Very informative and well written thread. Just couple of cents as an industry insider.
We need to distinguish between shallow offshore drilling and deep-water drilling both of which have different ecosystem, economics and technologies.
Deep-water drilling requires floaters which are in tight supply due to higher deep-water drilling activities and hence higher day rates.
Shallow water drilling requires jack up rigs which can be further classified into two categories: 1) Premium 2) Regular
Market for premium jack up rigs seems to be good and supply and demand remain in tight balance. However market for regular jack up rigs is still quite soft due to suspensions of some key contracts globally (e.g. Saudi Arabia) and there is currently an oversupply of rigs in the industry.
So it’s important to take a granular view of an oil field services company’s work pipeline.
Also oil prices will always be a key driver and even term contracts don’t offer much protection if there is drop in oil prices and an operator decides to suspend the drilling/workover activities. Small companies like Jindals won’t go to court to fight their big customers ONGC knowing fully well that they will need them back when market conditions improve. They will have no option but to swallow the bitter pill. That’s why there is an inherent unpredictability to cash flows due to erratic receivables especially if you are dealing with government owned companies.
Again from my last many years of experience, best times to enter the oil and gas sector, in any form, is at the bottom of cycle with favorable risk reward.
That said, I like Jindal Drilling for their execution capability and good management. And if new Trump administration doesn’t move for high tariffs against China and aggressive fracking policies, we might continue to see a quite conducive environment for the offshore rig providers.
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