With oil currently trading below $44 a barrel, there are no doubts that the demand for expensive rigs that can drill wells under thousands of feet of water is falling. 2014 was a tough year for offshore drilling companies, and this year has not been a year for recovery either. Unquestionably, the offshore oil industry has been mainly struck by the falling price of oil. However, many believe that the potential of deep-water reserves and production is way too immense to be ignored. The International Energy Agency has estimated that more than 300 billion barrels of oil can be found under water, greater than the unextracted reserves of Saudi Arabia. The current level of oil prices is not sustainable over the long-run, so sooner or later the commodity’s price will have to settle at a higher level. As a result, the offshore oil industry might get the opportunity to become profitable again. In the following article we will be discussing three underwater drillers that have suffered over the last years, but might get back on track in the years ahead. These offshore drillers include: Diamond Offshore Drilling Inc. (NYSE:DO), SeaDrill Limited (NYSE:SDRL), and Noble Corporation plc (NYSE:NE).
Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 60 percentage points since the end of August 2012. These stocks returned a cumulative of 118% vs. 57.6% gain for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).
We will start off by discussing Diamond Offshore Drilling Inc. (NYSE:DO), an underwater driller owned by 20 hedge funds tracked by Insider Monkey at the end of the second quarter. Meanwhile, the value of the stakes in the company amounted to $85.06 million. Unsurprisingly, the company has had a rough year so far, with its shares dropping more than 39% year-to-date. However, the stock seemed to be bottoming-out in August, when it gained slightly over 8%. Diamond Offshore Drilling surprised by market by posting better-than-expected earnings and increasing utilization of its ultra-deepwater and deepwater rings, which represent the most expensive rings in the fleet. The company reported net income of $90 million or $0.66 per share for the second quarter, compared to $90 million or $0.65 per share reported a year ago. This was a surprising improvement for the company given that offshore companies have been struggling to get contracts for their assets as of late. Mason Hawkins’ Southeastern Asset Management is one of the top shareholder of Diamond Offshore Drilling Inc. (NYSE:DO) within our database, holding 1.30 million shares.