Look at the trading activity today - off the charts more active than is typical. Like rats from a buring oil rig, everyone is getting the he** out of this one. This is my personal nemesis stock. I have owned shares for several years. Rode it all the way to the top ($150s/share) and loaded up when it dropped into the 40s. It has been mostly stagnant the past six months and I have been hoping for some upward movement as we start back into a manufacturing cycle. All of the lawsuits related to RIG's failure to stop the oil spill are going to really hurt this company's prospects going forward. So, do I get out now with a nice 30% profit? Or hold on and hope for more in 5-10 years? Some might see opportunity here, but I am leaning towards being a rat right now...
Hey Doc,I'm in the same boat as you... I first bought shares in 2006/2007 and have been riding the roller coaster ever since. However, I'm actually considering adding a few shares if the stock dips much further. As I see it, a 15% ($4 billion and counting) reduction in the company's market cap is an overreaction. Yes, this disaster will cost the company a bunch of money... wouldn't surprise me at all to see the final tally in the hundreds of millions. However, I think of that as a one time event, but nothing more. There will likely be added safeguards and/or regulation after this event for all drillers, but I still think that the long term investing thesis is still in place... RIG has the dominant position in an industry that will only continue to grow over time as oil becomes more expensive and in shorter supply on land. If this were a small player like ATW, I'd be the first rat off the rig!In the meantime, RIG will continue to be profitable and generate a ton of cash. The special dividend that is being paid this year is going to have a higher yield now, which just means more shares reinvested for me! BrianLong RIG (and BP too... doh!)
Well, we're down another 8% ($2 billion more sliced off the market cap) this morning. At this point, I really think it is too late to sell since we're well into the realm of overreaction. I'm putting my money where my mouth is on this one and just bought some more shares at $72. We'll see how this works out!Brian
Me I sold, too late really, but the more I hear about this the more convinced I am that someone screwed things up. IMO this costs more than a few 100 million, but more importantly I don't like riding screw ups. Yes everyone makes a mistake and stuff happens, but there are some things that can't be screwed up. This isn't on the level of a nuke plant but it's bad enough. Yeah it may be BP's fault not RIG's but I wash my hands of both.Should have sold at $150....$120.....$90......
I don't know much about RIG yet, but I do know that situations like this generally present great buying opportunities. Everyone is focused on the headlines, but this situation will most likely play out over years and litigation will drag out for over a decade. Look at Exxon Valdez. That was still in court in 2008. RIG is now selling for about 7 times earnings. Yes, earnings will take a hit, but it will be temporary and it will be forgotten at some point, and you have a chance here to pick up a quality company selling at a price that assumes, when you discount future cash flows, that it will NEVER GROW AGAIN.Not going to happen.
I have owned RIG since 2004. I sold today.In a nutshell, the rig explosion and subsequent oil spill could change everything in the deepwater drilling world. There is no visibility going forward. No visibility = no way to value the stock.Why could it change everything?Liability. At this point, we have no way of knowing what the extent of damage or RIG's liability will be. This is different from the Exxon, Valdez because the oil is still pouring into the Gulf. It might continue for a month or more. If their first plan to cover the well head fails, all bets are off at how much oil could spill or how large an area will be impacted. We could be looking at an event 10X or 100X the magnitude of Valdez. Furthermore, it is happening near a heavily populated commercial coastline.Politics. For years, environmentalists have protested against offshore drilling, warning us that exactly this kind of scenario could occur. It did in 1969 in Santa Barbara, but since then we have comforted ourselves with the idea that technology had solved the problem and minimized the risk. While there is some truth in those sentiments, the drillers have gone farther offshore, into deeper water, and have continued raising the bar.With this event, will the tide turn against offshore drilling? No way to know right now. If they cap the well next week, and minimize the damage, it might be viewed as a manageable risk with a few minor modifications to existing systems. If it goes on for a month or more, it could be a watershed event like 3 Mile Island. The public might just accept that oil has to be more expensive and come from onshore sources.Public Opinion. If this goes on for a long time, public opinion might just realize that oil consumption is connected to more than whether or not they can afford to fill their tank, even in the solid red State South. If oil consumption in the U.S. continues to fall (and there are simple efficiency gains that could reduce it by 30%), there will be no need for deepwater oil for decades.I'm a long term investor, but I don't make decisions on the basis that decades from now we'll need more resources. 2 weeks ago, I felt that the downside risks to RIG were far less than the upside potential for a long time. Now, I have no idea the magnitude of the downside, and the upside doesn't look too hot anytime soon.No visibility. I'm out.
From RIGs latest 10k"There have also been numerous lawsuits filed related to the incident, and we expect additional lawsuits to be filed. We expect to incur significant legal fees and costs in responding to these matters. As a result of the incident, our business will be negatively impacted by the loss of revenue from the rig. We do not carry insurance for loss of revenue. The rig is insured for total loss coverage of $560 million and wreck removal, subject to certain policy limits, to the extent removal can be carried out and is required. Under our drilling contract for Deepwater Horizon, the operator has agreed, among other things, to assume full responsibility for and defend, release and indemnify us from any loss, expense, claim, fine, penalty or liability for pollution or contamination, including control and removal thereof, arising out of or connected with operations under the contract (other than for pollution or contamination originating on or above the surface of the water from fuels, lubricants, motor oils and other substances, as to which we similarly agreed to assume responsibility and protect, release and indemnify the operator."In addition there is a oil disaster trust fund (dismantled by Clinton and reestablished by Bush) that can pay up to $2 billion of the cleanup.
Where did you find this? The latest 10K was filed before the Horizon blew up.
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