Send an Email
Favourite Sites
  • Whitney Tilson
  • Recommended Booklist

  • Favourite Blogs
  • Calculated Risk
  • Reflections on Value Investing
  • "The market can remain irrational longer than you can remain solvent" - John Maynard Keynes

    Friday, October 08, 2010


    Seahawk 2505 sale, impact on HAWK valuation

    Seahawk have entered a Memorandum of Understanding with Essar Oilfield Services India Ltd for the sale of the Seahawk 2505 for $14,550,000 plus some minor fees for training on the rig.

    The sale is contingent upon Essar Oilfield Services winning tender MR/DS/MAT/CT/RIGS/CH/MAT-FLOATER/49(308)/2010 /P46JC10007.

    Seahawk 2505 is Seahawk's 11th best rig of 20 according to my ranking criteria. It's close enough to call it the median rig. On that basis it's reasonable to multiply $14,550,000 by 20 to get a gross asset value of HAWK. To get the net assets we then need to subtract net liabilities, excluding rigs, of around 45M. This indicates net assets of 246M or $20.75 per share. This makes the same assumptions about liabilities made in previous posts (i.e. a liquidation so the deferred tax liability would not be realized).

    The situation is actually better than this. The tender is for rigs in the PEL/ML ( Petroleum Exploration License/ Mining License) zone in India. Therefore Essar are going to incur costs in excess of $5M (based on generic mobilization costs mentioned by HAWK in their UBS presentation). Had the rig been in India it would have sold for at least $5M more. HAWK obviously don't want to sell their rigs to competitors in the US or Mexican GOM (and neither do HERO). They have created an opportunity to sell a rig that won't compete.

    The deal is contingent on Essar winning the tender (which is interestingly only for a 150M mat supported jackup). If this happens then HAWK will get some much needed cash and will reduce their cash burn. If the deal fails then the offer highlights the true rig values in the current market. Based on HAWK's costs of 25k per day and a rig rate of 45k per day (current GOM rates), Essar would pay off the rig entirely during the 3 year contract, inclusive of mobilization costs. A 3 year payback is certainly indicative of a fair to cheap price, though I don't know what rate they are going to propose (their costs should be lower than HAWK's as they can use a foreign crew and will have lower insurance costs etc).

    I suspect this announcement reduces the likelihood that HAWK are going to purchase a foreign rig package with debt.

    Interestingly there may be opportunities for HAWK to relocate their mat supported rigs out of the GOM, albeit at a substantial cost. Finally, in a liquidation it shows that a median rig price of $20M for rigs sold to a local buyer (think a mixture of PEMEX and other GOM drillers) is possible. The deal price supports HAWK's claim that $20M per rig is supported by an independent appraisal from Basso for a net liquidation value of around $30 per share.
    Comments: Post a Comment

    << Home


    April 2003   May 2003   June 2003   July 2003   August 2003   September 2003   November 2003   January 2004   February 2004   March 2004   April 2004   May 2004   June 2004   July 2004   September 2004   October 2004   February 2005   March 2005   April 2005   May 2005   June 2005   July 2005   August 2005   September 2005   December 2005   April 2006   May 2006   June 2006   January 2007   December 2007   February 2008   April 2008   May 2008   June 2008   July 2008   August 2008   September 2008   October 2008   November 2008   December 2008   January 2009   April 2009   May 2009   July 2009   August 2009   September 2009   October 2009   January 2010   February 2010   April 2010   July 2010   August 2010   October 2010   November 2010   January 2011   February 2011   April 2011   June 2011  

    Disclaimer and Disclosure Analyses are prepared from sources and data believed to be reliable, but no representation is made as to their accuracy or completeness. I am not paid by covered companies. Strategies or ideas are presented for informational purposes and should not be used as a basis for any financial decisions.
    To reduce Spam click here for my email address.

    This page is powered by Blogger. Isn't yours?