I have been seeing a lot of retail investors jumping in on trades in the oil field sector which have been some of the worst choices imaginable. These choices include names like: Chesapeake Energy (CHK), Whiting (WLL) Petroleum, and the United States Oil Fund (USO) just to name a few. All three of the above are destined to wipeout shareholders completely and are beyond the state of repair. There is always money to be made in a trade, but when retail "investors" jump in they are chasing short-squeeze rallies that will still end in an complete wipeout of these retail "investors".
Although this isn't a recommendation to buy or sell any of the securities, and I do personally own some SPN as of writing, I thought I would highlight opportunities that actually have some chance of surviving and offer possibilities of 100x to the upside. First on the list is Superior Energy Services.
The Company - Superior Energy Services (SPN)
Superior Energy Services provides oilfield services and equipment to oil and natural gas exploration and production companies in the United States and internationally. The company operates in four segments: Drilling Products and Services, Onshore Completion and Workover Services, Production Services, and Technical Solutions. While the service companies are always hated by some, they are the preferred oil investing companies for myself. It is akin to the gold rush where the real winners were the people that made equipment for gold mining, the hotels and bar owners who served the miners after a hard day's work, and the distillers who made the alcohol.
The Opportunity
- SPN is a highly leveraged oil play that like all oil plays has been absolutely destroyed from a high of $400 a share and billions of dollars in market cap all the way to $1.27 per share (as of writing 5/19/2020) and a total market cap of just $20 million!!! This is all for a company that did $1.43 billion in sales in 2019.
- SPN has been thrown out with the bathwater that has been oil. I bolded a word in the paragraph above, international, because not all shale oil is created equal. Many shale oil companies only opportunate within the US basins. They are greatly affected by the dollar and the price of oil in an vastly oversupplied market that has much higher breakevens than in places like Saudi Arabia, Iran, and Russia. As a result, many oil companies like Chesapeake and Whiting are done because oil is never going to reach a price where they can stay solvent. However having a large international segment, and that has been growing I might add, is a boon to SPN as it acts as a good hedge to a total obliteration of domestic cash flows.
- SPN is one of the few oil field service companies were insiders have been in buying in the last six months and by many different individuals. Many in the $1 to $3 range, but with heavy buying by an outside interest in the $3-$5 range that accumulated over 10% of the stock.
- SPN has sufficient liquidity - current assets are nearly $1 billion while current liabilities are only $325 million. Their debt to EBITDA is right at the critical mark of about 6x. $253 million in EBITDA in 2019.
- Leveraged oil play - SPN has become a leveraged oil play with most of the companies value in its debt. At $1.29 billion the debt (due late 2021 and 2024) it is nearly 65x the equity at $20 million. That means that the equity can 65x while the total company value (enterprise value) only doubles to $2.6 billion!!! This is just an example of why leveraged distressed oil plays offer so much potential if they can survive in their current form. Right now the funding window has been closed to refinancing and the same Covid-19 bailouts have not been offered to the oil companies. Of course there is huge potential should Trump be reelected as low oil prices and oil independence remain critically important to Trump's strategy for the US and specifically against China, Russia, and Saudi Arabia. At the very least, there is huge potential not for a bailout, but just if the US were to offer to refinance the debt. That would take the pressure off to refinance.
- Pumpers not found - pumpers are always trying to find the next stock that could just easily 5x overnight. They look for highly distressed companies, with large short interest, a low float that is thinly traded and some news flow as a catalyst. The average individual is a chaser of these pumps, but the real money is finding them in the first place. Looking at trading volume over time it is clear the pumps don't realize this one yet. At $20 million it is hard to find sellers of this stock at this point and looks like it has bottom at about $1. SPN reports earnings on 5/20/20 and this is the potential catalyst the pumps will look for.
Conclusion
So that's it quickly. The oil field is something I have followed intensely since 2014 with many trades structured around pair trading various names under the thesis that they should all revert to their mean. I go long and short often. SPN is severely discounted to many other names in oil right now but given how thinly it trades, any buying interest is going to cause a rapid increase in it stock price. I am long SPN and this is not a recommendation to buy or sell. Do your own due dilligence. Hopefully this gives you the impetus to do some of your own research and make your own decisions.
Although this isn't a recommendation to buy or sell any of the securities, and I do personally own some SPN as of writing, I thought I would highlight opportunities that actually have some chance of surviving and offer possibilities of 100x to the upside. First on the list is Superior Energy Services.
The Company - Superior Energy Services (SPN)
Superior Energy Services provides oilfield services and equipment to oil and natural gas exploration and production companies in the United States and internationally. The company operates in four segments: Drilling Products and Services, Onshore Completion and Workover Services, Production Services, and Technical Solutions. While the service companies are always hated by some, they are the preferred oil investing companies for myself. It is akin to the gold rush where the real winners were the people that made equipment for gold mining, the hotels and bar owners who served the miners after a hard day's work, and the distillers who made the alcohol.
The Opportunity
- SPN is a highly leveraged oil play that like all oil plays has been absolutely destroyed from a high of $400 a share and billions of dollars in market cap all the way to $1.27 per share (as of writing 5/19/2020) and a total market cap of just $20 million!!! This is all for a company that did $1.43 billion in sales in 2019.
- SPN has been thrown out with the bathwater that has been oil. I bolded a word in the paragraph above, international, because not all shale oil is created equal. Many shale oil companies only opportunate within the US basins. They are greatly affected by the dollar and the price of oil in an vastly oversupplied market that has much higher breakevens than in places like Saudi Arabia, Iran, and Russia. As a result, many oil companies like Chesapeake and Whiting are done because oil is never going to reach a price where they can stay solvent. However having a large international segment, and that has been growing I might add, is a boon to SPN as it acts as a good hedge to a total obliteration of domestic cash flows.
- SPN is one of the few oil field service companies were insiders have been in buying in the last six months and by many different individuals. Many in the $1 to $3 range, but with heavy buying by an outside interest in the $3-$5 range that accumulated over 10% of the stock.
- SPN has sufficient liquidity - current assets are nearly $1 billion while current liabilities are only $325 million. Their debt to EBITDA is right at the critical mark of about 6x. $253 million in EBITDA in 2019.
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| Superior Energy Q4 2019 Current Assets |
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| Superior Energy Q4 2019 Current Liabilities |
- Leveraged oil play - SPN has become a leveraged oil play with most of the companies value in its debt. At $1.29 billion the debt (due late 2021 and 2024) it is nearly 65x the equity at $20 million. That means that the equity can 65x while the total company value (enterprise value) only doubles to $2.6 billion!!! This is just an example of why leveraged distressed oil plays offer so much potential if they can survive in their current form. Right now the funding window has been closed to refinancing and the same Covid-19 bailouts have not been offered to the oil companies. Of course there is huge potential should Trump be reelected as low oil prices and oil independence remain critically important to Trump's strategy for the US and specifically against China, Russia, and Saudi Arabia. At the very least, there is huge potential not for a bailout, but just if the US were to offer to refinance the debt. That would take the pressure off to refinance.
- Pumpers not found - pumpers are always trying to find the next stock that could just easily 5x overnight. They look for highly distressed companies, with large short interest, a low float that is thinly traded and some news flow as a catalyst. The average individual is a chaser of these pumps, but the real money is finding them in the first place. Looking at trading volume over time it is clear the pumps don't realize this one yet. At $20 million it is hard to find sellers of this stock at this point and looks like it has bottom at about $1. SPN reports earnings on 5/20/20 and this is the potential catalyst the pumps will look for.
Conclusion
So that's it quickly. The oil field is something I have followed intensely since 2014 with many trades structured around pair trading various names under the thesis that they should all revert to their mean. I go long and short often. SPN is severely discounted to many other names in oil right now but given how thinly it trades, any buying interest is going to cause a rapid increase in it stock price. I am long SPN and this is not a recommendation to buy or sell. Do your own due dilligence. Hopefully this gives you the impetus to do some of your own research and make your own decisions.
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