OK my brethren, here is a little offshore rig philosophy for you to chew on.
His Honor, Mayor Big, of Camp Verde, home of the Ships of the Desert, has made a prognostication of the highest order and it is you, my fellow souls that get to hear it first. (By the way, I am working on an article for the Oil and Gas Investor magazine...be sure and order a few copies when it is published.)
I like to keep things simple. So my simple thinking mind set out to devise a probably chart of the future for deepwater offshore drilling. As you all know, the deep water action is what is putting the juice in the tank right now.
But you know what? There has been paltry little, if any, drilling in the deep water so far because the rigs that are being built for this work are still being built. The first rig out of the "new batch" won't make it to location until sometime in 1999. Then the new rigs start coming out every quarter or so.
These rigs will drill about four wells a year. So we might see 6-8 of these types of wells drilled in 1999 with a few more in 2000 and so on.
What if these wells are dryer than a snuff box? What if they aren't?
If you are a drilling contractor you might want to wait a bit to see if there are any discoveries in these water depths before building capacity to meet phantom demand.
I think there may be a lull in construction activity for the deep water ships -- semis to a lesser extent -- until drilling takes place and discoveries are made.
If a good number of discoveries result from the early drilling we will then see new rig orders like the world has never before witnessed. The discoveries will prompt more exploratory drilling and of course there will be a huge demand for development drilling (and floating production systems).
As it stands right now, the new rig orders (with the exception of Elf off Africa who has already made some discoveries) are for exploration wells. The oil companies haven't even got to the point of thinking about development rig year requirements yet.
Hold on tight to stocks like FGII, VRC, NOI and other companies that supply the stuff rigs are made of.
In the meantime, I expect we will start to see more focus on jackups. They have been a bit neglected. The truth be told, you can make more money per invested dollar on a jackup than you can a floater today. I can tell you there is not one single decent jackup for sale on the second hand market today IN THE WORLD. You can come to me with check in hand and you won't be a buyer -- unless of course you pay stupid money, and I'm not even sure that would work. There are a few special cases and some "dogs" around, but zero zip nada quality jackups. We will start to see jackups ordered.
For a leading indicator of the offshore business...keep an eye on discoveries. The oil companies that say they may reduce spending will ramp up in a heartbeat if they tap into a juicy hole of black gold. Money talks and bullshit (and analysts) walk.
Texas Ain't for Amateurs
Note: Thanks to Beebs for the EVI earnings link. What were estimates?
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