Update: Links to Ben’s post have been fixed.
In September last year Ben Bortner provided a guest post on Seahawk Drilling (NASDAQ: HAWK). I said at the time that HAWK was not a typical Greenbackd stock, but it warranted consideration at a discount to Ben’s estimate of liquidation value. HAWK has been cut in half since Ben’s post for reasons unforeseeable at the time (see Ben’s excellent September post for the background) and it seems to be living in interesting times, which makes it a typical Greenbackd stock, to wit:
HAWK was cheapish before BP filled the Gulf of Mexico with oil and golf balls (to paraphrase Wyatt Cenac on The Daily Show, BP’s challenge now is to remove the impurities from the Gulf, namely the dead shrimp and the seawater). Prior to the spill, low natural gas prices and the credit crunch led to reduced fleet utilization and day rates that had hurt drillers in the Gulf of Mexico generally. Several problems specific to HAWK – a largish Mexican tax dispute and older jackup rigs in an environment where a slew of new rigs are in production – made it cheaper still. BP’s oil spill and the accompanying regulatory uncertainty have caused a perfect storm for HAWK, which may lead to a liquidity crisis. In short, that’s why I like it. The mere absence of bad luck should see this stock trade higher.
It looks very interesting at a big discount to liquidation value. At its $12 close yesterday HAWK has a market capitalization of $142M, which is 30% of its $443M or $36.6 per share in tangible book value as at March 31. It’s got $6.5M in debt and $73M in cash and short term investments. Cash burn is around $10M per quarter if demand for the rigs doesn’t pick up. The moratorium on drilling applies to deep-water drillers, and HAWK’s rigs are shallow water rigs, so permitting is not the reason for the cash burn – it’s insurance and overcapacity. That said, it seems that demand for HAWK’s rigs is improving.
On the other hand, here’s the bear case from August last year on HAWK’s prospects in less interesting times.
[Full Disclosure: I hold HAWK. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]