Bullish Oil & Gas Juggernaut Breaks to the
By 2017, the U.S. is expected to overtake
Saudi Arabia as the world’s leading oil
producer. Within 20 years, it is expected the
U.S. will be selfsufficient when it comes to
energy production. Aside from investing in
pure play oil and gas companies, how can
penny stock investors take advantage of this
burgeoning growth? (Source: New York Times
press release, “U.S. to Be World’s Top Oil
Producer in 5 Years, Report Says,” November
Hercules Offshore, Inc. (NASDAQ/HERO) provides shallowwater drilling and
marine services to companies involved in oil and natural gas exploration and
production worldwide. Based in Houston, Texas, the Hercules jackup rig fleet is the
fourthlargest in the world, and the largest in the U.S. Gulf of Mexico. The firm also
operates the largest lifeboat and inland barrage drilling fleet in the world.
Currently trading near $5.78, with an average three months’ volume of about 2.8
million shares per day, almost 74% of Hercules is held by institutions, and 18.51% by
insiders. The oil producer’s book value stands at $5.53.
On October 25, Hercules announced that thirdquarter revenue was up 13.4% year
overyear at $184.9 million. The company reported a thirdquarter loss of $37.9
million, or $0.24 per diluted share. In the third quarter of 2011, Hercules reported a
loss of $17.0 million, or $0.12 per diluted share. (Source: Hercules Offshore, press
release, “Hercules Offshore Announces Third Quarter 2012 Results,” October 25,
Even though the oil producer’s thirdquarter 2012 loss increased over the same
prioryear period, it improved significantly quarteroverquarter. During the second
quarter of 2012, Hercules reported a loss of $55.1 million, or $0.35 per share.
In spite of previous losses, the industry has improved, and Hercules believes it is in
a better position to take advantage of growing demand.
John T. Rynd, President and CEO, stated, “Visibility in our Domestic Offshore
segment is the best it has been since the company’s formation, driven by solid
demand and tight supply of jackup rigs in the U.S. Gulf of Mexico. We believe this
positive momentum will continue through at least 2013, based on our discussions
with customers, many of whom are seeking longerterm commitments than what we
have traditionally seen in the U.S. Gulf of Mexico.”
In addition, the oil producer’ cash position has increased. In the first quarter of
2012, Hercules held $178.3 million in cash and equivalents. At the end of third
quarter, cash increased 54.4% to $275.5 million, or $1.71 cash per share.
Chart courtesy of www.StockCharts.com
In early 2012, Hercules was trading near $5.40, and as the losses piled up, it traded lower,
hitting a low of $2.91 in June. Since then, Hercules has gained momentum to the upside.
Recently, the stock broke above the highs that were placed earlier this year.
Currently, Hercules appears to be in a breakout mode, where resistance at $5.40 was taken
out on heavy volume and increased momentum. The oil producer is also trading above its
50 and 200day moving averages.
Looking from a fundamental and technical perspective, Hercules is a solid company with
great potential. Recent price action suggests that the stock price might go higher. At the
same time, investors should be cautious if the stock price goes below $5.40. If it occurs, then
the breakout will become invalid.