Wednesday, October 29, 2014

Fred Olsen Energy dives into the deep end of the pool

Fred Olsen Energy (Oslo: FOE), like the whole offshore drilling industry, has been hammered this year. In last couple of days FOE has been diving because of worse than expected quarterly report. To date it has clearly performed worse than most of it's peers listed in Oslo and New York.

In March this year, we tripled our position in this stock. Now it's our worst performing stock. Luckily, rest of the portfolio has performed better than the market, so despite of FOE moving to wrong direction, we might beat the market as much as 10%. However, it's still two months to go and anything can happen.

With regards to FOE, I'm not able to pinpoint any fundamental reason why FOE is performing worse than peers.

Any ideas from readers?


  1. Fred Olsen does have more very old rigs than its peers (clearly a negative), but it has longer average contract periods, which is a positive in the current very weak sector environment.

    I think it is the best value compared to its peers. Still, if oil prices stay low for several years, many old rigs of Fred Olsen will not get new contracts, cash flow will fall and the upside of the stock could be limited. Market expectations have changed a lot during the past few months.

    1. The oil price might be around USD 50 for many years and the investments will then fall globally and especially offshore owing to a higher production cost. Fred Olsen Energy has chosen the wrong strategy in keeping the old riggs with very high classification costs and less market value. Ther will be a surplus even of newer deap sea and middle range where Fred Olsen Energy will have to scrap six of their riggs. The high dividend paid is done by pressing the lemon as far as possible without investing in new riggs and the company is not well placed when this crisis is over. I have been a FOE fan for many years enjoying their dividend, but I think within 2020 they have been sold or have a very low value (NOK 20 or lower).