Tuesday, March 13, 2007
The other Oilers
Couldn’t forget about the other three big name oil companies you should take an investment. With oil at $60 per barrel its time to get cracking before its too late. Summer is right around the corner.
Let’s start things off with Rowan ticker RDC.
Allow me to first start this off with a “ARE YOU SERIOUS” 6.7 PE ratio. If this isn’t a beacon for private equity I don’t know what is. Current PEG ratio is .23. I mean seriously, you aren’t going to beat an investment like this. Consider this, oil stocks trade for an average of a PE of 9. Even a “catch up” to the other oil stocks represents a 40% gain in stock price. To conform to a typical PEG, this stock would have to triple, and that’s for oil stocks. This is a great stock fundamentally.
This stock was also over saturating the Gulf of Mexico region. To be frank, the gulf of Mexico is overloaded with rigs and prices are sometimes one fourth of that of the Middle east or Africa. Rowan, like Nobel is moving many of its rigs from the competitive Gulf to the Middle East to capitalize on bigger daily rates, with no risk of natural disaster. The company has two rigs headed to Saudi Arabia very soon that will be drilling for a $190,000 day rate, much better than it was receiving in the Gulf. And along with moving the rigs comes a great earnings boost, some analysts say 66% revenue boost. Say what? 66%!!!
Three new rigs will be coming on the lines before 2009. Not to mention the 24 land based rigs that are doing just fine as it is. Oh, and another thing, the company owns a relatively small rig construction business. This is the play to cover the overall rig-building, operating, land and sea. I’m a buyer here, I don’t foresee any resistance until $40, and even then I think its going to retest its highs around $50. A move to $40 represents a 33% gain, $50 would be a 66% gain. I’ll provide a chart to show the underlying trend.
Diamond Offshrore ticker symbol DO
This company is another play in the oil drilling industry I really like. See, because of high oil prices, companies are looking to go to deeper and deeper depths in search of the valuable black stuff. This company specializes in deep sea rigs. Two thirds of their operations are semi submersible which allows oil companies an advantage, an ability to seek deeper oil. Because oil prices are so high, it is now economical to look deeper for oil, and oil companies will. Diamond Offshore is the major player in deep oil.
While this company flourishes with high oil prices, it is not limited to making money only with high oil prices. This company locks in its rates, but even then, it should prove profitable even with oil in the low $40s, and I don’t see $40 oil ever again. I would invest in this company heavily due to the sheer fact that as oil prices rise, it will be in greater demand than other drillers.
The balance sheet for Diamond is rather impressive in itself, it has $800M in cash and just $900M in debt. The company should have some price protection as 95% of the outstanding shares are held by institutional investors, that says a lot for its quality.
I’m a buyer here, and everywhere. I think Diamond will always be a great prospective company provided oil stays at current levels. If oil plows forward to $100 per barrel, this company could be the new oil king with great exposure to the deep sea drilling. You need this one.