The Offshore Sector: Weak Sentiment To Start 2024

Sentiment On Oil & Offshore Makes The Sector Attractive Today

Summary

• Sentiment around energy and the offshore sector in particular has been down in the dumps, and I think it is a good time to be looking to add exposure to the sector.

• Oil prices still can’t catch a bid, despite conflict in the Middle East spreading beyond Israel/Gaza, and Yemen and the Red Sea, along with the Bakken production being down significantly due to freezing weather over the last couple weeks.

• The recent Yet Another Value Podcast with Judd Arnold is a must listen for anyone interested in the offshore sector.

• I talk briefly about Transocean, Valaris, Noble, Tidewater, and Borr Drilling.

• Tomorrow I will take a look at some warrants in the sector that look like an asymmetric bet.

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Over the last couple weeks, I have been watching as oil prices have chopped around and sentiment on the offshore sector has been extremely poor. I think now is a good time to revisit the sector to see how things have developed since my first big picture post on the sector. It was one of the first things I covered when I started up my Substack, and the bullish fundamentals for the offshore sector are still intact, despite the recent selloff.

Sentiment swings are a part of investing in any asset class, and energy and offshore services are no exception. Sentiment on oil seems pretty bearish, and positioning among investors is in an interesting spot. We have the geopolitical conflict heating up in the Middle East, and the response from the oil market was a collective yawn. We also have production in the Bakken field in North Dakota down due to the recent cold snap here in the US. That production will come back online sooner or later, but it’s interesting to watch all of these things happening at once, and oil continues to chop sideways in a range. While sentiment on oil seems too negative in my opinion, the sentiment on the offshore sector seems like it is even worse right now. A recent Twitter exchange on the sentiment surrounding the offshore sector is what prompted me to write this post.

If sentiment is this bad among all the people (all 6 of us) that understand what is going on, who is left to sell? These stocks are going to be somewhat correlated to oil in the short-term, so it’s not too surprising to see the stocks struggle over the last couple months, but I think now is a good time to be looking at the sector. The whole point of having a contrarian investment approach is to go against the grain in an attempt to get outsized returns. I’m not here to say “this is the bottom, the stocks are only going up from here”, but I think we are at a pretty good entry point for investors looking past the short-term noise.

If you have a 3 to 5 year time horizon, and you think the fundamentals on the sector spell attractive returns for investors like I do, now is a good time to go against the grain and buy into the weakness. I also wanted to include a recent podcast I listened that covered the offshore sector. They talk about Tidewater TDW 0.00%↑ and the potential upside there, as well as the main deepwater players and the sector in general.

I wanted to include the video so readers could get a chance to listen to someone who has had an eye on the sector for over a decade. If you have the time to listen to the podcast, you will get a good idea of what Judd sees for the offshore sector moving forward and what he thinks about some of the main stocks in the sector. I think we are still in the early innings of a long cycle, but it’s going to take some time for the bullish thesis to play out.