Revisiting Noble Corporation Investment Thesis and Importance of Sell Discipline

Over the past eight months, a number of articles have appeared on The Rational Walk related to the Deepwater Horizon disaster and related investment opportunities. Value investors know that times of stress and uncertainty create opportunities in the financial markets whether the turmoil is due to natural disasters, political unrest, or the fallout from accidents such as the Deepwater Horizon incident. In this article we revisit our bullish investment thesis for Noble Corporation and explain our decision to sell shares at the current valuation.

Noble CEO Forecasts Continued Gulf of Mexico Uncertainty Ahead

Noble Corporation Chairman and CEO David Williams believes that uncertainty in the Gulf of Mexico will continue to impact the offshore drilling industry for some time to come. Mr. Williams, speaking today at the Barclays Capital Energy and Power Conference in New York, updated investors regarding the company’s operations and future prospects in light of continued regulatory uncertainty in the Gulf of Mexico in the aftermath of the Deepwater Horizon disaster involving the blow out of the Macondo well. Read this article for a summary of the presentation.

Munich Re Plans to Introduce Offshore Drilling Insurance Policies

Munich Re has announced plans to introduce insurance products designed to address the large losses that can arise from major events such as the Deepwater Horizon disaster. The insurer hopes to introduce coverage levels of about $10 billion to $20 billion per drilling operation. In order to make such coverage viable, a large number of drilling operations will need to be insured. Read this article for more details.

BP Liability Could Exceed $21 billion Under Clean Water Act

According to The Wall Street Journal, scientists have estimated that 62,000 barrels of oil per day, or approximately 4.9 million barrels in total, leaked into the Gulf of Mexico due to the blowout of BP’s Macondo well. Estimates have varied widely over the course of the disaster and it is not possible to come up with a precise figure for the leak. BP is currently preparing to permanently kill the well through a combination of a “top kill” maneuver and the completion of two relief wells. Under the Clean Water Act, BP will be fined at least $1,100 per barrel, but the figure could rise to $4,300 per barrel if the company is found to be “grossly negligent”. Read this article for more details.

Deepwater Drilling Ban Continues to Devastate Gulf Coast Economy

The six month moratorium on exploratory deepwater drilling the Gulf of Mexico is continuing to heavily impact the economy of the Gulf Coast. Despite two court rulings, the federal government is continuing to insist on a complete halt to deepwater exploration until the commission appointed by President Obama reports on its findings. The commission report could still be months away. Meanwhile, the impact of the moratorium continues to devastate the Gulf Coast Economy.

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