After years of neglect due to low oil prices, oil companies are again beginning to devote capex to the offshore, and deepwater sectors. They are able to do this for two reasons.
- Retooled project portfolios with breakeven costs in the $30-40 range.
- New technology cutting well drilling and completion time by as much as 50%, meaning rig days charged to a well have been cut by half.
This is having an effect on the supply of ready-to-work offshore drilling units as Kurt Hallead, of RBC capital markets recently noted. He sees it as a positive sign of change that companies are starting to reactivate stacked units to meet demand.
“If there were ample supply, an oil company would wait for an active rig to become available rather than contracting one that’s been sitting on a beach for two years.”
Given this fact, I thought it was time to take a look at the offshore deepwater drilling sector for investing opportunities, and recently established a long position in Transocean. Here is a closer look at the fundamentals I believe will drive them higher in the coming months.
Ownership Thesis for Transocean
Transocean, (NYSE: RIG) is solely focused on servicing the deep, (DW) and ultra-deepwater, (UDW) market segments of the offshore drilling sector, (OSD). In the past few years, for reasons well known to market participants, this has meant that the company has struggled to generate adequate returns, and the stock price has suffered…