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Boring Portfolio Report
Monday, January 26, 1998
by Greg Markus (TMFBoring@aol.com)
ANN ARBOR, Mich. (Jan. 26, 1998) -- U.S.
markets closed mixed Monday, with the Dow
rising slightly, the S&P 500 off nominally, and the
Nasdaq down nearly a full percentage point. The
Boring Portfolio sagged 1.54%, dragged under
by a $3 3/4 loss in shares of Tidewater (NYSE:
TDW).
Tidewater sank despite posting better than
expected fiscal third-quarter earnings of $1.15 for
continuing operations and $1.21 including profits
from the now discontinued gas compression
segment.
As usual, the market was focused on what lay
ahead, rather what had already happened; and in that regard, Tidewater
executives offered some cautionary comments in a conference call held this
morning.
Declining oil prices did not factor very much if at all in the concerns of
Tidewater chairman, president, and CEO William C. O'Malley. He said
that Tidewater has seen no decrease in activity whatsoever as a result of
the decline in spot crude prices over the past few months.
Nor was O'Malley particularly concerned about the effects of the "Asian
flu" on Tidewater. He and CFO Ken Tamblyn noted that, excluding its
operations off the coast of Australia, Tidewater has only 42 vessels
operating in Southeast Asia, accounting for barely $10 million in revenues
out of a total of $281 million. Moreover, the vast majority of Tidewater's
contracts in that region are with U.S. customers operating there, or with
large international oil companies rather than with local outfits.
Instead, the concern was about new vessels currently under construction
and scheduled to enter the Gulf of Mexico market in the late summer or
early fall. O'Malley said that this new capacity could very likely depress
dayrates in the Gulf -- although the exact magnitude would depend on how
quickly the new capacity enters the market and also how quickly additional
drill rigs come on line to soak up the additional marine capacity.
O'Malley said that Tidewater intends to maintain its market share and its
employee base in the Gulf and that his company will do "whatever is
required" to guarantee that -- which presumably includes being competitive
on dayrates.
These comments were enough to send some traders into a tizzy, unloading
shares even as the conference call was in progress.
Without undercutting the significance of the concerns raised today, some
additional facts pointed out in the conference call are worth considering.
First, the majority of Tidewater's fleet is based outside of the Gulf of
Mexico, and the outlook for those vessels remains strong. Moreover, a
substantial fraction of Tidewater's Gulf fleet is already under contracts that
run, in some cases, well into 1999. By then, it's possible that new drilling
rigs could be coming on line.
For what it's worth, I also think it's possible that some of Tidewater's
pointed comments about the company's resolve to hang onto its Gulf
market may have been aimed more at competitors than at analysts and
shareholders. <<
I'm not familiar with TDW.When they say decreasing day rates they're not atlking about drilling are they?
GD |
