A Master Class by Mohnish Pabrai on Offshore Drillers and Coal
Time to confess how much tuition I’ve quietly paid at the University of Mohnish. Every talk, every memo, every off‑the‑cuff Q&A—each one feels like a cheat code for disciplined investing. The guy distills decades of experience-based wisdom into punch lines you can write on a Post‑it. Last night I replayed his recent conversation with Divya Narendra at SumZero and I caught myself hitting pause every sixty seconds. Two moments stick.
First, his riff on offshore drillers. He dismantles the headline fear by walking through day‑rate cyclicality, break‑even reinvestment needs, and management capital allocation. The margin‑of‑safety math still works, he argues, if you buy below replacement cost and wait for supply to tighten. Not all rigs are rust buckets.
Then he pivots to coal, a harder sell in polite company. Mohnish doesn’t hand‑wave the ESG backlash. Instead, he lays out simple arithmetic: global electricity demand up, renewables intermittent, coal plants still printing cash. You don’t have to like it, he says, just quantify it.
I’m sharing the full video so you can enjoy the full tour de force experience. For the time‑starved, I’ve crafted a verbatim excerpt of his five‑minute crusher on drillers and coal. Read it, watch it, argue with it. Either way, tuition’s cheap and worthwhile.
Offshore Drilling – Noble Corporation & Valaris
Mohnish Pabrai: So a drillship—one of these things that today would cost around a billion dollars to build—basically allows you to drill deep into the ocean without really having “feet on the floor,” if you will. They’re ships with a kind of hole in the middle that allows for drilling and so on. It’s really an engineering marvel.
The last time one of those ships was built was about 10 years ago. The industry went through a crazy orgy of overbuilding 12 or 13 years ago and then entered a total nuclear winter. So many ships were delivered, and almost all of the players went bankrupt because they were highly levered and day rates collapsed.
Today, things have come back into balance. A lot of older ships have been scrapped. Nothing new has been built. And if you look at a company like Valaris or Noble, and you just look at their fleet and ask, “What would it cost to replace this fleet?”—well, the cost would be maybe 10 times the market cap. That’s how extremely discounted they are.
The second point is that the current day rates for drillships, jackups, and other rigs don’t justify a new build. For example, a new drillship would cost about a billion dollars and take four to five years to deliver. To justify that investment, you’d need day rates of $700,000 to $800,000 per day just to earn a low-teens return on capital—say, 12% to 14%.
But day rates today are in the $400,000s. So basically, you cannot go out and build a new ship today. Meanwhile, ships are being scrapped every year, and this market is gradually tightening.
The other thing people don’t realize is that offshore drilling can be very low-cost. Take Brazil, for instance, which has massive offshore reserves—their production cost is $20 to $30 a barrel. That’s almost half of what fracking costs in the U.S. It’s long-cycle and high-capex, but once amortized, you end up at that $20–$30 per barrel level. It’s very profitable.
So, what we have now are companies with little or no debt, great assets, and a tightening market. And if rates were to rise from the $400s to, say, $600k or $700k per day, companies like Valaris and Noble would be printing almost their entire market cap in cash annually.
That’s why Mohnish is there.
Challenges for the Coal Industry
Divya Narendra: When we were talking about steel, Trump has been in the news a lot trying to revive the U.S. steel industry. You’d think some of those headlines might have had a more positive impact on the stocks. Are these names just under-followed? Is it a lack of research coverage? Or is the market just pricing in a global manufacturing slowdown due to tariffs?
Mohnish Pabrai: Well, sell-side coverage on metallurgical coal names is almost non-existent. And here’s why.
One CEO I spoke with said their company had a 60- or 70-year relationship with JPMorgan—always profitable, never bankrupt. And yet JPMorgan told them, “We can’t have you as a customer anymore. Please find another bank.” Why? ESG pressure.
This was a highly profitable relationship for JPMorgan—hundreds of millions of dollars flowing through, no credit risk, lots of fee income. And they walked away for irrational reasons.
So these companies struggle to get insurance, banking relationships—anything. They're treated like pariahs. It’s not just a lack of sell-side coverage. When they try to get workers’ comp insurance, for example, they’re forced to self-insure the first $10 million in claims per worker. All they need is a policy to comply with the law, but many insurers won’t write it.
Same story with surety bonds for their mines—again, they face resistance. So many of the basic building blocks they need just to operate are becoming harder and harder to secure.
That means new companies can’t start, and shuttered mines can’t reopen easily. It’s just too hard. So we’re looking at a shrinking pool of productive mines at a time when demand is increasing.
Access to Management
Now, what level of access do you typically have to management teams? Is that something you require before taking a position? Do you know the CEOs of the offshore drilling companies or coal businesses you’re invested in?
We’ve spoken to most of them. We’ve met most of them. Because they’re treated as pariahs, if I call, they’ll take the call—nobody else wants to talk to them. So they’re happy to talk to Mohnish.
But it’s not necessary. For most of my career, I didn’t even talk to management. For these coal names, access isn’t really essential.
What was more valuable were the site visits—going into the mines, meeting the foot soldiers: the head of mining, head of safety, the guy running the coal terminal. That’s where I built domain knowledge—learning how the business actually works.