Tuesday, July 8, 2008

The dayrate disconnect

Momentum is coming out of sectors that have been winners so far this year, including agriculture and oil services. The oil drillers are down due to another decline in crude prices today. But this ignores the fundamental investment thesis behind the drillers, which is that drilling activity will be robust with crude anywhere above $100 per barrel. Some even feel that drilling plans would be intact at prices as low as $60-70 per barrel. More evidence was just delivered by Transocean (calls 6.0% of portfolio), which announced very high dayrates for yet another drillship, further filling up the contract backlog for the 2010-2015 period.

In other news, this morning we got a release from Mass Megawatts Wind Power (1.5% of portfolio), which is launching a manufacturing facility in Pennsylvania. The company rarely puts out releases, so it's nice to see gradual progress being made toward their early-stage business goals. There was also product news out of Zilog (5.0% of portfolio) today, which I continue to hold in anticipation of upcoming corporate actions. A recently amended 13D filing indicated the intentions of outside investors in this regard.