Offshore: Early Innings Of A Cyclical Upswing
My Podcasts & Videos Of The Week: A 30,000 Foot View Of The Offshore Sector
Summary
The podcasts of the week are focused on the offshore sector and companies that are well positioned for attractive returns over the next 3 to 5 years.
The energy industry is cyclical, but offshore has very long cycles compared to conventional energy. The last peak was in 2014 and I think we are in the early innings of a cyclical upswing.
Day rates have been increasing over the last 12 months and I think that pattern will continue.
The assets in the offshore sector are expensive and take years to build. The sector will also require higher day rates to incentivize new builds.
This post should be a good primer on the offshore sector. I will be writing posts on the individual companies this week as well.
This week’s podcast and videos of the week post will double as my overview of the offshore energy sector. For stocks based here in the US, the offshore sector is my favorite subsector for oil exposure. I’ll be the first to admit that I missed the boat on the traditional energy sector trade starting in 2020, but I don’t intend to make that mistake again. Offshore is a different opportunity, but I think the signs are there for a cyclical upswing in the sector today and very attractive shareholder returns moving forward.
As you can tell from my newsletter title, I try to look for contrarian opportunities that are mispriced by the market. Most things in financial markets are cyclical, and investors willing to buy in a cycle trough when things look terrible for a company or a sector can generate outsized returns. If there ever was a contrarian signal for energy, it was when the Dow Jones Index swapped out Exxon Mobil for Salesforce in August of 2020. By October, you could have bought Exxon with a 10% dividend yield, and you would have tripled your money if you held until today. Salesforce, by comparison, is down 25% in that same timeframe.
Stocks of offshore companies like Transocean, Valaris, and Tidewater (these are the three that I own) have rallied massively over the last couple years, but I still think we are in the early innings of long cycle for the offshore sector. Today’s post will serve as an introduction to offshore and some of the big picture things going on in the sector. The rest of the posts this week will be deep dives on the individual companies I own in the sector.
2 Podcasts & An Honorable Mention Video on Energy
The first podcast of the week (and my recommendation if you only have time to listen to one) is a recent Value Hive episode from April. Judd Arnold is the guest, and they discuss the offshore sector, from dayrates, global supply and demand for oil, and some of the different characteristics of each company. I have included a link to the podcast here:
The second podcast of the week is the Yet Another Value podcast with Judd Arnold from January. This one has a specific focus on Tidewater, but they cover the big picture for the sector and there are bits and pieces on other companies in the sector as well. The host, Andrew Walker, also had a podcast with Tidewater management if you want to hear from the CEO and CFO of the company.
The honorable mention for this week was a YouTube video on Finding Value Finance, with Shubham Garg. They talk about the oil bull market, supply and demand dynamics with China and OPEC, and other details on the energy sector. One of the most interesting things they talked about was the tail wagging the dog with the dynamic between financial oil markets and physical oil markets. I have seen different podcasts where the volume of oil that is traded on financial markets is 30 to 50 (one guy even said 100x) times the actual volume of the physical market. Whatever the actual amount is, it’s safe to say that financial markets can have a significant impact on the short-term price of oil, but over the long-term, the physical markets are a better way to look at the underlying fundamentals. They don’t spend much time on offshore, but it was an interesting video on the big picture for oil.
I have seen different podcasts where the volume of oil that is traded on financial markets is 30 to 50 (one even said 100x) times the actual volume of the physical market. Whatever the actual amount is, it’s safe to say that financial markets can have a significant impact on the short-term price of oil, but over the long-term, the physical markets are a better way to look at the underlying fundamentals. They don’t spend much time on offshore, but it was an interesting video on the big picture for oil.
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