The aftermath of the Diamond Offshore relisting

The aftermath of the Diamond Offshore relisting

Recording date: 6th April 2022

Diamond Offshore was the most brutal relisting I’ve come across. Sure, Valaris and Noble had wobbly starts but not -40% out of the gate. One of the senior debt holders that got equitised wanted out and hit the bid on the open. You better believe the management of Seadrill, which is due to relist at the end of Q2 2022, took note. This should make for another excellent addition to my offshore driller basket.

Back to Diamond, I built a 2% position on the open at $6.90. It is dirt cheap any way you cut it. My original framework was: Diamond $600m drillships + $800m semisubs = $1.4billion market cap or ~$14share. Two of the semisubs are pretty much scrap, so I shouldn’t have counted them, yet at the same time, Gen 7 drillships and semisubs are going for ~$200m, so they still end up in the ballpark either way (depending on what value you assign the other three semisubs).

I highly recommend everyone take the time to read this article from Esgian and pay particular attention to Figure 2: Buyer & Seller price expectation gap / Source: Esgian. Think of it as the bid-offer for the various rig values, which illustrates the market has arrived at a $180-190m value for modern drillships. This is just another way of illustrating the company is worth at least ~$1.2B before deciding what value to assign the remaining semisubs and management contract.

Yes, the current contracted dates aren’t ideal, with the majority coming off by late 2023, but who cares when the company is trading at half the current rig valuations. Be patient, let the contracts roll off into great day rates, and the company significantly rerate if Noble hasn’t brought it out by then. It can also reactivate Ocean Greatwhite in a day rate bull market, which will help cash flow and valuations.

These setups are my bread and butter; with the structural deficit in oil, I struggle to see how I lose much post-restructuring, yet if things go right, I’ll have a multi-bagger on my hands in 1-2years time.

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