3 Pressing Questions for Rig Companies in 2014http://www.fool.com/investing/general/2014/01/17/3-pressing-questions-for-rig-companies-in-2014.aspx Tyler Crowe
January 17, 2014
The offshore rig market has been a rather puzzling one over the past year or so. Despite the almost insatiable appetite for offshore rigs from Big Oil players and National Oil Companies like Saudi Aramco, the largest players in the space didn't even outperform the broader market on a total return basis.
Many of the factors that affected rig companies in 2013 will remain the same, but some new challenges could also affect them this year. Let's take a look at three questions, the answers to which could have a deep impact on rig companies in the new year.
1. Will Seadrill (NYSE: SDRL) flood the market?
One thing of concern, though, is that we could start to see a decline in activity. Nearly every member of Big Oil has said they plan to reduce capital expenditures over the next couple of years, which could result in a slowing of the market. If this were to happen, and Seadrill and others continue on these wild growth plans, then it's very possible we could see lots of excess rigs sitting in the docks. And no company wants to see their assets sitting onshore and not making money.
2. Who will follow Noble (NYSE: NE) and start to turn over their fleets?
Noble isn't alone, though. Less than 20% of the floating fleets of Transocean and Diamond Offshore (NYSE: DO) are less than 20 years old. Also, Ensco (NYSE: ESV) and Hercules Offshore (NASDAQ: HERO) have jack-up fleets with an average age of 28 and 33 years, respectively. According to a recent Ensco presentation, over half of the worlds jack-up fleet and 36% of floating assets are reaching the end of their economic lives. With so many older assets sitting on balance sheets, don't be surprised if companies start to follow Noble's lead and make some drastic changes to their fleets.
3. Who has contracts with questionable credit clients?
Three companies facing a credit crunch that could hurt rig companies are Talisman Energy, EPL Oil & Gas, and Stone Energy