“The Next [Rockefeller] Takeover Targets: Deepsea Oil”

Energy Strategist teases with takeover speculation about a longtime Gumshoe favorite

By Travis Johnson, Stock Gumshoe, March 26, 2012

Sometimes our teaserriffic temptations come in waves — lately I’ve been getting lots of questions about teasers from Elliott Gue over at Investing Daily, particularly in ads for his Energy Strategist newsletter, so we’re batting in the same park again today.

This time, it’s an ad that sounds a little bit familiar …

… it’s all about the Rockefellers and their plans to take over another segment of the global oil business. Here’s how Gue pitches it:

“Follow the Money from a Top-Secret Meeting Inside Room 5600 of Rockefeller Center and You Stand to Make Life-Changing Money on One Blockbuster Trade….

“The financial affairs of the Rockefeller family—numbering around 150 blood relatives of John D. Rockefeller—are run from the family office in Rockefeller Center, Room 5600, known officially as Rockefeller Family and Associates.

“This Rockefeller family gathering wasn’t just any business meeting. Something big went down. An initiative to take a controlling interest in the deepwater drilling business was unanimously approved….

“The only major dynamic of the oil industry that the Rockefellers until now have not attempted to control is the oil extraction through deepwater drilling rigs market segment.

“The only question in my mind was which deepwater driller the Rockefeller clan might be pursuing. I mean, heck, there are legions of publicly held drilling interests in the global universe of stocks. That would be like finding a needle in a haystack.

“After drilling down for 40 night and 40 days, I’ve deciphered the answer! There is absolutely no doubt in my mind that this drilling company will be acquired in the next year or two by an oil firm that Rockefellers either directly or indirectly control.

“This Under-the-Radar Millionaire-Maker is Paying an 8.7% Yield Right Now. And the Stock is Poised to Gap Higher in the Next 6 Months and Triple Upon Being Acquired!”

Once that 8.7% yield gets mentioned I start to have a pretty good idea of which pick they’re touting here — and it is indeed one that was teased similarly a year or two ago. But let’s get some more clues to make sure — after all, there’s more than one high-yielding stock in the offshore drilling sector.

“This deepwater driller that I believe the Rockefellers will move to seize control of is an offshore deepwater driller. The company operates a fleet of over 40 units comprised of drill ships, jack-up rigs, semi-submersible rigs and tender rigs. They have 7,000 employees across 15 countries on five continents.

“Consolidation in the offshore drilling rig industry is rapidly approaching. This narrowing of the field of play would only improve the pricing and earnings visibility for this millionaire-maker’s services.

“Such consolidation activities may be in the form of transactions for specific offshore drilling units or entire companies. I believe the Rockefellers will acquire this under-the-radar winner and then turn around and use the firm as a powerful M&A vehicle. This millionaire-maker will definitely take part in the future consolidation of deepwater oil extraction services.”

Sounds compelling, no? Then we get to the confirmation that this is exactly the company I’m thinking of (and you might be thinking of, too — it’s one I’ve written about many times and own personally):

“The Founder and CEO is a Buccaneer Billionaire Who Has Been Compared to Oil Titan John D. Rockefeller!

“The founder of this under-the-radar deepwater driller comes from humble beginnings. The son of a welder, this modern-day Rockefeller used hardball tactics to build his company into a powerful deepwater driller.

“This entrepreneural genius made an early bet many thought was insane. Years ago, his company broke one of the cardinal rules of the rig business. It ordered two “ultra-deepwater” rigs, capable of drilling in waters at a depth of at least 7,500 feet, for nearly $900 million—on spec. It didn’t have a single contract from an oil company to guarantee them. Demand exploded and the company charges a whopping $600,000 a day for its services!

“The CEO sees years of strong demand ahead. And I’m inclined to believe that he’s right. After all, the amount of oil pumped from deepwater fields will double between 2010 and 2015, according to the U.S. Energy Information Administration. Douglas-Westwood, a consulting firm, says capital spending on deepwater oil will rise to $25 billion annually by 2012.”

So yes, we can leave the Thinkolator in the garage and give it a rest — this is Seadrill (SDRL)

Seadrill is now, by some measures, the largest deepwater drilling company in the world, though the company is still a hair smaller than Transocean (RIG), $27 billion enterprise value for Seadrill and $29 billion for Transocean, with RIG having higher revenues and less debt. I’d describe the choice between RIG or one of the other US competitors and Seadrill as the choice between value and growth — Seadrill is (by far, I would say) the most aggressive investor in the deepwater space among the larger companies, and inherited its swashbuckling personae from its founder, John Fredriksen, who used his cash and a giant pile of debt to order hugely expensive ultra-deepwater rigs and drillships a year or two before everyone else got interested in them, then levered those contracts and his capital into acquiring several small drillers and one decent-sized one to quickly build up both his fleet and, importantly, his order book in the few overworked shipyards that were capable of building these massive, high-tech marvels (including the company that Gue’s partner Yiannis Mostrous has teased over and over again in part because of their rig-building prowess, Keppel Corp of Singapore).

So yes, Seadrill has a huge fleet of ultra-deepwater rigs (the kind that can drill in water that’s two miles deep), and they’re booking plenty of $600,000 dayrate deals (meaning, they get paid $600,000 per day for use of the rig, which typically gives them a breakeven on these assets somewhere between three and five years), and though the rig market got a lot more attention in recent years and newbuilds have been added to the global fleet pretty aggressively, offshore exploration has kept up — explorers and producers offshore are desperate enough to get their hands on the best, most modern rigs that they’re inking deals at these high dayrates for many years into the future, even on rigs that aren’t even built yet.