Kezorm

A Look at Earnings from Transocean and Devon

"One thing to note - despite great numbers, the stocks are not reacting. Hence, we could be prone for a pullback shortly in these names. When stocks do not react to great news, that is a potential change in character, just like when stocks shake off bad news and go up."

I believe that the news below helps to explain why RIG's share price did not surge upwards after the excellent earnings news. First I'll paste in the articles that carried the important news details:

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Jefferies rumor yesterday that "Petrobras is likely to announce letters of intent (LOI) to award long-term contracts for as many as 17 new-build ultra-deepwater rigs."

online.barrons.com/art...

This is confirmed by Bloomberg.

"Brazil is preparing to tap the biggest crude-oil discovery in the Western Hemisphere in three decades, which lies just off its Atlantic coast. Petroleo Brasileiro SA, Brazil's state oil company, is in talks with Houston-based Transocean Inc. to extend offshore drilling contracts."

bloomberg.com/apps/new......
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1.) RIG is apparently NOT getting these contracts for new builds.

2.) RIG IS getting contract extensions for rigs already operating there.

The Barron's article mentioned that smaller firms were getting contracts for the new builds which amounted to something around 2/3rds the dayrates that RIG gets for their state-of-art rigs.

This implies that Transocean is not getting any of the 17 contracts for new-builds. And this is probably why RIG's share price dropped a bit in the last couple days.

Does this mean that Transocean is necessarily going to miss the Brazilian sub-salt bonanza? No. Why not? Two main reasons.

It has been said that it will take 50 rig-years to fully develop the
5-8 billion barrel Tupi field. If "Sugarloaf" proves itself, and if
one scales the development effort upwards to accomodate the larger
field area, then it may require 400 rig-years of work to fully develop
Sugarloaf. (Just Sugarloaf... which is than 10% of the area with hydrocarbon potential.)

seekingalpha.com/artic...

So, 17 drilling rigs will not likely be able to satisfy the demand.

Furthermore, PBR is NOT the only company that will be needing, and contracting for drilling rigs to explore and develop the Brazilian sub-salt. HES, XOM, GALP and numerous others will also be making their own arrangements for drill ships to operate within other Brazilian claim blocks.

And Brazil is not the only country with fantastic sub-salt potential. West Africa has the same structures formed at the same time. The GOM, the abyssal GOM, the Scotian shelf and other places far too numerous to mention - ALL have potentially analogous salt formations in need of exploration. If 2008 generates more exciting news from Brazil, it will likely trigger a burst of interest in exploring analogous formations no matter where they are. Any country with off-shore petroleum potential that does not enjoy paying high prices to import crude... will likely, if they have not already, ante up and get in the game.