2018 will be the year for Ocean RIg

Discussion in 'Stock Market Forum' started by MalorieJX, Apr 6, 2016.

  1. MalorieJX

    MalorieJX Well-Known Member

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    I don't think Saudi Arabia can keep pumping at record high for another two years, its not worth it if they find out the method of defending market share not working very well. Either way, oil has to go up because US production come down after rounds of bankruptcy, or Saudi Arabia has to capitulate and reduce production. The world supply only about 1.3mm barrel more than demand/day. Hypothetically speaking, If Saudi Arabia drop about 1.3 mm from their record high of 10.7mm to balance out the demand. With this positive sentiment and balanced supply/demand, oil will have to go up to $65-75. That's about (10.7-1.3)*$70=$658million revenue/day instead of 10.7*$40=$428million, that is 83.9 billion dollar of revenue gain every year. Would you still want to defend you market share after two years without significant achievement? Its a loose loose situation for everyone. Not to mention, some other countries are already in desperate situation to reduce production and hope to pop up price.

    Two years later from now, If Saudi Arabia is successful, then US production has to come down eventually, plus 30-40% of capital expenditure cut by the big E&G companies start taking effect as well. Or, Saudi Arabia has to cut production, how much foreign reserve they still have left? they cannot afford doing that forever. The less of their foreign reserve, the faster cut of rating for their sovereign debt. They cannot cut too much of government spending to jeopardize social security, middle east is not a safe place.

    2018 is a critical year for oil industry, and Ocean rig should do everything it can to position itself with strongest balance sheet possible into 2020. GE really should get rid of dryship and put more of his energy to Ocean rig since its his best future business opportunity.

    Europe's economy will be in much better position after 1.2 trillion QE and zero interest, how about India and china? and a how about US economy is even getting stronger after europe's recovery?
     
  2. baudwalk

    baudwalk Senior Investor

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    And IMHO $SFL is an interesting corollary to oil producers. Common-sizing the financial statemento shows a >20% y-o-y increase in total operating revenue in 2015 and 2014, and a dividend payout of ~40%. The business model supplies tankers, among other ships, to the shipping industry. It has a market cap of $1.7M in the industrial sector. Giddyup.
     
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