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Gold/Mining/Energy : Big Dog's Boom Boom Room
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To: Elroy Jetson who wrote (123994)9/2/2009 9:07:02 PM
From: JimisJim  Read Replies (2) of 206089
 
Good pts. and yes, you are correct... and I guess I should have made it clear that was the missing piece of data when PBR keeps reciting the same hurdle rate -- they've never told us (or any other outsiders to my knowledge) how they arrived at that rate--what is their target ROI (and any other factors) on any new project...

And to add to your clarification, it has been rare in my experience that any E&P actually cancelled a deepwater project once they've greenlighted it, regardless of subsequent changes in the POO or hurdle rate... worst case they delay certain aspects of it... which makes sense if you take Tiber as an example: BP was paying $600,000 dayrate for Deepwater Horizon, not to mention a lot of other expenses... so despite the challenges, I'm sure BP won't back off Tiber... but they might be less aggressive initially as they try to figure out what they've actually got and how they're going to try to get it...

Either way, RIG makes out, as do many other service companies... BP has already made a sizeable investment in making that hole.

Now land or shallow water projects? All bets are off in this environment of huge land rig and jackup surpluses.

There is a bigger, wider line now separating OSX when it comes to deepwater E&P ops vs. everything else.

When I wrote about my gut feeling wrt PBR and their static hurdle rate -- I wonder if there is give and take in the ROI calcs to keep the hurdle rate constant and to maintain warm and fuzzy feelings... though I suppose Brazil's move to up their control of PBR from ~50% to ~70% might give us a clue.

Regards,
Jim
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