Tripled position on Fred Olsen Energy

We have been holding Fred Olsen Energy (Oslo Stock exchange, Norway: FOE) for many years now. See my previous articles if not familiar with the Company:

• "Fred Olsen Energy" - July 20, 2010
  "Fred Olsen Energy and deep waters" - September 28, 2012

I recently decided to triple our position in the company, because the stock came under 200 NOK making expected dividend yield for 2014 over 10%. I had cash to deploy and looking at our overall portfolio this sector and this company seemed like the logical place to put cash in at this point of time.

They have paid steady stream of base 10 NOK dividend for years. On top of that there has been an extraordinary dividend in most years between 2007 and 2013.

2007  NOK 10 per share
2008  NOK 25 per share
2009  NOK 25 per share
2010  NOK 10 per share 
2011  NOK 20 per share
2012  NOK 20 per share 
2013  NOK 20 per share

According to 4Q 2013 presentation: "The Board of Directors will propose to the AGM in May 2014 to distribute NOK 10 as ordinary dividend and NOK 10 as extraordinary dividend".

My logic here is quite simple:

• I believe there is significant margin of safety long term (as in 5-10 years) when buying the company below 200 NOK.
• Yield is very attractive for 2014 (and I believe beyond)
• Future upside potential via new builds to the ultra deep water segment
• Bolette Dolphin: delivery date Feb 2014 (new build ultra deepwater drillship). It has four-year contract with Anadarko for international operations.
• Bollsta Dolphin: Delivery 3Q 2015 (new build ultra deepwater semi-submersible). It has five-year contract with Chevron for operations West of Shetland in the UK sector.

Source of information:

• Fred Olsen Energy web site
• 4Q 2013 presentation

Author is long Fred Olsen Energy at the time of writing.