5. Tidewater Inc. (NYSE:TDW)
6-Month Performance as of February 26: -47.06%
Upside Potential as of February 26: 60.95%
Number of Hedge Fund Holders: 33
Tidewater Inc. (NYSE:TDW) provides offshore support vessels and marine services to the energy industry and facilitates critical operations from oil and gas exploration to wind farm development. With a fleet of specialized vessels, it supports a range of activities, which include transportation, construction, and maintenance. It serves major energy companies and related industries worldwide.
Its Offshore Support Vessel (OSV) operations, primarily Platform Supply Vessels (PSVs) and Anchor Handling Tug Supply (AHTS) vessels, drive its revenue. In Q3 2024, average day rates rose 5.4% to $22,275, exceeding expectations. This helped generate $67 million in free cash flow. Despite slight utilization dips, leading-edge day rates climbed. Larger Platform Supply Vessels saw a 6% increase to over $37,000, and medium-class Platform Supply Vessels jumped 26% to over $35,000. Smaller Anchor Handling Tug Supply vessels also saw double-digit rate increases.
The company is prioritizing short-term contracts to maximize day rate potential, even with potential near-term utilization fluctuations. It’s actively repurchasing shares, spending $111 million in the past four quarters to reduce share count, and plans to increase this rate. Tidewater Inc. (NYSE:TDW) is also open to mergers and acquisitions, but current market uncertainty has widened the bid and ask spread.
Praetorian Capital anticipates a significant resurgence in offshore drilling, which positions this company for substantial long-term profits as the decade-long bear market concludes. It stated the following regarding Tidewater Inc. (NYSE:TDW) in its Q4 2024 investor letter:
“In 2010, at the dawning of the age of shale, offshore oil production accounted for approximately 31% of global oil supply. As shale has encroached on offshore, that number has declined to only 27% of total oil production in 2024. As you can imagine, this has led to a bear market in offshore services equipment that has lasted for more than a decade and bankrupted almost all players in the sector. This offshore equipment (Drillships, Semi-Subs, Jackups, PSVs, AHTS, and other associated pieces of highly engineered steel) is what we own through positions in Valaris (VAL – USA), Tidewater Inc. (NYSE:TDW) and Noble (NE – USA), as I believe that the decade-long bear market has now ended, and that the call on this equipment will lead to excess profits for these companies for many years into the future.
Why did shale encroach so effectively against offshore and steal so much market share?? I’d like to point you to three factors. To start with, the Deepwater Horizon accident gave the industry a black eye, at a time when a burgeoning ESG movement was taking hold—this led oil executives to shun offshore oil production, even if the returns were superior to shale. Secondly, shale executives overpromised in terms of the economics of shale. We can debate if this overpromise was malicious or just oil industry optimism, but that discussion can be saved for a different time. However, the net effect of this overpromise led E&P executives to believe that shale would have better returns on capital than offshore, particularly as the production could be ramped up and down to take advantage of fluctuations in the oil price—this diverted capital from offshore assets, starving them of capital spending. Finally, there was an odd belief, even amongst many energy executives, that the energy transition would lead to peak oil consumption during the 2020s, implying that long-cycle energy projects, like offshore, were unnecessary…” (Click here to read the full text)
