SK

A Look at Earnings from Transocean and Devon

Last night, Petrobras, announced its intent to contract 40 deepwater and ultra-deepwater drill ships and semi-submersible rigs. The company anticipates the construction and delivery of the rigs through 2017, and the priority will be given to building them in Brazil. We expect the new rigs to operate in the Santos basin.

Bottom line - this adds huge capacity for the ultra deepwater market. This area of investment is now verging on creating over capacity which will have a harsh impact on day rates for drilling rigs. It comes late in the construction cycle with several new builds in pipeline in the ultra deepwater segment. The jack up segment has also had similar huge capacity build. Going forwards, this will have an impact on utilization and day rates. On a 5 year basis I would stay clear of drillers; now is a good time to exit, there are better opportunities elsewhere.