Seahawk Drilling Is for the Birds

Spinoffs have a deserved place in the heart of many a value investor. Coach (NYSE: COH  ) , once under the Sara Lee umbrella, is just one of countless success stories.

Seahawk Drilling (Nasdaq: HAWK  ) , the mat-supported jack-up drilling rig business now trading separately from offshore driller Pride International (NYSE: PDE  ) , certainly sports one of the criteria fellow Fool Nate Parmelee looks for in a potentially lucrative spinoff investment. Back in 2007, he dubbed it the "unattractive factor." As documented in my second-quarter earnings coverage of Transocean (NYSE: RIG  ) and other contract drillers, the market for jack-ups just plain stinks right now.

Before your inner contrarian gets too excited, let me just say right here that I don't consider Seahawk a very compelling investment opportunity.

Sure, compared with Hercules Offshore (Nasdaq: HERO  ) , Seahawk looks pretty good. The company inherited no long-term debt from Pride, and the fleet boasts a higher percentage of rigs that are rated for at least 250 feet of water depth. That's the minimum rating that customers like PEMEX seem to require for jobs that are steadily moving further offshore.

That said, most drillers look good compared with Hercules. Ensco International (NYSE: ESV  ) has a significant jack-up component, with a major deepwater kicker. Ditto for Noble (NYSE: NE  ) . All that Seahawk appears to offer is more concentrated exposure to the jack-up market. With natural gas headed lower in the short term, and drilling moving irreversibly into deeper waters, I don't see today's investors being particularly well-rewarded over a short or long time frame.

You can expect Seahawk's shares to be even more volatile than those of its peers, given the boom-bust nature of the shallow Gulf of Mexico drilling market. That will invite trading opportunities for those willing to try to time a recovery, but buy-and-hold types should probably skip this one.

Coach is a Stock Advisor selection. Give any of our newsletters a spin, free for 30 days.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (5)

Comments from our Foolish Readers

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  • Report this Comment On August 31, 2009, at 4:46 PM, fairandbalanced wrote:

    The volitility point is right on and understated.

    Furthermore, relative prospects for HAWK are impaired by a cornucopia of contingent liabilities ranging from FCPA issues, alleged accounting issues, ongoing litigation regarding storm damage, and extreme (i.e. >50%) customer concentration with a single government controlled customer whose waining interest in shallow-water drilling is well documented.

    This is not your typical unloved and undervalued spin-off, the flees outwiegh the dog on this pup.

  • Report this Comment On April 06, 2011, at 7:33 AM, gugudada wrote:

    One year and a half ago, you said: "Sure, compared with Hercules Offshore (Nasdaq: HERO ) , Seahawk looks pretty good. "

    It's strange that Seahawk has filed for bankrupctcy. And that its assets are being bought by Hercules Offshore.

    You really don't have a clue about things, do you? Rember your post saying that Seahawk at $12 was a good one? It's on http://www.fool.com/investing/value/2010/04/08/time-to-swoop...

  • Report this Comment On May 13, 2011, at 5:32 AM, gugudada wrote:

    By the way, Toby, which "value-oriented investment firm based in Texas" do you "consult for"?

    So that we may remain vigilant.

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