Russ and Que, gotta respond to the driller's with heavy floater percentage posts.
>>>I would stay away from drillers with heavy floater ownership. RIG GSF DO<<<
That's very perceptive and very correct. The mid-water floater market is basically dead everywhere except West Africa. Norway is just about completely dead. The rest of the North Sea is extremely weak, just a bit removed from dead. The GoM is weak, but fairly flat. West Africa is fairly flat. Brazil is decent. Overall though, the story is very very weak demand.
Another issue is the companies that built deepwater rigs in the last cycle are going to be faced with trying to recontract them in the next year or two. As these existing three to five year contracts run out there is going to be a fairly sudden and large supply of deepwater rigs on the market, at a time when demand is very weak. Right now a good deal of operators with deepwater rigs are looking to farm them out, or otherwise get out of contracts, as they are running low on drilling plans, and their capex is being cut back. When the contracts are up, the situation looks at the moment to be bleak.
That's a good part of why they are trading so low.
Russ, your point that >>>I think deepwater makes a big comeback fairly soon, and the leverage is huge.<<< may not be correct. The leverage is always the highest on the lowest dayrate rigs. Take for example a jackup that costs 25k per day to operate. If they are getting 35k now, their cashflow is 10k per day. If dayrates go up 20% to 42k per day, their cashflow almost doubles to 17k per day - that's leverage. Contrast that to a deepwater rig that costs $75k per day to operate. If their dayrate goes from $150k to $180k their cashflow only goes up about 50%.
The example is even more dramatic for a tender assist barge costing $15k per day to operate, or a swamp barge costing less than $10k. The trend is higher leverage on junkier assets.
There is much less leverage in deepwater, much higher operating costs, vastly higher capex, much higher costs to stack a rig, etc. On a low spec. jackup or barge you can almost lock it up and walk away. A crew of a few guys to run machines a few times each week is all you need, cost of only a few thousand per day. On a deepwater rig you have to keep a substantial crew onboard, and run engines & HVAC to keep all the computers and electronics preserved. High fuel and personnel costs mean it may cost $35k per day to stack a fifth generation drillship.
In summary, the risks to rig owners have gone up dramatically as they went deeper, while the leverage to upside has decreased - a losing proposition.
In my opinion the best way to play a rebound in gas drilling is land drilling, swamp barge, and jackup companies.
Sharp |
