The Offshore Drilling Industry

Offshore Drilling is an industry we have been turning over in our minds for several months, and with the declines in recent months (-50% to -70% since summer 2023) and the differences in balance sheets compared to their last crises, in the last few weeks we have finally decided to look at it again.

For those who are not familiar with it, Offshore Drillers (Transocean, Valaris, Noble, Seadrill, Borr, Shelf Drilling, Odfjell Drilling, etc.) are service companies to the O&G industry. They earn revenue by offering drilling services for offshore oil and gas projects. It is a cyclical sector, typically benefiting when commodity prices are high and oil companies seek to boost production.

We talked a lot about it in our origins, since in summer 2020 we analyzed it deeply (from a distressed debt perspective) because the industry was immersed in a wave of bankruptcies, which ended with most of the industry (except Transocean) filing for Chapter 11, and money could be made (and was made) by properly accounting for the value of the liquidation assets of those companies.

Later, in 2022, when it was seen that the recovery was starting to take hold and significant returns could be achieved, we had occasional speculative positions in some companies, but we did not fully commit to the sector as we were very focused on Natural Gas.

Now, the industry is starting to be (from our point of view) in an interesting situation and we want to look at it closely again to see if we position ourselves in it as we see opportunities.

For those less familiar with Offshore Drillers, it is a very cyclical industry where if you do not enter with a defined plan and start falling in love with the companies when things begin to go well, you can lose a lot of money. You have to be clear that they are shitcos, with which you can get spectacular returns due to the clear mismatches between the money they can make with high rates in the good part of the cycle and their valuations just a few months earlier, but be aware of how the market is going to value them even at those moments and have realistic expectations grounded in reality

Today we explain:

• The basic of the industry
• Fleet
• Current situation
• Comparison among the main companies (financials, fleet & situation)
• Our thoughts