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1st Quarter Results Energy Portfolio May 29, 2014

Posted by shaferfinancial in Finance.
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I have 3 energy stocks that reported 1st quarter results. Here is a brief synopsis of what they reported and did with their dividends:

AWILCO [AWLCF]: This company owns two drilling rigs producing in the North Sea. They have a backlog of $680M stretching into 2016. In December of 2015 one of the rigs will go to the yard for maintenance, specifically an updated blow-out protector. In February of 2016 the other rig will do the same thing. Some analyst think that the dividend will go down for a quarter or two because of this. Other’s point out that the company is accumulating cash to cover the dividend over this period. The last quarter saw good operational uptime at 99%, but has some weather oriented down-time. Revenue efficiency was 97% with $62.7M of revenue, 18% above 1st quarter 2013. Dividend was raised to $1.15 for the quarter, a rise of 5% from the quarter before. They also mentioned that they were evaluating growth potential on a case-to-case basis. Current stock price is $22.17, which is 11% over my basis [total cost]. Current yield on cost is 23%. Pretty happy so far with this one!

Ship Finance International [SFL]: Ship Finance is a lessor of ocean vessels. They purchase ships and lease them out long term to other companies. Currently they have a good mix of ships including drill ships. They recently purchased 9 used container vessels, which are leased out long term. They signed long term leases on 4 8700 TEU new-builds expected to be delivered at the end of 2014 and the beginning of 2015. It bought two 82,000 DWT dry bulk carriers leased out to a state owned Chinese operator to be delivered this summer. The West Linus drill ship was delivered and is now on lease to Conoco Phillips drilling in the North Sea. After several delays they canceled two new-builds being built in China. They currently have a $5.1B charter backlog. Last 12 months EBIDTA of $487M, with $176M after interest payment and amortization. EBIDTA of $129.7M for the quarter, 13% above last quarter. It increased the dividend to $.41 per share from $.40. I expect it to rise faster than that for the rest of the year as the new vessels start producing cash flow. The current stock price is $18.37. My yield on cost is 12%. My basis is $13.92, a return of 32%.

SeaDrill [SDRL]: SeaDrill is the top offshore drilling company in the world. It owns 41 drill ships and manages another 12. It also has 19 drill ships ordered for delivery in the next 3 years. There has been sustained negative reports from analyst over the last 4 months for the whole offshore drilling sector. SDRL has taken the brunt of this negativity because of its financing of the aggressive new-builds coming on board. The stock was well below my basis [over 15% at one time], but I took advantage of the low stock price to add on to my position at two different times when the price fell into the low 30s. I have also received 2 dividends and will receive a third in a couple of weeks. Despite these negative analyst reports the last quarter was good. It is hard to compare financials to the quarter before because they have deconsolidated a MMP from the books. However, it looks like the quarter’s income was only slightly lower than the quarter before because of operational downtime on mainly 1 rig. This lowered the overall floater efficiency rate to 88%. The jack-up efficiency rate remained at 97%. Basically, there is some near term weakness in the market, which the analyst have made a huge deal about. But the back-log remains over $18.8B, a strong number. SDRL made some changes to its loans, moving into different loan markets, lowering its interest costs going forward. This should help lower future expenses.

Despite the critics saying the dividend was in question, it raised the dividend rate to $1.00 for the quarter, 2% higher than the quarter before and 4% higher than when the critics said it was in trouble. There is also a slush fund of $.28 for an additional dividend distribution. Overall, debt lowered around 5%.

Finally, a big deal with Russian owned Rosneft was announced without details for a subsidiary [NADL] for at least 9 drill ships in Russia. This can’t be seen as anything but positive. The deal with Mexico with 4 jack-ups drilling in the GOM is starting this summer.

Current stock price is $38.23. My yield on cost is 11%. My basis is $36.27. So I am positive 6%! A real relief after being negative over 15%. Patience and confidence in my analysis allowed me to weather the storm of the last couple months!

It should be noted, that I invest for dividend growth, not just for capital appreciation. That strategy has done me well over the last couple years for my non-Berkshire portion of my portfolio [now 50% of my overall portfolio].

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