Further to my Seahawk Drilling, Inc. (NASDAQ:HAWK) liquidation value post, I set out below the slightly more optimistic valuation of HAWK’s rigs if they can be sold as operating rigs. Here is a guide to the second-hand market for rigs (click to enlarge):
I’ve combined it with the list of HAWK’s rigs and their operating status from the July 2 Drilling Fleet Status Report to calculate the approximate second-hand market value of HAWK’s rigs:
Assumptions
Although a handful of HAWK’s rigs were built prior to 1980, I’ve assumed that the recent upgrades make the rigs saleable in the second-hand market. There is no market value for the 300′ MC (mat cantilever). 250′ MCs sell for around half the market price of 250′ ICs, so I’ve assumed that 300′ MCs might sell for half the price of 300′ ICs, which is $60M. I’ve also assumed that most of the cold-stacked rigs can be made operational with little expense, as Randy Stiller indicated in the presentation to the Macquarie Securities Small and Mid-Cap Conference. Stiller mentioned that two rigs require significant cap ex to be returned to operational status, although it isn’t clear which two or what “significant” means in practice. I’ve assumed that the 80′ MC is saleable only for scrap at $5M.
Valuation
I calculated that HAWK was worth around $154M in the more dour liquidation scenario, assuming that the rig value was $230M. This valuation suggests HAWK could be worth another ~$150M in rig value if most of the rigs can be sold as operational, which implies a liquidation value around $300M or around $25 per share. The risks are the cash burn and the Mexican tax issue, both of which I’ll examine in detail at a later date.
Hat tip John.
[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.]
Greenbackd 
What is the marginal cost of producing nat gas in general? Considering the value of all equipment related to extracting it is dependent on this price – I think it is the key ingredient. Note – the current “low” price of gas is only low when you consider the last several years, the previous 20 it was much lower. Please let me know if I am mistaken. I am not an expert in the field.
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I thought this write-up was interesting enough that I’ve since read through the 10-K. Two major items turn me off:
1) PEMEX accounts for the majority of business (p. 14 of 10-k).
2) Of the 44 jack-ups currently under construction, 6 will have lower mobility costs in the Gulf and they have a higher specification (p.15 of 10-K). If PEMEX were to require a higher specification, HAWK would be out of luck. Even if they didn’t require a higher specification, competition could under bid because of lower mobility costs.
I believe their current business advantage is being small and mobile. But as the 6 new rigs are completed they may lose that advantage. Book value of the current rigs will drop simply because new rigs are about to enter the market. If 60% of the rigs are sitting idle….at what point would management realize it’s time to get rid of a few. Better sooner than later if better/newer/more cost effective rigs are about to come out into the market.
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Why don’t you model out what HAWK would be worth if the company continues to limp along for another 2-3 years, with 60% of rigs remaining idle, management continuing to sit on their idle rig inventory neither scrapping nor selling, and the company continuing to burn through ~$10m (adjusted) in OCF each quarter? Because that’s what’s happening now, and at $9/sh that’s what the market seems to be pricing in for the indefinite future, so maybe it’s a scenario worth considering.
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Is it possible that HAWK was spun-off just to get rid of the potential huge tax liabilities?
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