CVRD Going Gas Hunting

Companhia Vale do Rio Doce (NYSE: RIO), the world's biggest iron ore producer, needs a lot of juice. No, the company's not on steroids -- it just consumes a tremendous amount of electricity. In fact, back in 2005, CVRD accounted for 4.4% of the total electricity consumed in its home country of Brazil.

In the past, CVRD has generated power internally, via holdings in a number of hydroelectric plants. Still, that generation only accounted for a fraction of energy needs. To secure further supply, the firm is striking out on some natural gas exploration.

The company has announced that it will be teaming up with a Royal Dutch Shell (NYSE: RDS-A) (NYSE: RDS-B) subsidiary to jointly evaluate future projects. In addition to bidding on new opportunities, CVRD may farm into some of Shell's Brazilian offshore acreage. The firm is also preparing to tender for its own exploration blocks in upcoming lease sales.

As the base metal giants get ever more gargantuan, they pose the potential to significantly shift their demand toward upstream energy assets. From where I sit, that looks like fantastic news for international drillers, from onshore players like Nabors Industries (NYSE: NBR) and Helmerich & Payne (NYSE: HP), to dukes of the deepwater like Diamond Offshore (NYSE: DO) and Atwood Oceanics (NYSE: ATW).

In short, with more competition from non-traditional players, this incremental rig demand should ultimately lend support to dayrates and keep the drillers out of the doldrums.

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