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The Long View on Deepwater Drilling

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Whenever we stop to check in on the results of the offshore drillers, it's important to consider the Long view -- that is, the perspective of Bob Long, CEO of Transocean (NYSE: RIG  ) .

Long kicked off Transocean's quarterly conference call with a note of optimism on the deepwater market. Yes, the company's seen bidding activity sputter since the revenue backlog peaked back in the third quarter of 2008, but the dayrates on this year's three fixtures, falling in the mid-$500,000 to low-$600,000 range, are still historically strong. It's exactly those sorts of long-term contracted rig rates that provide Transocean a fat $17.4 billion free cash-flow backlog, which now exceeds total debt by $4 billion.

Transocean has five new rigs going to work this year for supermajors including Chevron (NYSE: CVX  ) , StatoilHydro (NYSE: STO  ) , and BP (NYSE: BP  ) . Not to beat a dead Thunder Horse, but these are A-list clients. Those rigs will deliver a huge stream of cash next year, when another five rigs hit the water.

Transocean is riding a comfortable wave compared to largely mid- and shallow-water oriented drillers such as Atwood Oceanics (NYSE: ATW  ) and Ensco International (NYSE: ESV  ) . Given the softness emerging in those markets, both of those companies have to be pretty happy they've ordered up some deepwater rigs of their own -- even though Atwood is paying a relatively steep $750 million for its second semisubmersible.

At the end of the day, the Long view largely conforms with my own: Transocean, like the deepwater-levered Pride International (NYSE: PDE  ) , has nothing treacherous standing in its path.

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Atwood Oceanics is a Stock Advisor selection. StatoilHydro is an Income Investor recommendation. Drill into any of our Foolish newsletter services free for 30 days.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 08, 2009, at 8:23 PM, litsl2 wrote:

    When are you guys ever going to get it? Learn two words 'Peak Oil'. You know what that is, it happened in the USA in 1970.

  • Report this Comment On May 08, 2009, at 9:12 PM, Ibeatmykids wrote:

    I firmly agree with this article as these companies have little risk andwill eventually triple or quadruple in price and maybe more if oil goes back up to it highs. And that is very possible with inflation about to kick in, in 2010.

  • Report this Comment On May 08, 2009, at 9:41 PM, rd80 wrote:

    Peak oil, depending on how you define it, is exactly why Transocean and other deepwater drillers will thrive. Most of the easy oil's been found. The new finds will be deep offshore.

    Might be worth owning a stake in the company who's internet home is

  • Report this Comment On May 11, 2009, at 3:49 PM, doman26 wrote:

    its not about peak oil in america but the fact that peak oil happened globally in 2007

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10/24/2016 4:02 PM
RIG $10.11 Down -0.39 -3.71%
Transocean CAPS Rating: ****
ATW $8.67 Down -0.58 -6.27%
Atwood Oceanics CAPS Rating: ****
BP $35.87 Down -0.38 -1.05%
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CVX $100.66 Down -0.64 -0.63%
Chevron CAPS Rating: ****
ESV $8.64 Down -0.26 -2.92%
Ensco CAPS Rating: *****
PDE.DL $0.00 Down +0.00 +0.00%
Pride Internationa… CAPS Rating: ****
STO $16.54 Up +0.02 +0.12%
Statoil CAPS Rating: ****