Why Shares of Hercules Offshore, Inc. Dropped Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of offshore drilling company Hercules Offshore, (NASDAQ: HERO  ) fell 12% today after announcing it will forgo a contract.

So what: Hercules experienced delays obtaining approval of a local representative, which delayed a three-year contract it had in Angola. The contract Hercules is getting out of was for $108,000 to $110,000 per day through November of 2016.  

Now what: This is a big blow for Hercules but it wasn't the most valuable or longest lasting contract for the fleet. So, the drop in shares is a bit overdone, in my opinion, considering that this is only one rig in the fleet. Hercules may be dinged by this on an earnings front this year but with operations already returning to profitability I see more upside in drilling overall than downside from the lost contract.

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