Boring Portfolio

Boring Sells TDW
January 28, 1998

1/28/98: Bore Port Selling 100 shares Tidewater

Shares of Tidewater (NYSE: TDW) have continued sinking after the company posted better than expected fiscal third-quarter earnings on Monday. As usual, the market was focused on what lay ahead, rather what had already happened. In that regard, Tidewater executives offered some cautionary comments in their follow-up conference call.

Declining oil prices did not factor very much if at all in the company's concerns. Tidewater has seen no decrease in activity whatsoever as a result of the decline in spot crude prices over the past few months. A number of offshore drillers have said the same recently.

Nor is Tidewater particularly concerned about the effects of the "Asian flu." Excluding its operations off the coast of Australia, Tidewater has only 42 vessels out of approximately 700 operating in Southeast Asia, accounting for barely $10 million in quarterly 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. 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.

Although it's difficult to forecast with accuracy, approximately 70 new vessels are slated to enter the Gulf market within the year. Total required capacity for that market is around 300 boats, and demand is pretty well satisfied at the moment. So 70 new vessels could have a fairly substantial impact on dayrates in the region -- at least until new rigs might appear to add to demand for marine services. When and how many new rigs would eventually enter the market is quite unclear.

Tidewater's operating costs are relatively fixed, so any cuts in dayrates go pretty much straight to the bottom line. Tidewater is on record as saying they would not move vessels out of the Gulf to accommodate competitors, and the company intends to do "whatever is required" to maintain its market share and its employee base there.

Some of Tidewater's contracts in the Gulf are of the long-term variety; but in that market, "long-term" typically means maybe nine months.

I could very well be wrong about this, but the odds that we've pretty much seen peak earnings have gone up considerably in the past few weeks. Beyond that, oilpatch stocks are probably more volatile than a Boring Portfolio should have to contend with.

I'm therefore cashing in the Borefolio's Tidewater stock (there is a link to the buy report). What anyone else decides to do is, of course, their business.