Petrobras (PBR) Hordes the World's Deep Sea Water Drillers
Wow, interesting factoid this morning via Bloomberg - Petrobras (PBR) has leased 80% of the world's deepest sea drilling rigs. I mentioned when I sold off Diamond Offshore Drilling (DO) I was very interested in moving that money (on a pullback) to Noble (NE) due to its Petrobras connection [Apr 25: Bookkeeping: Selling Diamond Offshore Drilling - Will buy Noble Later] but frankly it looks like every driller is going to have a Petrobras connection at this rate. Again, Petrobras in my book, will become the largest company (by market capitalization) on the planet (surpassing Exxon) [May 13: Petrobras (PBR) Business as Usual]
Why do we care about this news? We like... no... love shortages (as investors). Shortages create higher prices. Shortages of deep sea rigs mean higher prices for rig operators - think Transocean (RIG), Diamond Offshore (DO) and Atwood Oceanics (ATW) specifically. Also some Pride International (PDE) and Noble (NE) thrown in there....
- Petroleo Brasileiro SA, Brazil's state-controlled oil company, leased about 80 percent of the world's deepest-drilling offshore rigs to explore prospects including the Western Hemisphere's biggest discovery in decades.
- Petrobras, as the Rio de Janeiro-based company is known, is hiring rigs that can drill in at least 3,000 meters (9,800 feet) of water, Chief Executive Officer Jose Sergio Gabrielli said in an interview last week. The world has 21 such vessels, according to Rigzone.com, which tracks the offshore drilling industry.
- The company's ``insatiable'' demand is forcing producers including Exxon Mobil Corp. and BP Plc to pay more as they compete for the remaining units, said Kjell Erik Eilertsen and Truls Olsen, analysts at Fearnley Fonds AS in Oslo. Explorers that don't have rigs under contract may delay projects or pay rents of more than $600,000 a day.
- Petrobras is negotiating for as many as 17 more vessels to probe the Tupi discovery and neighboring fields, said Bill Herbert, an analyst at Simmons & Co. International in Houston. The company already controls almost seven times as much capacity as the next biggest user of rigs that can drill in 7,500 feet of water, according to research by Dahlman Rose.
- U.S. and European oil companies probably will pay $50,000 more per day to lease deepwater rigs during the next three years because Petrobras has already contracted for so much of the worldwide fleet, Nokta said. Such units are designed to cope with high seas and hold equipment needed to bore beneath the seafloor and identify oil and gas deposits as much as 6 miles below the ocean surface.
- Petrobras has signed leases this year for six deepwater rigs, more than twice as many as any other producer, according to Dahlman Rose. The contracts have an average duration of five years and four months at rates of $410,000 to $580,000 a day.
- Exxon Mobil leased Seadrill's West Polaris unit last month for $600,000 a day, Nokta said. BP agreed on May 1 to pay $540,000 a day for a Pride International Inc. drillship, $60,000 a day more than the company committed to three months earlier for an identical Pride rig, he said.
- Petrobras plans to start pumping oil in the first quarter of 2009 from Tupi, the biggest find in the Americas since Mexico's 1976 discovery of the Cantarell field in the Gulf of Mexico. Petrobras also is evaluating as many as seven nearby fields, including the Carioca prospect, Gabrielli said.
And for investment, you simply must own these deep sea oil drillers - I believe both Atwood Oceanics and Pride International will be bought out within 18-24 months, the latter already looks well on its way [May 2: Restarting Pride International as Takeover Bait]
That said, the next time crude corrects to $110 you will see all these stocks hammered as if the next 3-5 year story is over. That's lemmings for you.
Long Petrobras, Pride International, Atwood Oceanics in fund; long Pride International in personal account
10 comments:
hate to change the subject...what are your thoughts on BHP?
Well the trio of BHP, RTP, and RIO have a near monopoly on the world's metals. So you can guess what I think. I have chosen to go with RIO since BHP RTP are doing their song and dance but since China announced its interesting in BHP stake obviously that one has taken off.
Every year what these guys own in the ground becomes more valuable... IMO.
Mark, you must be thinking the same thing.. when's the market going to give in, and correct to any level of significance? I can see that you're portfolio is moving up in cash again as is mine.
It really did look like today might give in some, with the lack of strength given the huge volumes we have been seeing.
But it also seems like we are seeing a rather consistent trickle of information come in that supports the market.
Yes the market is a wicked beast isnt she
Fedex warns, it goes up
JCPenney says the rest of 2008 will suck (which I predicted), but it STILL goes up (5%!)
The market wants to go up right now, clear and simple. I think this is where all the Federal Reserve liquidity is going (aside from commodities) So in return for your inflation you get a higher stock market ;) enjoy
Most likely too many people are calling for an imminent pullback so until those people give up and go long, only then will the market reverse. All my gains this week have been ripped to shreds by the short exposure. Same as 2 weeks ago. Last week was more normal.
If S&P clears that 200 day moving average than you sort of have to throw in the towel (knowing a bad selloff will happen one day) but in the near term the market is about emotion, not sense. As long as the super computers and the human traders say there will be a recovery in 2nd half 2008, the stocks will reflect that. And with govt reports constantly reflecting that notion... well away you go :)
well, i'm just sitting on my hands now... What little length I have, is also getting washed out by what little short postions I also have. Very frustrating, as it is really making 'beating the market' very tough.
I'm all too familiar with the 'reverse capituation' when the last bull throws in the towel. It's actually been quiet a slow 3-4 weeks for me, but at least the commodity stocks haven't REALLY blasted off.. save for the coal stocks.
And natgas - which I just dont believe in as much. Every analyst is valuing the discovery at the prevailing forward curve, so every stock is up on new discoveries. But in the out years, those same discoveries should put a cap on price. Would you agree with that thesis? (regardless of how the market is going to treat it now) and that met coal does not have that same supply issue?
Let me know when you throw in the towel and go all in long; then I'll know it's time to get short hah. I am sure there is a lot of frustration out there because the market is not doing what it "should do". It didnt do what it was supposed to do for 8-9 weeks from late August to late October either. So we are in a similar stage now. Unfortunately the sell off will probably come as a complete surprise and warning and catch everyone with pants down.
As for your nat gas vs coal, its a lot more complicated than that I believe. I think a lot of nat gas is substitution for coal being taken out of the country on barges. Both can be brought online, so its not so much a supply problem per se, its a demand issue and transport issue and the US producers have major cost advantage with the US Peso. As more coal is exported, more opportunity for nat gas to replace it since they are relatively interchangeable in many applications.
But at some point high energy prices (if they continue up) will lead to major chance of global recession. But the stock market will probably be up on that news. Kool Aid.
I've almost gone 'all in' seven or eight times!
I just dont see the substitution effect.. since coal is sooo much lower on the supply stack in power. (I work in that industry) What I can see, is that without new coal plants, natgas is the only real choice. But that is not a current supply/demand issue. That's something in the out years.
What I have seen, is that natgas has really gone on a tear recently, from the lack of LNG and alot of demand for use in all sorts of products overseas. If you compare the chart of UNG to the stocks, you can kind of see it. Allow for some leverage in the equity. But again, that is a near term issue, and I think there is alot of supply in the out years as per all these new discoveries. They are getting the benefit in their valuation from larger reserves and a higher forward curve on the back end. I just dont think that new supply is being reflected in the back end.... YET. I guess that is my issue with it.
If PBR is trying to garner deep sea oil drillers, might one not look for an integrated oil to buy PDE?
Yankee, if you read the PDE entry its due to the large stake that Seadrill has... so Seadrill should be the acquirer. And PDE seems open to it.
jeff i dont know if you pay attention to boone pickens on anything energy related but to me its worth at least hearing what he has to say and then comparing it to others and then comparing it to my own theses.
at any rate, reason i bring that up is that there's a video of him (hour long) talking about various energy... nat gas, coal, wind, nuclear, and of course oil. he's betting big on nat gas and explains why in the clip.
i posted the link on my site but couldn't get it to embed directly, its a link from paul kedrosky's site.
basically he says natgas and wind is where he's placing his money. nuclear he likes too but he just thinks it will take too long and he says he's getting old. he said you have to be in coal simply because it powers 50% of things and until they can fully replace it, you have to be in it.
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