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Checking In on Deepwater Demand

By Toby Shute | More Articles
September 30, 2009 | Comments (4)

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The last time we took a look at the level of rates charged by deepwater contract drillers, Transocean (NYSE: RIG  ) showed that near-term availability continues to command a premium in this market. The company pulled down a handsome $530,000 dayrate from Noble Energy (NYSE: NBL  ) for work in the Mediterranean Sea, beginning in September 2010. That followed on the heels of a $510,000-per-day contract award by Petrobras (NYSE: PBR  ) for a multiyear spin on the Cajun Express.

These rates are well off Transocean's (NYSE: RIG  ) record rate awarded by Eni (NYSE: E  ) last year, but they're still princely sums.

This week, Transocean landed a contract for the last of its ultra-deepwater (i.e., 7,500 feet or more of water depth) rigs with availability in 2010. The Deepwater Horizon has made waves lately, drilling a well to record depth in the discovery of BP's giant gusher in the deepwater Gulf of Mexico. Clearly satisfied with the rig's performance, BP has signed a three-year contract extension at $544 million, or around $497,000 a day.

That's about a 6% slip from the rate Transocean got with Noble, but it's important to note that that award only covered 15 months of activity. BP got a slightly lower rate by offering some significant terms on this deal. Transocean shareholders should be quite pleased with this arrangement.

For anyone long the drillers, be it Noble (NYSE: NE  ) , Atwood Oceanics (NYSE: ATW  ) , or Pride International (NYSE: PDE  ) , the key at this point is to watch contract awards for the "out" years, meaning 2011 and beyond. That's the true test of ongoing deepwater demand. I have a hunch about where rates are headed, but I'm interested to hear what you think.

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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 September 30, 2009, at 5:06 PM, dejmarine wrote:

    Rates in the long term (2011+++) will follow the price of oil as oil co's generate excess cash & monetary incentive to produce more & drill more. As growing demand (China, India) and decining supply force oil prices higher. Process will be much faster depending on actions of Isreal, Iran, Nigeria, Venezualia, terrorists and the list goes on. Saudi Arabia may have to expose their inability to substantially increase production. Noticable alternatives are a long way & billions---no, trillions of $s away no matter what Washington thinks (or spends--(wastes). I voted 500-600, but > than 600k will not surprise me, next month, next year or the year after.

  • Report this Comment On October 11, 2009, at 4:04 AM, ValuePEG wrote:

    I couldn't have said it better myself Dejmarine, but I would like to add Obama is trying to kill small E&P companies by eliminating deductions of IDC & Depletion allowances to individual investors, this will not affect Exxon, COP, and the other big corporations since corporations still get the deductions. On air he stated that Exxon is making so much money that they don't need the tax break, yet his legislation will take it away from the individual investor and not Exxon.

    What does this mean to you & me, less onshore exploration, less competition, more reliance on foreign oil & ultimately higher oil/gas prices and more deep-water drilling in OTHER countries.

  • Report this Comment On November 04, 2009, at 1:26 PM, apt2809 wrote:

    dejmarine and ValuePG -

    You both addressed the demand side of the issue. Don't ignore supply. There are many rigs under construction right now that will be starting work over the next 3-4 years. While some older rigs will be getting retired, most of them will probably be jackups (shallow water rigs). If demand doesn't increase significantly, increased supply of new rigs will push rates down across the board, and especially for the older rigs.

  • Report this Comment On May 03, 2010, at 1:49 PM, XMFSmashy wrote:

    From drilling records to disaster in no time. Deepwater Horizon and 11 lost crew members, RIP.

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Related Tickers

2/10/2012 3:41 PM
RIG $50.02 Down -0.51 -1.01%
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NE $38.77 Up +1.19 +3.17%
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PDE.DL $0.00 Down +0.00 +0.00%
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ATW $47.14 Up +1.98 +4.38%
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NBL $100.64 Down -2.89 -2.79%
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