Drilling down for value in energy sector

Executives in the energy sector have had a wild ride over the past three years as oil prices have plummeted then bounced. Difficult at times, surely, yet spare a thought for those running the listed companies that operate deepwater drilling rigs.

The share prices of major offshore rig companies wallow below or near decade lows. Some operators are freighted with onerous debt obligations they cannot easily meet, not to mention equipment that oil companies do not need. SeaDrill and Ocean Rig, both of Norway, have lost 90 per cent of their value this year alone.

No wonder. Daily rental rates for even the most sophisticated deepwater rigs have tumbled 70 per cent, back to prices not seen since 2004. Miserly capital spending by the major oil companies, down more than half to $40bn in the two years to 2016, have not helped.

Adding to this lack of investment from its customers is a bubble of new builds, which is only slowly deflating. Understandably, the market is showing little faith in the underlying value of these rig operators.

US and Norwegian operators trade at just 20 per cent of their stated book values. The market value of US-listed Atwood Oceanics suggests its rigs are worth no more than its constituent steel, according to Fearnley Securities.

That might explain why another US rig company, Ensco, announced it would buy Atwood earlier this month. This week, Transocean followed by striking a deal to acquire Norway’s Songa Offshore for $3.4bn.

This nascent movement towards industry

Article source: https://www.ft.com/content/d218c2de-8258-11e7-a4ce-15b2513cb3ff

Euro prospects on the rise

Before the French elections in April, people were worried about a potential breakup of the euro. But just a few months later, the single currency has been gaining in strength significantly. So why is that? Well, to help answer that question, I’m joined today by Roger Hallam, who’s Currency Chief Investment Officer at JPMorgan Asset Management. Thanks for joining us, Roger.

Good morning.

So first question, what’s been going on with the euro?

I mean, the euro’s rallied strongly so far this year against the dollar. I think there’s been two things driving that. The European economy has continued to make progress with strong growth rates. We’ve seen an improvement in politics in the region.

At the same time, the Trump administration has faced a number of challenges. Has been unable to push through its reforms from either the health care or the tax side of things. And of late, we’ve also seen some very soft inflation prints out of the US, which has driven down expectations of Fed tightening, both this year and next.

Right. So we’ve got a stronger euro against the dollar. Is the euro still a good value for investors, do you think? We’ve got a chart here on this.

I think that depends on your time horizon. Certainly, it’s rallied a lot in the last couple of weeks and we’re seeing a little bit of position congestion over the last few days. But I think when you look at these charts, when you look at

Article source: https://www.ft.com/content/ff8ddb8f-f183-4a17-b662-1ece077071f9