The Offshore Drilling industry
A huge opportunity in the making
Hi there, we hope you had a fantastic week !
Please find this brief summary of the topics we are covering today
The Week in the Markets
Our weekly summary with the best charts to understand what happened in the markets in 1 minute, along with explanations for those who want to dive deeper.
Equities, Bonds, Currencies, Alternative Assets, Macro Data, company commentaries, Earnings Season, and much more!
Equity Research
Golar LNG - Thesis updated for our main company following the release of its 1Q25 results and additional information regarding contracts in Argentina and the company’s current situation. We are sharing once again the detailed and updated valuation model of the company under various possible scenarios.
Offshore Drilling Industry - A tough industry where you can make (and lose) a lot of money if you understand the rules of the game. After several years away from it, we are starting to like what we’re seeing. We explain it from scratch, analyze the current situation, compare the fleets & financials of the main companies, and set the stage for the deep dives we are preparing.
Portfolio Management
Including updates on our 3-stage monitor, comments on several companies, and our macro views, along with their respective movements in both equities and all asset portfolios. ATH!
Investor Resources
MORAM Capital Data Project Update - NEW RELEASE!
Financial model Updates
Nota: Toda esta publicación está disponible en Español en nuestra web
Disclaimer: This publication is for educational purposes only and should not be taken or considered as investment advice under any circumstances. Please consult with your financial advisor before making any investment decisions.
The Week in the Markets
Summary
A very positive week for the indexes, mainly supported by the initial momentum from the news of the postponement of tariffs on imports from the European Union until July 9th, and backed by both NVIDIA’s results and the initial news that the U.S. Court of International Trade ruled that President Trump did not have the authority to impose the vast majority of the global tariffs, effectively nullifying them. However, by the end of Thursday’s session, news came that the administration quickly appealed the ruling, and a federal appeals court put a temporary hold on it. Additionally, comments from the Treasury Secretary on Friday stating that talks with China were “a bit stalled” made the end of the week weaker.
Markets moved this week mainly led by the MAG7. NVIDIA passed its toughest test (reporting excellent results on Wednesday after market close), boosting its industry. Although its CEO took advantage of the next day to sell $800 million worth of company shares. Europe finished the week behind the US despite the initial Monday momentum due to tariff-related comments. The bond market was quite calm, and it was a bad week for oil, with OPEC continuing to threaten flooding the market and pushing prices even lower.
Another notable news item was Friday’s PCE reading, with core and supercore data marking the lowest levels in four years, starting to suggest that the Fed is really late in cutting interest rates (shortly after the release, the market raised its expectations to three rate cuts this year).
Despite all the noise, May closes with a 6.08% return, making it the best May of this century so far. The MAG7 rose 9%, once again leading the indexes. It has also been a good month for gold and Bitcoin (despite index gains and some pullback at the end), which, due to growing distrust towards government debts (just look at how yields have risen in recent weeks) and the activation of the debasement trade by many investment funds (and retail investors), are increasingly entering investment portfolios.
Interesting Data about markets this week & YTD
The PCE supercore was negative for the first time since COVID…
….which has significantly increased the market’s expectations that the FED will cut interest rates this year (up to 3 times).
May closes as a month in which, except for Healthcare and Energy, all other industries posted gains, with notable increases in Technology, Consumer Discretionary, Communication Services, and Industrials.
In general terms, the best month so far this century, you already know the saying… so be careful out there
Earning Season 2Q25
With the earnings season winding down, NVIDIA’s report means that the vast majority of the S&P 500 has now reported. We, however, remain engaged with the results from our universe of companies. This week, the highlight is Solaria, on Tuesday.
The Offshore Drilling Industry I/II
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