Transocean Ltd.
(NYSE:RIG) is the world's largest provider of offshore drilling
services for oil and gas wells and it competes with players such as
Diamond Offshore (
DO
), Hercules Offshore (
HERO
), Seahawk Drilling (
HAWKQ
), ENSCO International (
ESV
) and Rowan Companies (
RDC
). Transocean also operates one of the most modern and versatile
mobile offshore drilling fleets in the world that can function in
challenging environments such as the North Sea. We have a
$85.70
price estimate
for the company, which is roughly at a 36% premium over its current
market price.
Push Towards More Exploration in Norway
Norway is the largest producer of oil and gas in Western Europe
producing around 230 million standard cubic meters of oil
equivalents in 2010. However Norway's status as one of the world's
leading producers of oil is being threatened by the rapid declines
in oil production from its mature wells. The discovery of resources
has lagged production ever since 1997 and this is leading to a
steep reduction in the remaining reserves. The oil industry
contributes to 25% of the country's GDP and to keep the sector from
declining, the government of Norway is encouraging offshore
explorations in its northern territories.
Norway expects new oil & gas finds in the Barents Sea region
of the Arctic to offset some of the decline in its oil & gas
output. This region could hold close to 6 billion barrels of oil
that have yet to be discovered. The recent discoveries by Statoil
(STO) in the Barents Sea have fuelled new interest in exploration
activity in the Arctic regions of Norway, leading to record levels
of drilling in 2011 with 4 additional wells planned this year and 7
more in 2012.
The Norwegian Petroleum Directorate expects investments
exploration and production costs to keep increasing through 2013,
which will directly result in higher revenues for providers of
offshore exploration and drilling services. The settlement of the
border dispute with Russia has also boosted exploration
efforts.
Transocean's activity in the North Sea and
beyond
As of February 2011, Transocean had 5 of its units drilling in
Norway. Earlier this year Statoil contracted semi-submersible
'Transocean Leader' over the next 3 years to carry out drilling at
depths below 1,500 meters. Only rigs with very high specifications
can operate in the demanding climatic conditions of the Arctic.
Presently fleets in the North Sea are working at utilization
rates of 87% while the utilization rates languish at 50-65% in some
other parts of the world indicating that the market of high
specification rigs is under-served. Transocean intends to
capitalize on the situation by significantly expanding its fleet
high specifications rigs over the next few years.
The expected higher utilization of rigs in the Arctic as well as
the higher day rates from operating in the harsh environment have
been taken into consideration for our revenue expectations for the
company. Our forecasts for these factors are presented above.
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