Thanks Tommy. Your analysis is always extremely helpful. The beat-down in the Offshore sector during this earnings season has been brutal. The waterfall nature of the charts looks like capitulation. I know that VAL was Kuppy's Fund's largest position in his latest Investor Letter and given that he is so vocal on SM, I suspect a lot of others followed him in and are potentially regretting that decision / puking positions here. The news of NE and VAL scrapping stacked rigs dims the ST outlook but, longer term, tightens the supplyside further. Cheers John
Thank you for continuing to read, John. 4Q24 earnings feels like a repeat of the post 2Q24 earnings sell off when drillers said we'll have to wait for 2H25-2026 for commencements (after a slow 1H24). So when they say 2026 for commencements (no longer 2H25), we see a similar sell off due to weaker earnings from idle time. Now investors question if the demand in 2026 will materialize, but I believe there is too much pessimism on that topic at the moment. Obviously global oil prices will impact sentiment, but I wrote about some global gas projects for 2026 and beyond that have been delayed for reasons other than oil prices (geopolitics). The bar is very low at the moment. Demonstrating evidence for 2026 demand and beyond would quiet some skeptics.
Great piece, really been enjoying your stuff. I have zero experience with traded debt. How do you keep up with that side of everything?
Have always heard the debt guys were (or had to be) smarter than equity folks, and your piece on off shore debt really added another lens to double check things from. Appreciate that and all your other work
Bloomberg dominates fixed income data but FINRA also provides bond pricing data for free ('Fixed Income Data'). Its not easy to navigate but basic data is available if you have the CUSIPs. I hope to cover debt markets next week. Thank you for reading, Dylan.
Thanks for comment. The demand for rigs and FPSO’s should be correlated but timing is different bc FPSO’s are built for projects which takes year to build, while rigs are already built and wait for drilling programs when the FPSO’s are ready. FPSO’s don’t produce without wells the rigs drill. FPSO have long term agreements and should produce steady, visible cash flows. Rigs tend to have more downtime but arguably higher upside potential.
Hey dude - thanks for sharing. First time reader, your stuff is amazing.
What do you think is kicking demand from FY'25 -> FY'26/FY'27? There a lot of comments on 'delays not cancellations' but no explainations what's explicitly causing the delays.
I've seen a myriad of reasons - logistical delays from EPCMs, delayed FID from operators (e.g TotalEnergies on Venus), geopol mix.
Thanks for reading! Haven’t seen cancellations and I don’t expect many, or any as it relates to top projects. It only delays thus far. People worry if oil prices are weak in 2025, delays will continue.
Reason for delays: FPSO supply chain and financing challenges, also subsea equipment. FPSO’s cost billions and take a couple deliver which is also contributing to delays. FPSO Financing availability also slowing process. Also, some IOC’s see a well supplied oil market for 2025 and are less aggressive with pushing forward projects which contributes to delays.
It hurts to watch my large positions in these get chopped in half.
On the other hand I kind of hope they lose another 50%. The rebound will be epic and the boat I shall buy in 2027 will be named after one of these rigs. That, or I'll call it TSLAQ -- not sure which.
I feel the pain along with you. A criticism I have heard from others regarding waiting through a weaker 2025 (particularly 1H) is investors aren't paid to wait via dividends. Noble pays a dividend but the others aren't returning much cash to shareholders due to various reasons. Easier to push sell and wait for developments quarter-to-quarter.
Regarding TSLAQ, that stock has never made sense to me and is a stay away b/c it doesn't trade on fundamentals. The drillers are more influenced by fundamentals but equity markets emphasize the next 6-12 months. Thank you for reading and the comment.
Excellent read! Just subscribed after hearing you on the Kontrarian Korner #37 episode. Really well written content and informative exposure to the offshore sector. Watching the U.S shale market as their tier one fields become seemingly exhausted, the future will be hopefully moving to offshore. Thanks again and Be Well.
Thank you, Dio. US shale has been resilient although I believe is maturing and production levels are vulnerable at lower oil prices. Glad you found the site and thanks for reading.
Hi Tommy, enjoying your work and I was excited again to see a new post.
I was hoping you could advise me on understanding how Valaris, Noble etc announce the signings of new contracts.
Is there a generally accepted way to announce these to the market or is it pretty adhoc (sometimes in fleet reports, which often align with earnings releases; sometimes unexpected press conferences if it is material contracts)? I guess it might vary by company style as well?
Thanks, John. It is mostly adhoc but material contracts w/ term should come with press releases. Exercised options are often noted in fleet status report updates. Noble seems to release new contract info on LinkedIn instead of their IR page -- not sure why but most others issue press releases through IR. Generally announcements come about 1 year before commencement but sometimes can be announced even sooner.
Thanks, David. The market has indeed been meaningfully worse than expected, but have yet to hear any of the IOC's signal any project cancellations. They seem to be moving ahead although the pace of schedule is the question. Thanks for reading.
Thanks Tommy. Your analysis is always extremely helpful. The beat-down in the Offshore sector during this earnings season has been brutal. The waterfall nature of the charts looks like capitulation. I know that VAL was Kuppy's Fund's largest position in his latest Investor Letter and given that he is so vocal on SM, I suspect a lot of others followed him in and are potentially regretting that decision / puking positions here. The news of NE and VAL scrapping stacked rigs dims the ST outlook but, longer term, tightens the supplyside further. Cheers John
Thank you for continuing to read, John. 4Q24 earnings feels like a repeat of the post 2Q24 earnings sell off when drillers said we'll have to wait for 2H25-2026 for commencements (after a slow 1H24). So when they say 2026 for commencements (no longer 2H25), we see a similar sell off due to weaker earnings from idle time. Now investors question if the demand in 2026 will materialize, but I believe there is too much pessimism on that topic at the moment. Obviously global oil prices will impact sentiment, but I wrote about some global gas projects for 2026 and beyond that have been delayed for reasons other than oil prices (geopolitics). The bar is very low at the moment. Demonstrating evidence for 2026 demand and beyond would quiet some skeptics.
Great piece, really been enjoying your stuff. I have zero experience with traded debt. How do you keep up with that side of everything?
Have always heard the debt guys were (or had to be) smarter than equity folks, and your piece on off shore debt really added another lens to double check things from. Appreciate that and all your other work
Bloomberg dominates fixed income data but FINRA also provides bond pricing data for free ('Fixed Income Data'). Its not easy to navigate but basic data is available if you have the CUSIPs. I hope to cover debt markets next week. Thank you for reading, Dylan.
Appreciate that, thank for the response
I like the fpso market a lot
Long bw offshore and sbm too
I see better supply demand dynamics in this sector
Do you agree ?
Thanks
Thanks for comment. The demand for rigs and FPSO’s should be correlated but timing is different bc FPSO’s are built for projects which takes year to build, while rigs are already built and wait for drilling programs when the FPSO’s are ready. FPSO’s don’t produce without wells the rigs drill. FPSO have long term agreements and should produce steady, visible cash flows. Rigs tend to have more downtime but arguably higher upside potential.
Thanks really helpful
So fpso companies have more visibility and therefore better for dividend growth investors ?
Thanks
Hey dude - thanks for sharing. First time reader, your stuff is amazing.
What do you think is kicking demand from FY'25 -> FY'26/FY'27? There a lot of comments on 'delays not cancellations' but no explainations what's explicitly causing the delays.
I've seen a myriad of reasons - logistical delays from EPCMs, delayed FID from operators (e.g TotalEnergies on Venus), geopol mix.
Is there something that cuts through this noise?
Thanks for reading! Haven’t seen cancellations and I don’t expect many, or any as it relates to top projects. It only delays thus far. People worry if oil prices are weak in 2025, delays will continue.
Reason for delays: FPSO supply chain and financing challenges, also subsea equipment. FPSO’s cost billions and take a couple deliver which is also contributing to delays. FPSO Financing availability also slowing process. Also, some IOC’s see a well supplied oil market for 2025 and are less aggressive with pushing forward projects which contributes to delays.
It hurts to watch my large positions in these get chopped in half.
On the other hand I kind of hope they lose another 50%. The rebound will be epic and the boat I shall buy in 2027 will be named after one of these rigs. That, or I'll call it TSLAQ -- not sure which.
I feel the pain along with you. A criticism I have heard from others regarding waiting through a weaker 2025 (particularly 1H) is investors aren't paid to wait via dividends. Noble pays a dividend but the others aren't returning much cash to shareholders due to various reasons. Easier to push sell and wait for developments quarter-to-quarter.
Regarding TSLAQ, that stock has never made sense to me and is a stay away b/c it doesn't trade on fundamentals. The drillers are more influenced by fundamentals but equity markets emphasize the next 6-12 months. Thank you for reading and the comment.
Stocks always return to fundamentals (if not overshoot) over a long enough time frame. I'm happy to ride out both of these trades.
Excellent read! Just subscribed after hearing you on the Kontrarian Korner #37 episode. Really well written content and informative exposure to the offshore sector. Watching the U.S shale market as their tier one fields become seemingly exhausted, the future will be hopefully moving to offshore. Thanks again and Be Well.
Thank you, Dio. US shale has been resilient although I believe is maturing and production levels are vulnerable at lower oil prices. Glad you found the site and thanks for reading.
Hi Tommy, enjoying your work and I was excited again to see a new post.
I was hoping you could advise me on understanding how Valaris, Noble etc announce the signings of new contracts.
Is there a generally accepted way to announce these to the market or is it pretty adhoc (sometimes in fleet reports, which often align with earnings releases; sometimes unexpected press conferences if it is material contracts)? I guess it might vary by company style as well?
Thanks, John. It is mostly adhoc but material contracts w/ term should come with press releases. Exercised options are often noted in fleet status report updates. Noble seems to release new contract info on LinkedIn instead of their IR page -- not sure why but most others issue press releases through IR. Generally announcements come about 1 year before commencement but sometimes can be announced even sooner.
Great - thank you for the reply!
Great writeup Tommy. This sector has been terrible for about a year. Hopefully some projects will take up some of the whitespace soon.
Thanks, David. The market has indeed been meaningfully worse than expected, but have yet to hear any of the IOC's signal any project cancellations. They seem to be moving ahead although the pace of schedule is the question. Thanks for reading.
So much value here Tommy, thanks! Have you ever looked at the obscure little OSV Singapore listed Malaysia based company, Nam Cheong?
Have a big position with them that has done well, it's the only part of my portfolio that hasn't been hammered in the last 7 months 😅