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Dan Dicker

Dan Dicker

Dan Dicker is a 25 year veteran of the New York Mercantile Exchange where he traded crude oil, natural gas, unleaded gasoline and heating oil…

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Is it Time to Buy the Offshore Drillers?

A strong earnings report from Transocean (RIG) has everyone understandably wondering:  Is it finally time to buy the offshore drillers?  I have been exceedingly cautious about offshore and particularly the Deepwater offshore opportunity that RIG delivers, yet share prices are starting to reach such low levels that there is a case to be made for ‘bond-like’ buying of Transocean shares here. Let’s look at both sides of the offshore case again, now that offshore names are seeing their 52-week lows.  

It was before the shale oil craze, all the way back in 2007, that Transocean was the world beater in energy – with a near monopoly in Deepwater rigs to lease and with oil soaring towards $150 a barrel, the company couldn’t build or lease out its specialized fleet fast enough.  But with the increased production of shale oil that began in the Bakken, which in 2011 translated even more deeply into Eagle Ford finally the Permian basin production, interest in new deep-water projects was practically abandoned.  The economics are simple:  Oil from shale can cost less than $50 a barrel to retrieve, sometimes even going as low as $30 a barrel – but drilling a well four miles down, seven miles off the coast of Texas or Louisiana is going to run nearly 50% more, with a higher and more costly failure rate, should the project fizzle.  

And there, as simply as I can represent it, lies the difficulty that offshore…

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