Noble's Brazilian Bonanza

Ah, Brazil. As shareholders of Vale (NYSE: RIO) and Yamana Gold (NYSE: AUY) are well aware, the country is blessed with an abundance of natural resources such as iron ore and gold. Until recently, Brazil's oil endowment didn't get much press, but that's all changed with the discovery of Tupi.

I first wrote about Petrobras' (NYSE: PBR) petroleum prize back in November. At the time, the discovery was pegged between 5 billion and 8 billion barrels of light oil. One of Petrobras' partners in the project has since estimated that it's more like 12 to 30 billion barrels. Either way, international service companies like Halliburton (NYSE: HAL), Transocean (NYSE: RIG), and Diamond Offshore (NYSE: DO) are poised to profit.

The rig retention party has in fact already begun, with Noble (NYSE: NE) lining up a massive contract renewal on five deepwater rigs that are already in Petrobras' service. The deal adds up to roughly $4 billion of revenue potential across 29 rig years, with individual contracts extending out as far as 2016.

The huge backlog addition allows Noble to undertake some major refurbishment work on three of the rigs. Those improvements, in turn, will justify the much higher dayrates that Petrobras is set to pay:

Rig	Current Dayrate ($000)	Proposed Dayrate w/ Performance Bonus ($000)
Noble Paul Wolff	163-165	493
Noble Roger Eason	136-138	405
Noble Leo Segerius	123-125	351
Noble Muravlenko	119-121	340
Noble Therald Martin	113-115	297

Source: Noble Fleet Status Report.

Do not adjust your monitor. Some of those dayrates are tripling. In addition to paying handsomely for the drilling work, Petrobras is also effectively chipping in for the rig upgrades by paying $90,000 per day during the drillships' shipyard time.

All of this may smack of desperation on Petrobras' part, but I think it may be just as much a reflection of the trust and respect that Noble has earned in its past work for the national giant.

Further Foolishness:

• Tupi is likely one reason analysts are entranced with Transocean.
• Petrobras isn't the only one diving into the deepwater.