Why You Shouldn’t Fear the Current

Storm in the Deepwater Drilling Sector

Photo credit: Seadrill

“In our view, the energy needs of the 21st century will be satisfied by a combination of growing

production from…deepwater frontiers, which had gone from effectively zero to about 9% of

worldwide oil production in 20 years.” – Clay Williams CEO of National Oilwell Varco

According to industry estimates, offshore deepwater production will reach 14-16 million

barrels of oil per day by 2030 or more than 15% of daily oil supply.

The reason for the growth is simple, that’s where the industry is finding the oil...

Source: Transocean Investor Presentation

…and it’s relatively inexpensive to produce.

Source: Seadrill Investor Presentation

Yet, despite the strong long-term outlook, the short term outlook is weaker. This has impacted the share

price of contract drillers.

One of the reasons for this weakness is due to the building boom undertaken by contract drillers.

That’s a lot of new rigs. For perspective, the rigs under construction by the top three builders

combined – Seadrill (20), Transocean (14) and Ensco (8) – are adding what amounts to be another

Diamond Offshore or Rowan to the industry.

While that’s a lot of supply in the near-term, longer term the market looks undersupplied with rigs.

Investor takeaway

Add it all up and the long-term fundamentals of the deepwater drilling market look robust.

Investor takeaway

This is why investors shouldn’t fear the current storm, but embrace it as a buying opportunity that might not

last much longer.

OPEC’s Worst

Nightmare