Seeking Alpha: Cal Dive Still Waiting For That Offshore Recovery

There are more than a couple of ways to make Cal Dive (DVR) look cheap. If you look the book value of the company's vessels, it might be tempting to call the stock undervalued on the basis of its liquidation value. Likewise, if you look at past utilization rates and EBITDA margins, it can be tempting to base a strong bull argument on the basis of substantial earnings leverage once Gulf of Mexico activity levels recover.

I'm not nailing down the coffin lid on Cal Dive, but I do see this stock as a more speculative play on better offshore activity levels in the Gulf. The nature of offshore support functions is changing, and I believe it favors companies like Oceaneering (OII), Chouset, Subsea 7, Saipem, and Technip (OTCQX:TKPPY) as more work goes to ROVs and deepwater projects. Projects are starting to move forward, though, and Gulf rival Tetra Technologies (TTI) has sounded relatively bullish on near-term prospects. If Cal Dive can get more of its fleet working in FY 2014 and continue to move back toward mid-teens EBITDA margins, a substantially higher share price is possible.

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Cal Dive Still Waiting For That Offshore Recovery

Another Big Gulf Clean-Up Operation

It looks like the U.S. government is getting serious about cleaning up the Gulf of Mexico. In the wake of the BP (NYSE: BP) Macondo oil spill, the U.S. government has issued an order that will require energy companies to permanently decommission idle wells in the Gulf. Under the order, wells and platforms that have been idle for five or more years will have to be plugged and dismantled, and it would appear to include roughly 3,500 wells and 650 production platforms.

To a large extent, this move makes sense. The temporary plugs that are installed in idle wells do not last forever and can leak. Likewise, a platform can be vulnerable to severe events, like a hurricane. While severe damage is relatively rare (these platforms are built to withstand bad weather), it is nevertheless possible that a bad storm could wreck a platform and create both an oil spill risk and a hazard to navigation.

Major Gulf operators like Chevron (NYSE:CVX), ExxonMobil (NYSE:XOM), BP and Apache (NYSE:APA) could all be on the hook, as well as numerous tiny operators. Although it is not uncommon for operators to use temporary plugs for marginal wells (particularly when prices are low), this order would require permanent plugs that would not be removable later. Then again, given the high prices of the past five years, if a well has been idle for all of that time, it is not too likely that it would be coming back into significant production. (For related reading, see A Primer On Offshore Drilling.)

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