In January 2011, I added GulfMark Offshore (NYS: GLF) to my real-money portfolio. The thesis was (and still is) very simple: I believe there is a very long road of activity ahead in offshore exploration for oil and natural gas and GullfMark Offshore is an excellent company that will play an integral part in getting it done.
Right back to where we started. Almost.
It's been a bit of a volatile ride for the stock ever since I added it to the portfolio. The chart of the share price below tells the tale:
Energy is volatile; no news there. But I really like GulfMark's position in the value chain. So as oil prices have come back down I am taking advantage and adding to the position.
Out to sea
I was recently doing some research for another holding in my portfolio, Halliburton (NYS: HAL) , and I found some pretty interesting stuff in regard to expectations for deepwater exploration:
Deepwater drilling was hit big time with the spill in the Gulf. But this activity is coming back all around the world, and that means more work for Halliburton. Take driller Atwood Oceanics (NYS: ATW) , for example. It's investing $3.3 billion through 2014 to bring eight new rigs online and expects ultra-deepwater rig demand to "increase dramatically through 2016," with tight utilization meaning better dayrates. And the world's largest offshore driller, Seadrill (NYS: SDRL) , sees much more of the same. The expected net overall increase in rig count in 2012 will help Halliburton offset any weakness from declining natural gas rigs, but right now the market doesn't seem to be buying it.
More to like
GulfMark possesses one of the youngest and most geographically diverse fleets in the industry and management is not resting on their laurels. Not only has the company been able to cut its net debt in half over the past four years, it has also been able to launch an aggressive new build program in order to keep the fleet young. In fact, management expects nine new vessels to be constructed over the next two years, adding to the fleet's capabilities.
And it's not like these ships don't have a life after GulfMark. Management has a proven track record of vessel dispositions that they can be proud of. Going back to 2006, the company has sold off 20 vessels with an average age of 24 years and a phenomenal sales price as a percentage of original cost of 122%! Smart fleet management leads me to believe that the tangible book value of this company should continue to grow over time.
Still a game of risk
The risks remain for GulfMark. Energy ultimately is a cyclical industry and with the amount of global exposure the company has, geopolitical events are bound to come into play in some capacity. The exposure to the Gulf of Mexico has somewhat abated since last year, but it doesn't mean that it can't or won't happen again somewhere else. That said, management has done a fantastic job setting its share of short-term contracts in order to keep a versatile fleet ready to change locations at the drop of a hat.
And still a deal. Done.
When I first added GulfMark to the portfolio it was trading at about 0.9 time tangible book value; well below the 10-year historical average. Of course during the time I've had it in the portfolio it's seen highs well above that, and I am confident those will return.
When I first bought the stock, the price of oil was hovering right around $90, much the same as today. Today's price is right at tangible book value, and I'm as bullish as ever on the future of offshore exploration, so I'm adding another $1,000 worth of shares to the portfolio. Make sure to drop me a line on Twitter and let me know what you think!
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At the time thisarticle was published Stock Advisor analystJason Moserowns no shares of any companies mentioned. The Motley Fool owns shares of SeaDrill and GulfMark Offshore.Motley Fool newsletter serviceshave recommended buying shares of Atwood Oceanics, Halliburton, and SeaDrill. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.