Oil Riggers Offer Opportunityhttp://www.fool.com/investing/general/2011/07/26/oil-riggers-offer-opportunity.aspx Alex Pape
July 26, 2011
Shares of oil riggers -- the companies that actually do the offshore oil drilling for the big oil names --have been on a roller-coaster over the past 15 months. The Deepwater Horizon oil spill last summer sank stock prices, which then rebounded as investors realized they overreacted, and new regulations proved less costly than expected. Then oil prices took off, pulling the riggers' stock prices even higher.
A unique industry
As a result, the riggers are price-takers. Assuming a rigger meets safety and reliability expectations, these guys provide a commodity service. Exxon doesn't care who drills its oil (and you don't care at the pump), and it will switch riggers if it can get a better price. And among the riggers, size carries no benefit. Contracts are per-rig, and nothing about having 50 rigs allows a rigger to offer a cheaper per-rig price than a contractor with just five rigs.
In this context, I think it is reasonable to expect that the market will likely value riggers similarly. After all, these companies all do the same thing for the same customers at the same prices, and their size doesn't matter. But riggers' valuations nonetheless vary considerably: