Seahawk Drilling, egg on my face

Well that was quick. The first frog to be kissed that turned out to be a frog and nothing more, possibly less. Seahawk is entering bankruptcy. Two weeks ago I commented how it was too hard to kill, and seemed like a good opportunity. Apparently it was all too easy. I do not understand the need for a bankruptcy process at this time or a $105m price (75% stock, 25% cash) for rigs that the CEO said " if we were to just start cutting them up, you could, over time, sell the drilling equipment of a rig to generate $6 to $8 million in income by doing that." Hercules is getting 20 rigs for $5.25m a piece. Even more shocking is that the CEO sold shares last week!

With a $35m DIP facility from DE Shaw and $124m in total liabilities compared to $105m from Hercules, it appears there will be nothing left for shareholders. Kudos to Hercules for getting a great deal and DE Shaw making a quick buck. The only possible upside exists in a better offer for the assets, but I won't be banking on that.

Looking back, it appears I took way too much away in a positive sense from the failed attempt at selling a rig. I thought the company really was turning the corner and had the assets to do so in a way that created shareholder value. It appears that the cash burn was just too great for the company to act in time. I failed to properly anticipate this problem and properly extrapolate out the financial situation of the company. I was too attached to the idea that they were debt free when I bought the company and that the revolver they had started to take money out on as of last filing was a signal that things were not dire because there were covenants on the revolver. Their last 10-Q was filed in November, and apparently things have only gotten worse. I should stop using the term too hard to kill unless it is with treasury bonds or things that are already dead. I have a bad taste in my mouth because the CEO got to sell his shares and it seems like this would be the kind of thing he would know about in advance. Mostly though, I'm disappointed in myself for losing money, possibly losing readers money, and for being dumb. As you can now see all too clearly, I make mistakes and you should question me and do your own research.

Tell Andrew how much of a moron he is

Edit - I think the fundamental error here was trying to predict how much money the company would lose. If trying to predict future earnings is a fool's game, predicting losses is about 10x harder. Frog's Kiss Fail.