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So after the note on PKD -- prices tended to take off with the oil jump. I actually started on PGN (Paragon Offshore) which when I looked first at it -- it was trading at/around $1.30s then jumped to $2.00. It is currently trading in the $1.60s.

Again that's largely driven in my opinion by the rebound in oil prices over the past couple of months.

Saying that -- PGN is a carve out from Noble Corporation (NE) and included older offshore drilling rigs (jackups/floaters). The company also went out and purchased Prospector to add to its jackup fleet.

The upside is largely on the otherside of the oil price chasm and what does the contracting environment look like for Paragon's rigs in 2016/2017. If utilization rates improve, rigs that were coldstacked are brought back on line, and dayrates improve -- EPS could be a huge rebound.

If its healthy then there is the potential to earn $4 per share like in 2013 and 2014. Again the stock is trading at $1.60 today. PGN IPOd in 2014 in the $14-$15 range

Consensus EPS for 2016 is a loss of $1.10 after making $0.53 this year. Q1'15 earned $0.69 and adjusted $0.47 after some non-operating gains -- sold a rig and gain on debt extinguishment.

A rough model for 2017 suggests EPS back in the $1-$2 range depending on assumptions used for utilization and dayrates as well as rigs in play. (There isn't much visibility.)

The upside though again is driven by the leverage of the assets in play. Even if I assume $234 million in EBIT in 2017 based on today's estimate of invested capital -- the return is 9% (EBIT/(NWC+FA)).

So the situation is a ridiculously low equity value "if" the company can make it through the current oil price / capex environment. The equity value will be much, much higher if the firm can earn ~$1.50 in 2017.

Therefore there is significant upside but significant uncertainty. I'm hesitant to pull the trigger on this one so I'll put this one on the watchlist. I think the risk-to-reward is interesting but we could do better.

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PGN update.

I've built the earnings model to forecast earnings in a normal environment -- but we don't have a normal environment. So it is very hard to see how big the chasm Paragon is going to have to bridge to get through to the other side. I've not followed the company close enough to know what ultimate scenarios are likely to be in play.

Paragon has slipped to ~$0.70. As some would argue -- its equity value could easily be zero and is essentially a call option on oil at this point. It's probably worth keeping on the radar but I think the market is putting some percentage towards bankruptcy at this point. The risk is an acquisition of assets after equity is wiped out. Again -- probably best to monitor and not make an investment at this time.

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And there we have it from PGN's Q3'15 10-Q:

In light of a potential covenant breach under our Revolving Credit Facility and continuing adverse market developments, there is substantial doubt regarding our ability to continue as a going concern within the subsequent twelve-month period.

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