You had perfect market timing with your buy and sell on RIG!
Can you confirm these data points I pulled from Twitter?
RIG recently contracted 2 @>$500k day rate, up from $400k 18 months ago
What’s the new build parity ? I’ve seen $750-$1000k based on $800-$1000k new build cost, and taking a few years to come to market—depending on rate of day rate rise, we probably have at least 5 years before cycle top?
There’s about 10 cold stacked rigs, whose lower refurbishing cost vs new build cost could add supply before new build, dampening day rate rise.
So it could be a few years before day rates inflect, and shareholder returns rise to cause re-rate. So anyone in RIG would need to be patient—instead of timing the inflection, I just buy and hold a core position, hoping for a double in 5 years, trading in and out a smaller part with the high volatility.
As you say, they could but are unlikely to go bankrupt and are trading below NAV or book value.
Question: can you help us understand how VAL differs from RIG? how far out on average is RIG booked? Asked another way, how long does it take for leading edge day rates to meaningfully affect average day rate? How does this compare to Valaris? Is that why VAL will inflect first? Or, I suppose it’s mainly due to fact it will take longer for RIG to be profitable due to need for much higher debt payments than RIG? Which type investor would goto RIG vs VAL?
Great stuff, enjoy content.
You had perfect market timing with your buy and sell on RIG!
Can you confirm these data points I pulled from Twitter?
RIG recently contracted 2 @>$500k day rate, up from $400k 18 months ago
What’s the new build parity ? I’ve seen $750-$1000k based on $800-$1000k new build cost, and taking a few years to come to market—depending on rate of day rate rise, we probably have at least 5 years before cycle top?
There’s about 10 cold stacked rigs, whose lower refurbishing cost vs new build cost could add supply before new build, dampening day rate rise.
So it could be a few years before day rates inflect, and shareholder returns rise to cause re-rate. So anyone in RIG would need to be patient—instead of timing the inflection, I just buy and hold a core position, hoping for a double in 5 years, trading in and out a smaller part with the high volatility.
As you say, they could but are unlikely to go bankrupt and are trading below NAV or book value.
Question: can you help us understand how VAL differs from RIG? how far out on average is RIG booked? Asked another way, how long does it take for leading edge day rates to meaningfully affect average day rate? How does this compare to Valaris? Is that why VAL will inflect first? Or, I suppose it’s mainly due to fact it will take longer for RIG to be profitable due to need for much higher debt payments than RIG? Which type investor would goto RIG vs VAL?
Thanks Eric.
Day rates are published via press releases and media, yes their 2 newest are contracted such.
New build parity is a moving target given inflation - consensus is around $1B.
Shipyards booked out for 2-5 years currently.
I am being patient and holding for long term now - set up is better and it was a fluke I timed it last time.
VAL = good balance sheet. Rig = bad.
Val won't roll contracts until next year, they signed at lower rates.
VAL is for those more risk averse in a sense. RIG is pure call option.