its true cost of capital and further consolidation would be a step closer to achieving this level and help offset demand delays experienced this year. (2) NO NEWBUILDS: A new drillship would likely cost ~$1B to build, requiring dayrates ~$750k (with 5-10 year term) and ~40% down. The $400mm down payment alone meaningfully exceeds current per rig enterprise values. Any rational driller would repurchase shares at a 60%-70% discount to newbuild costs rather than waiting 3-5 years for its first positive cash flow. There’s no newbuild floating rig orders coming for many years. (3) Long-life supply growth has hurt the potash industry’s outlook $NTR $MOS. The same is not happening in deepwater rig market. After Canada blocked $BHP proposed acquisition of Potash Corp of Saskatchewan in 2010, BHP focused its attention on building a potash business via the low-cost Jansen mine. Jansen is expected to begin operations in 2026 and its full operational capacity is ~12% of global demand. This long-term overcapacity problem that suppresses pricing and has hurt the potash industry. Deepwater rigs are long-life assets similar to potash mines, although long-term supply is much more favorable for rigs. (4) Unlike the potash industry, offshore contract drilling has mostly worked through its overcapacity issues from 2013-2014 orders. This is evidenced by 7G dayrates increasing from $200k’s in 2021 to mid-to-upper $400k’s currently. Supply is not entirely fixed but is not a major issue any longer. The question is demand. We saw Suriname FID (2 rigs in ‘26) and others to watch are Nigeria (2-4 rigs), Ghana and Brunei. Namibia, Indonesia/SE Asia, Mozambique, Côte d'Ivoire and others appear to be 2027 and beyond.

This post marked almost exactly the bottom of $SBSW. I know it's psychologically hard and of course not always true, but when everyone (including oneself) just wants to get out of that stock, it's often the right time to buy.

$RIG $VAL $NE $DO $SDRL $ODL.OL $OIH Deepwater Update, March 30, 2024. "Different Strokes for Different Folks" Offshore contract drillers all have very similar exposure to the long-cycle deepwater macro story. However, there can be modest differences amongst the drillers in strategy, as well as in their deepwater floating rig fleet composition (next week). (1) A unique quirk of the industry is the most financially leveraged participant, Transocean, is also the most price disciplined. A typical industry would see the most indebted participant value utilization over price to keep assets earning to service debt because it has most to lose via bankruptcy (I believe RIG’s balance sheet concerns are exaggerated). Into the recovering offshore market, $VAL has reactivated DS-17, DS-8 and DS-7, while $RIG and $NE are waiting for better economics to reactivate stacked floaters. (2) Lower Beta Strategy: VAL and SDRL have active share repurchase programs and appear to prioritize utilization. Both drillers acknowledge an improving offshore market and rising dayrates long-term, though also see value in using contracted free cash flow to repurchase shares at substantial discounts to replacement value. This strategy aligns most closely with rumored longer term fixtures with discounted dayrates to ensure utilization. We have yet to see any poor price discipline from the major drillers. (3) RIG’s Higher Beta Strategy: Transocean has a large, diversified fleet of 7G drillships, 6G drillships, UDW HE Semisubs, Cat-D Semisubs and a couple 8G drillships. Supply/Demand imbalances can occur in certain floater types and RIG is not overly exposed to any deepwater market, allowing them to employ a more aggressive pricing strategy despite their balance sheet. While price sensitive drillers like Transocean may not be the first to offer dayrate discounts to ensure utilization, if peers do it takes competing rigs off market through 2029-2030 and supports their pricing power into a potentially tighter market in 1-2 years. I admire that RIG’s management has lived through a very long, painful downturn and does not want to sell itself short into a long awaited recovery. (4) $NE demonstrates a balanced approach of dividends, share repurchases and price discipline. $DO is thoughtfully investing in important specification upgrades on its 7G drillships. $ODL.OL Odfjell's high spec UDW HE semisubmersible rig fleet is 100% utilized into an improving long-term market with growing demand in Norway and Namibia. (5) Portfolio Approach: VAL stated on its 2Q23 call “we run our fleet as a portfolio,” implying a desire for balance between locking in long-term contracted cash flows and having assets available to participate in spot market dayrates. Strategies can evolve with time and respond to shifting market dynamics. Drilling fixtures with term are similar to fixed rate bonds. A 3-year fixture at $450k/day is effectively 3-year dayrate duration. As we saw in 2022, holding a 2% fixed bond bought in 2020 saw its price fall as interest rates surged higher. The same concept applies to offshore drilling contracts with multiyear terms. Entering a 5-year contract with a discounted dayrate to buyback shares at discounts to replacement value in 2024 may look like a suboptimal decision in 2-3 years if (i) spot dayrates increase and (ii) your shares become more expensive, so a balanced approach may be most prudent. Long-term portfolio management matters.

Staying focus on the outlook, at 3:40 minites, here is the most informed participant in the world oil & gas markets insights. Very strong future continuing to unfold, gain momentum and extent out. #valueinvesting #finance youtube.com/watch?v=qTTuvqV2…