Acquisitive Energy Companies- Gone Fishin’ on The Hard Rocks

Back in the days of $600,000/hires for floating drilling rigs, I used to follow Noble Energy- which was gaining an early foothold in the eastern Mediterranean, using rigs like Transocean’s Sedco Express and the Pride North America, among others. Transocean scrapped its rig in 2017; its stock trades in the low single digits at a small fraction of its book value/ share (I am not sure whether NAV/ share might apply here). Pride International was subsumed into Ensco which moved across the pond, and, after acquiring rival Rowan, has now changed its name to Valaris. Its shares are also in the low single digits- again, far below the book value (and, presumably, its NAV). Very complicated and tough to follow from the sidelines; importantly, such companies are valued on EBIDTA multiples fueled by long term contracts.

The broader energy sphere, where markets are settling down (maybe), can provide parts of a template for vessel owners- maybe not outright sales, but, instead, actively seeking longer term charters when period hires move into that “Goldilocks zone”- not too hot, not too cold. After all, vessel supply is set to tighten. In the bigger energy picture, low prices (dare I say “bargains”?) may be leading to a wave of take-overs by the bigger fish in the oceans. Energy shares are among the most battered of any sector (where share prices are compared with those of a year earlier). Yes, there may be broader strategic concerns (geopolitical headwinds notwithstanding), but- where the smaller fish are listed, this may be a time of strategic combinations. Again, the analogs to vessels are imperfect, oil companies, working through layers of liability insulation, are unlikely to gobble up drilling rig owners, or- for that matter, entire tanker fleets. However, with the scent of acquisitions by “natural resources” companies, I am wondering whether a whiff of longer term charters for vessels could be detected? For listed maritime companies, seeking to gain an investor following less prone to over-reaction, this must be good news (if my olfactory instincts are correct).

Noble Energy (not the same as the still existing Noble Corporation- an owner of drilling rigs, with similar metrics as its two compatriots), meanwhile, has survived the past decade, albeit with high levels of debt against the backdrop of lowered oil demand and prices, is now being acquired by oil major Chevron, for a price reported at $5 billion (or $13 billion with debt factored in). When announcing the deal, Chevron touted its restrained financial discipline as it picks through the pond. There is something here- last summer, in a bidding war with eventual “winner” Oxy (if being saddled with debt constitutes winning), Chevron had backed away from acquiring Anadarko- a big player in natural gas. By the way, the Japan Korea marker price for natural gas, which stood at a little above $5/mmbtu at end 2019, with prices halved in the 2020 energy glut.

But, back to Noble Energy. It is certainly involved in U.S. shale oil, but, more importantly, it has a big stake in natural gas drilling in the region between Cyprus and Israel. Happily, the conflicts in the region seem to be more to the north and west. But, then again, Exxon Mobil last year announced a big gas discovery, to the southwest of the island, seemingly out of harm’s way- perhaps not comporting with Turkey’s view of its extended economic zone in the region. Once again, I am thinking about shipping sometimes being stuck between a rock and a geopolitical hard place. In such times, alliances with the biggest players through the medium of longer charters tied to big fish and deep pockets, may just be the route to sail.