Bloomberg reports a severe shortage of deep-sea oil drilling rig availability is creating delays in exploration and production for oil majors such as Chevron, which is struggling to exploit the "Jack" oil field in the Gulf of Mexico, the deepest well ever tested, announced in September. A Chevron senior drill-site manager comments, "There's a lot of prospects out here we'd like to drill but can't yet because there aren't enough rigs." Amidst the shortage, daily rental fees continue to rise, having doubled over the past 18 months. Transocean, the world's largest rig operator charges as much as $520,000/day. There are only 18 rigs in existence that can reach the deepest discoveries, and there are currently 31 rigs on order globally with such capabilities. Of these, only two will be finished next year and 13 will be ready in '08. Meanwhile, the delay in exploring and producing oil in the Gulf of Mexico means the U.S. will continue to rely on OPEC. Total daily rig operating costs which can exceed $1m/day are seen hurting profits of oil majors. Analysts surveyed by Bloomberg estimate average net income growth of 12% this year, versus 35% in '05. Earlier this month, Chevron announced a 23% increase in capex for '07 to $19.6b.
• Sources: Bloomberg, Transocean Fleet Update [pdf]
• Related commentary: Eye on Chevron, Ceiling Not Yet in View for Big Oil Stocks, Chevron, ConocoPhillips Going Opposite Directions With CapEx in 2007, Barron's: Transocean an Energy LBO Target?, Still Cautious on Gulf of Mexico Driller Stocks Conference call transcripts: Chevron Q3'06, ExxonMobil Q3'06
• Potentially impacted stocks and ETFs: Chevron (CVX), Devon Energy (DVN), Statoil (STO). Rig operators: Transocean (RIG), GlobalSantaFe (GSF), Ensco International (ESV). Competitors: ConocoPhilips (COP), Exxon Mobil (XOM), Royal Dutch Shell (RDS.A), BP (BP), Sunoco (SUN). ETFs: Vanguard Energy (VDE), Energy Select Sector SPDR (XLE), iShares Dow Jones US Energy Sector (IYE), iShares Dow Jones US Oil & Gas Ex Index (IEO), United States Oil Fund LP (USO)
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