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Author Topic: PMHH (Oil & rig services) - Important JV ***
The Owl
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The Return of Owl's Saturday Missive! :-)

By the way, no answer yet re who funds SourceOne.

http://www.source1drilling.com
http://www.patriotmh.com
http://www.rowancompanies.com/
http://www.letourneau-inc.com/html/marine/marine.html

See link below - very interesting Chinese links, also last year SourceOne seemed(may still be) very close to signing up a full rig!

You want Page 12
http://www.rowancompanies.com/pdf-files/404Grapevine.pdf

I know it's not been mentioned in the UK, however I think SourceOne may turn out to be THE IDC REPLACEMENT IN A MUCH BETTER FORM. It's been very understated so far. No one apart form me I think has shown interest in SourceOne - only that US news generally hasn't made it to UK.


This is all my DYOR & not from any other source, so be tolerant if I have some details wrong here. Lots of others know the engineering industry much better than I do.

There are very few rig package suppliers. Although Patriot can put together most of it, a company wouldn't/couldn't just go to Patriot due to demands of clients, and demand for the bits. I'll try to explain...

Clients are getting more demanding, yet timescales go way out, and clients don't want to go to lots of suppliers. They want choice but one supplier. In the rig world they want an IKEA rather then visiting DFS + CarpetWorld+Curtainworld+Cabinet world+++ with all the contract issues etc that would present.

We all know the problems of building a house extension, and co-ordinating plumbing, electrics, plasterers etc - many choose an architect instead, and offload the hassle.
In the rig world, there the oil majors are loaded so an 'architect' extra costs are irrelevant - its' all about who can deliver fastest & highest quality.

Few suppliers provide packages, Patriot is one of the top 3. Even they though cannot do some parts of the package as they could e.g. before they could go to NIM for winches - not any more. This is why they now have EMCE as an exclusive provider of rigs - offsetting NIM non-delivery risk.

By the time they've found a supplier, they find that supplier cannot deliver for 2 years! Also, they may have found a lower quality supplier than they'd like.

Their client, wants a rig-set in a few months to a year. It doesn't want good quality maintenance free cranes, but have safety issues, or break downs in the winch department! . Enter SourceOne - an alliance of companies who already have all the bits needed, and can conform not just to an industry standard, but to their own.

In the Car world a SEAT may have a VW engine, but it doesn't have VW standards etc for the body, safety aspects, dealer show-rooms, finance deals/terms etc.

This means a client can just ask for SourceOne Alliance to provide a rig-set. SourceOne knows it's members, demand, supply etc bit like a 'virtual company', so can make a commitment to a contract & delivery plan in a way Patriot & others simply cannot.

This is very important strategically, because if Patriot currently tries to put together packages in a 'high demand' market, then it will struggle to commit to timescales for the client these days. There are loads of rigs being built - Rowan themselves have orders for 12 yet no contractor to deliver (see Rig Status), and we all know Keppel's issues. It's the same across the industry, so skeleton rigs eventually get built, but then the equipment they need cannot be delivered - so the rig is pretty useless!

E.g. PMHH can get the cranes, BOP handling gear together in a few months, however the winches will not arrive for a year+.

Hence, they can either buy BOP etc now (using valuable capital), wait for two years then get the winches, then sell the whole lot to the client,

OR they can wait till the winches arrive, then buy the BOP handling etc by which time the BOP supplier has grown frustrated at the wait, is using up valuable yard storage, and has sold to a client who can pay now. Patriot can have the next BOP that''s delivered etc. Hardly a good solution.

OR they can (via SourceOne), get all the bits in six months or so from alliance members. This avoids tying up capital for members, risks of non-delivery, and potential payment/creditor problems, and saves time, yard space etc as there's just one contract - with SourceOne.

So the advantages of SourceOne are:

- Faster delivery of rig set,
- releases yard storage
- One contract
- Quicker payment from client, and from SourceOne to supplier
- Lower financial/working capital risk
- Reduced risk of non-delivery e.g. on big contracts (risk is shared where before Patriot would have stood in SourceOne's position)
- Consistent standard of equipment
- Greater choice of equipment & options on that equipment
- For the client, reduces risk one of the members may suffer cashflow issues. SourceOne can either substitute another member or provide more cash, or get two alliance members (similar standards, values remember) working together.

But I still do not know for sure who funds the package.

I think such a contract would have to be with SourceOne directly. Either Le Tourneau or Rowan might provide a float if needed, or alternatively flexible supply terms would be agreed to meet the package delivery aims.

It's crucial IMO we understand SourceOne and it's potential. It resolves many of the funding issues etc we've discussed on Specs BB, and until told otherwise I believe this may be the IDC replacement we've been waiting for.

If it's not, can anyone make the argument why they'd now need an IDC if they have funding from RBS bank facilities+cash+SourceOne funding+ profits?

There was one DIRECT reason why PMHH/GME fell last Feb 2005 from £1.20. That was funding. It was funding that caused the placements, funding that caused turnover to be missed, funding that meant no contingency when restructure costs were more than expected. IF (and accept it's a big IF) SourceOne solves the funding problem (in the way IDC was meant to have done), then we own a company which has tremendous & unconstrained prospects.

Posts: 318 | From: UK | Registered: Mar 2006  |  IP: Logged | Report this post to a Moderator
The Owl
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Apologies for the double page spread by the way ...lol

LeToruneau/Rowan seem to have loads of cash - so much in fact it started paying quarterly divs last month. The CEO is in the Chinese picture! Whose idea it was, whose aims, and who funds though...???

I find it hard to believe an alliance would be successful if funding/non-funding risk could not be offset. SourceOne with its 5 companies delivering a rig-set would be let down by cashflow problems in just one of the members - it could compromise the whole contract & erode many of the benefits I listed.

One other subtle nuance of all this is whether Patriot can offload it's own deals into the alliance? - thinking the Keppel $12.4m could be delivered by SourceOne thus reducing the 'cost of sales', with Patriot taking the cream, and SourceOne a relatively small cut of the profits.

If this is how they are structuring things, all the work Patriot do will flow through to the bottom line. Big deals like Keppel could be brought forward, and bigger profits would be generated much faster. It means Patriot can win $20m orders (say) yet deliver them via the alliance, and so choose how much work it wants/can fulfill.

BTW - Maybe the SourceOne funding riddle is academic. Lets assume GME fund PMHH work. That's still fine as the Alliance via its ' Lightening Rig' Initiative will deliver orders much quicker than Patriot could on it's own - so Patriot get quicker profits'. If on the other-hand SourceOne or LeTourneau fund, this might reduce PMH/GME profit, however they'd be no funding risk at all.

In a nutshell SourceOne links Patriot Mechanical DIRECTLY to 3 sources of work for the first time ever - SourceOne, LeTourneau (3rd biggest rig builder in the world), & Rowan Companies. All three are extremely well funded. Understanding how this fits with GME/PMHH is IMHO key to GME & PMHH future.

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MickeyG
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Give up already.
Posts: 249 | From: NY | Registered: Mar 2006  |  IP: Logged | Report this post to a Moderator
The Owl
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Forgetting my posts, for a mo (which you obviously don't like), Mickey.

What is it you don't like about the company, or their prospects? Why would you not invest in this? - serious question. Is it just lack of volume?

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MickeyG
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Good Pr's and still no volume and obvious no movement at all,so why buy this when money can be put on money making stocks,this has made you nothing for a long time now.People do not want to wait like this,this is just crazy.
Posts: 249 | From: NY | Registered: Mar 2006  |  IP: Logged | Report this post to a Moderator
The Owl
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OK - but I did say to buy early for June.

I've never said this will 'shoot up in a few days' like some spam & pumping emails say.

Also it's not a P&D stock - spread is too wide.

If people want to jump in early, then out in a few days on small rise it's their choice.

There was big volume for 4 days. This is not like the ethanol, oil sands stocks though. This is solid established business with very big investors on board.

And in case anyone's wondering, not one of the sells has been mine - this despite one of my early trades being 229% in profit! I still say end June for news, so best either to avoid or put on watchlist till then if you're interested. If not fine - it's an investment decision.

Posts: 318 | From: UK | Registered: Mar 2006  |  IP: Logged | Report this post to a Moderator
   

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