A Victim of the Drilling Cutback
03/10/2010 12:00 am EST
I’m going to take my own advice (see this recent post) and use this rally to sell GulfMark Offshore Inc (NYSE: GLF). I think fundamentals in the oil industry have turned if not against, then at least away from, this provider of offshore service vessels to drilling operations.
Several oil producers are talking about cutting back on their North American drilling operations, and while this is primarily directed at land drilling, I think it has a spillover into capital budget for all of North America. (Read more about the surge in dry holes in this post.)
Unfortunately for GulfMark, 37 of its 88 offshore support vessels operate in the Americas, and by far, the majority of those operate in the Gulf of Mexico. Almost as many of the company’s ships operate in the North Sea. The rough weather there cuts competition since few companies own ships that can handle those tough conditions, but the North Sea is seeing a slowdown in activity, too, as the fields there age.
Southeast Asia looks like a growth area for drilling and for GulfMark, but competition with local companies is intense in that market, and that leads to lower prices.
As of Wednesday morning, GulfMark was up almost 20%—19.3% to be exact—from its low on February 11. I’m still showing a loss of 7% since I added the stock to Jubak’s Picks on September 17, 2009. With this sell, 14% of Jubak’s Picks is in cash.
Full disclosure: I do not own shares of any stock mentioned in this post.