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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: profile_14 who wrote (136106)	6/24/2010 2:46:24 PM
From: Big Dog	5 Recommendations Read Replies (1) \| Respond to of 206326

Book value. Salvage value. Both meaningless. I understand that analysts have to put values on assets, like rigs. But they really mean nothing. Rig values are almost totally in direct relation to day rates (earning power). If the earning power of the rigs goes down, the value of the rigs go down...whether you sell one at a time or not. There is one value that is valid. How much would a willing Buyer buy one for TODAY. Months from now...might be higher, or lower. Depending on day rates. With that said, some companies do try to add to their fleet with better quality/capacity and position for market niches. This may cause them to pay a tiny bit more than today's earning potential. But not much. If, for example, RIG started actually selling rigs one rig at a time, the values would start dropping like a rock. In the first place, they would not do that if the rigs had earning power. If the rigs did not have earning power, why would anyone else want to buy them at any favorable price? They wouldn't. A hedge fund manager once told me...I want to be the THIRD buyer of a rig. That's the one that makes money. Lot's of truth to that. Analysts get the offshore rig market wrong every time. But they have to write something. This is a boom bust business...always has been and always will be. That doesn't chart or model well. It simply can not be predicted. And that's why the Norwegians get rich. They get in and they get out. It will be interesting to watch SDRL. I can promise you there will be fireworks and trading action. They are in business to make money, not to be a drilling contractor. There is NO reason that a drilling contractor should even own rigs. They are a service company and should stick to providing services. All they need is ACCESS to the rigs (maybe through leases). Rigs should be owned by companies that are experts at managing capital-intensive assets and the associated risks of ownership. Marriott doesn't own its hotel buildings, it manages them and provides services to its customers. Same should apply to rigs, IMHO. big