State of Offshore ⚓️
A long/short story. To the brink and back. M&A potential.
“If women didn't exist, all the money in the world would have no meaning.”
—Aristotle Onassis
A lot of interesting activity in the offshore sector in the past few years.
In 2018, Ensco and Rowan merge to create Valaris. Ensco had acquired Atwood Oceanics a year before. Valaris is the consolidation of all three.
March 2021. Noble and Pacific Drilling announce intention to merge.
October 2022. Closing of Noble acquiring Maersk Drilling.
September 2024. Closing of Noble acquiring Diamond Offshore.
October 2024. Rumours speculate that Seadrill and Transocean are discussing for a potential merger.
But before we get into to the merger and what the upside would be on the trade, let’s zoom out for a bigger picture review.
In October ‘21 I sent out my first Valaris piece — here. Since then VAL returned 135% before dropping 40%.
In April ‘21 I looked into Transocean’s unique situation (leader, highly levered, atypical cycle) while the offshore space was in dire need of a further rally in DRs (day rates) to go deep in the money — and become profitable.
At the time, many on FinTwit were extremely bullish on the Offshore Sector — arguing, amongst other things, that a lack of supply and an unavoidable increase in demand would cause DRs to explode.
I published Why I don’t like Transocean to (intellectually) break down the reasons why I was rejecting the trade.
The piece is also a masterclass in looking at a trade from the perspective of options — after having published Shipping as Options Trading on the same concept a year earlier.
Transocean is now down 35% since the piece, and 50% lower than its last peak in August ‘23.
The reasons for the selloff in Offshore are mostly the white space in contracting activity going forward. That means some rigs in their fleet will have to stay idle without work, until they do find it.
Basically, demand isn’t catching up with supply resulting in more rigs available than projects looking for rigs to charter.
However, there are a number of positives ramping up in the space — which could result in more bullish sentiment and rallies in offshore names.
Let’s “drill” deeper…