Rob Black's Energy Stock Report

Includes: NE, VLO
by: Rob Black

The three new contracts that Noble Corp. (NYSE:NE) announced Tuesday sent a strong signal confirming the heated demand for premium offshore deep water drilling rigs.

In light of the increasing willingness of operators to lock in deep water rigs through 2008 and beyond, analysts took a rig availability snapshot of the offshore drillers in our coverage universe. The supply of approximately 74 Deepwater Floaters are virtually sold out in 2006 (with only 1% of operating days uncommitted), heavily booked in 2007 (10% uncommitted), and substantially tied up even in 2008 (30% uncommitted). The market for 56 Midwater Floaters is also very tight, with only 5%, 31%, and 61% of operating days uncommitted in 2006, 2007, and 2008, respectively. The only potential vulnerability is the more than 60% uncommitted Midwater exposure in 2008, but expect a high percentage of these rig slots to be booked by the end of this year.

Valero (NYSE:VLO) provided an update on its outlook and strategy in New York on June 27. Management maintains a positive view of industry fundamentals. Rising asset values, and higher labor and material costs have posed a challenge for growth through acquisition and expansion. The company will focus on cost management within current operations and on capital discipline; some capital projects may be deferred. Acquisitions are not likely given high prices, and asset sales are possible.