Where Oil Price Bulls Should Be Looking

In today’s low priced oil climate, there is a lot of opportunity in many parts of the O&G market. This opportunity has led to a rush of cash from venture capitalists, private equity funds, and smart money across the investing world. But for oil price bulls, two areas of the industry are particularly depressed, and thus, more interesting; offshore drillers and shale exploration and production companies.

On the offshore drilling side, there has been tremendous growth in the rig count across the space over the last few years. This capacity eventually outgrew demand, and day rates in the market started to soften last year. Since that time, companies have begun stacking rigs, delaying new ones, and looking for any opportunity to keep their utilization levels up. Executives across the space expect a pretty weak 2015, but many hope that the business will start to stabilize in 2016.

There is no question then that the offshore market is a very tough one right now, but stock prices have largely reflected that reality. And that has led to some real bargains. Perhaps one of the worst-hit stocks in the space, Paragon Offshore, was spun-off from Noble Corporation last summer at a price of $12 a share. Today Paragon trades at between $1 and $2 per share, despite having beaten estimates on earnings (Q1 Earnings Per Share (EPS) of $0.47) and revenue ($430 million) according to its latest announcement last month.

At these levels, Paragon is essentially a call option…