Gulfmark: Looking at Short-Term Worries and Long-Term Opportunities

GulfMark: Looking At Short-Term Worries And Long-Term Opportunities

Target Price and Recommendation:

This report presents a valuation summary of an offshore marine services company Gulfmark Offshore Inc. (GLF), based on its recently released annual financial results of 2013 and its proposed expansion projects over the next few years. Based on the projected revenue growth and subsequent valuation and analysis, the target price for GLF is $45.82, and a HOLD rating is recommended given its current price of $ 40.21.

Investment Highlights: Facilitating the Energy Security for the World

As we all know that energy in one form or other is the prerequisite for any human socio economic endeavour. Every economic activity is very much dependent on the uninterrupted supply of energy. Almost 57% of the total global energy demand is met by Oil and Gas only and it is here to stay in the foreseeable future. As per Energy Information Administration (EIA) projections of the World energy mix the contribution of oil to be around 52% by 2035.1 The world energy demand is expected to grow by approximately 56% between 2010 to 2040 (from 524 quadrillion British thermal units (Btu) in 2010 to 630 quadrillion Btu in 2020 and to 820 quadrillion Btu in 2040)2. The demand for Oil & Gas is expected to mirror almost the same growth pattern.         So the Oil & Gas Industry which produced Rockefellers of in the last centuries is still very significant in the times of Gates, Jobs, Slims and Zuckerbergs. The business in the domain of energy in general and Oil & Gas exploration and production in particular in all likelihood will always have the demand for their product in foreseeable future.

The outlook for the business of Oil & Gas Equipment and Services, Offshore Marine Services will always positive as long as there is demand for petroleum product as a source of energy as well as other by-product which the industry offers provided the business is managed efficiently and prudently. The Demand for Oil & Gas Equipment and Services, Offshore Marine Services are inextricably linked to the level of activity in Oil & Gas exploration and production activities in general and Offshore Exploration and Production activities in particular. With ever-increasing demand for energy mainly due to rising hunger of the Tiger and Dragon for energy resources in Asia coupled with the relatively higher crude prices the E&P majors across the globe have increased their focus and interest in non conventional Oil & Gas fields. The offshore Oil and Gas fields in deep and ultra-deep water are one of them.  Though the economic feasibility of deepwater fields varies, typically crude oil prices of $80 per barrel (WTI) over the long-term ensure the viability of the majority of developments.3 Oil prices have remained above$80 mark since October 2010 and it remained above $90 over the past year. Deepwater capital expenditure is expected to increase by 130%, compared to the preceding five-year period, totalling $260 billion from 2014 to 2018. Africa and the Americas continue to dominate deepwater Capex, with $213 billion set to be spent.4