National Oilwell Varco (NOV): Petrobras drilling plans positive for NOV, subsea equipment - Goldman Sachs - May 21, 2008
News
Last night, Petrobras, announced its intent to contract 40 deepwater and ultra-deepwater drill ships and semi-submersible rigs. The company anticipates the construction and delivery of the rigs through 2017, and the priority will be given to building them in Brazil. We expect the new rigs to operate in the Santos basin.
Analysis
This news is a clear positive for NOV, as well as the shares of subsea equipment providers CAM and FTI. National Oilwell Varco is the world leader in building of rig equipment and Petrobras’s announcement that it will need several more rigs suggests that the deepwater rig demand cycle has still not yet peaked. NOV can book as much as $300 million in revenue for each new deepwater rig and is the most direct beneficiary of this announcement. We think the news is positive for CAM and FTI, who operate in Brazil and will likely be the subsea equipment providers. We expect subsea work for Petrobras to be split between a few equipment providers. All the major services should benefit from Petrobras’s plans, though we would highlight SLB and HAL as the leaders in the offshore services market. For the deepwater drillers, this is likely negative for near-term sentiment as it introduces a potential risk to dayrates if new entrants submit low bids to win the contracts. However, we believe that it is unlikely that Petrobras is able to, or willing to, risk its future deepwater development plans on drillers with limited or no prior experience. We remain Buy rated on RIG, DO, and PDE and would add to positions on weakness.
Implications
With oil prices now nearing $130/bbl, we expect continued interest in increasing offshore oil exploration activity, which benefits all oil services companies. Given the strength in the group recently, we recommend looking for pullbacks to be more opportunistic about adding to positions. |
