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Buy Transocean While the Lynch Mob is Baying for Blood
You know my preference for buying country funds when there is blood in the streets. The corporate equivalent of that maxim has to be to buy when a lynch mob is about to hang them from the lamp post.
That certainly is the case with Transocean (RIG), which is catching all the blame for the Gulf oil spill (click here for their site at http://www.deepwater.com/fw/main/Home-1.html ). But a few energy hedge fund managers I know have been going through the company’s contract with British Petroleum (BP) with a fine tooth comb, and it turns out that the latter agreed to indemnify RIG for any accidents, including spills. Unless BP can prove deliberate fraud or negligence, the cost of the entire disaster is going to come out of its pocket.
I know the management of RIG fairly well, as I once negotiated to participate as a partner in another offshore project. In the end, I didn’t go ahead because the $10 million minimum bite was more than I was willing to lay out. And guess what? These things can blow up! But you’ll never find a finer and more professional team in the oil patch.
The company has a net asset value of $106/ share, which makes its current price of $51 a once in a life time steal. It has a $28 billion order backlog to tap offshore fields in places like the offshore Tupi field in Brazil, outside the reach of federal regulators, which will generate $10 billion of free cash flow over the next three years. The massive Tupi is thought to have 5-8 billion barrels of oil in deep water.
Buy at first news of a successful capping of the underwater well. How will you know when this is happening? Just clink here for the link at http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/homepage/STAGING/local_assets/bp_homepage/html/rov_stream.html for live video taken by BP’s remotely operated video at 5,000 feet down in the Gulf. Don’t ya just love the Internet?
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on the “Today’s Radio Show” menu tab on the left on my home page.
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"moratorium" and "regulation" worldwide? The pitch to buy was based on contracts in other countries. Are these other countries following the moratorium and regulation of the U.S.?
Seems like a good opportunity. However, RIG plunged with the financial crash to basically where it is now, so it would likely be susceptible to another market tank.
According to the 60 Minutes piece last week, Transocean (RIG) operators knew they were using a damaged Blow Out Preventer (BOP). The rubber annulus was damaged so there was no way to accurately measure well head pressure therefore no way to know if the hole was properly sealed. Also one of the two controller units on the BOP was inoperative. In addition, the batteries powering the controller units were almost dead. If this corner-cutting damn-the-risk operational mindset represents best the industry has to offer .... "But you’ll never find a finer and more professional team in the oil patch." .... I think I will take a pass on oil & gas explorers/producers.
But living out here in the oil patch, I know that is not the case. There are outfits that do not cut corners and do not take unnecessary risks in an inherently dangerous business.
From what I've heard and read RIG ought to be held criminally negligent. By the time they are through with all the litigation the civil judgments may be catastrophic for the company. Since RIG materially contributed to the destruction of an entire ecosystem any judgements rendered against them will be grossly inadequate compared to the crime they committed. What is the appropriate punishment for eco-terrorism?
punishment for eco-terrorism?
Terrorism is so Bush. Ain't no terrorism in hopey changey land.
We got a world wide cult actively killing other humans because they do not read the correct book. When we hear "Islamic terrorism" from this regime we can start calling extra hydrocarbons at one to a billion ratio" terrorism".
How does this garbage pass muster? "World-wide cult actively killing because they do not read the correct book."
Rather than deconstruct this, should be flagged as junk, and by anti-semitic rules of engagement hate-speech.
BP and RIG are just like the Investment Bankers who sold toxic mortgage "assets", now they all claim their innocense because "nobody could have seen a decline in housing prices coming". The oil barrons knew the risk at this particular well years ahead of this spill.
http://www.americas-watchdog.com/bp-knew-of-rig-equipment-problems-ten-years-ago/
Yes, let's see how that turns out. I have 100 shares (worth less than where I bought). RIG is one of the few companies I am thinking of buying.
I have not bought ANY stocks in at least 6 mos.
I think it's best to wait another 3 weeks before BP screws up again with plan XZ123 to cap the well.
By then those stock will have got their beating.
But now, I WOULD NOT BUY IT! Don't forget about the 6 month drilling ban that can still be expanded!
It seems that negligence is a foregone conclusion.
The 64K question is how much of it sticks to Trans-Ocean.
Since contract law is no longer valid in a fascist state, as much will stick to TO as "they" want to. Probably take the whole lot of them down. You'd be nuts to invest a dime in deepwater oil at this point.
you seem to have a fundamental misunderstanding of fascism.
Has nothing to do with "fascism", baby. Noah is right that about the usurpers in the Executive Branch and Congress. For them contract law is an insignificant detail in their Grand Scheme... as is the US Constitution. Might be less than prudent to invest in any company that stands in the way "fundamental transformation" = Cloward-Piven Strategy, sweet pea.
This aspect of Obama's belief system gets way too little press. I mean, good grief, when he campaigned to "fundamentallly transform the United States of America", the corrollary is that America was no good as it was...it needed fundamental transformation from what it was to what he wants it to be.
Until and when the transformation is complete, he'll continue to be anti-American, in short. How this passed by the press and 52% of the voting public is cause for alarm.
His wife parroted Obama's attitude accidentally during the campaign with her admission that she'd never been proud of her country until her lefty academic lawyer husband got the Democrat nomination. I think you could make a killer TV spot for 2012 just running quips like this from the 2008 campaign, and leaving the obvious message unstated (This deeply anti american politician was an exceptionnaly destructive choice).
Apparently, somebody disagrees. Wonder if they junked you because they disagree with your premise, or because you attempt to shine a light on something. I am coming around to, at least, allowing for that possibility.
Since contract law is no longer valid in a fascist state, as much will stick to TO as "they" want to. Probably take the whole lot of them down. You'd be nuts to invest a dime in deepwater oil at this point.
Good advice, methinks, for the long haul. No one else on earth has RIG's capabilities. They have a number of long-term contracts in place with PBR as well.
Hi, am interested in reading more about this as book value of $106 compared to current price is indeed interesting.
Your site has the exact same post as is here...do I have to pay to access the research you speak of?
Morningstar has p/b @ 0.8
so a book value of ~ 64.25 but its still a deal. Fair value much higher with a growth rate of over 15% and a wide moat, and I believe there in tight with petrobras.
Back out goodwill and tangible book value, the more relevant figure, is in the low 40's.
Done! Let's see how that works out.
where will RIG be when the Dow hits 4000 ? thats when I buy RIG.
Sure, it is a short term bet I hope to cash out of profitably before the steamroller comes along. Everything else I've got is long disaster for equities(SH), the euro(EUO), and currencies(PM's).
agreed. buy RIG when DOW tanks to under 4000. great company but the big crush coming will take it down with it.
Bingo!
maybe DO or NOV but not rig.
DO is owned 95% by institutions and they are ready to bail out anytime now and that will crash the stockprice.