The professionals most familiar with the so-called oil shortage know that there is an estimated 3 trillion barrels under land and sea. That is why they are making their biggest bets on drilling rigs.
Oil drillers "are the most attractive way to go," said Don Hodges, who holds about 160,000 shares of Transocean and about 120,000 shares of GlobalSantaFe among the $1.1 billion managed by
Hodges Capital Management in Dallas. "There is a shortage, it takes time to build one and it takes a lot of money. Their earnings are going to go up every year for the foreseeable future."
Orders for offshore rigs have surged sixfold in the past five years, and rental rates are at the highest ever after oil prices tripled and industry profits soared. The wait for the most sophisticated rigs, which can drill in waters more than a mile, or 1.6 kilometers, deep, is a record three years, and the cost to lease one has quadrupled since 2004, climbing to more than $500,000 a day.
"It's a big problem," said Ashley Heppenstall, chief executive of the oil producer Lundin Petroleum, based in Stockholm. "There has been a gross underinvestment in the industry for a number of years and we paid for that last year. We had delays in some of our drilling campaigns."
The rise in rig costs contributed to the five-year jump in oil prices by driving up production costs, hindering the discovery of new deposits and slowing the development of existing finds.
The oil left underground in the United States alone is enough to replace every barrel pumped from Iran for the next 20 years, according to statistics compiled by BP.
Exxon Mobil, BP and the other large oil producers are being forced to pay more to get the rigs they need to meet the world's ever-rising energy demand. With crude prices above $50 for most of the past two years, investors from T. Boone Pickens to John Fredriksen, who controls the world's largest oil tanker company, are betting on drilling companies to outperform producers.
The price to build a deepwater rig has nearly doubled in less than a decade because of rising costs for steel, equipment and shipyard space, according to David Smith, an analyst at J.P. Morgan Chase.
A new deepwater rig that is capable of drilling in waters of 7,500 feet, or 2,290 meters, or more costs $525 million to $625 million to build, up from $300 million to $400 million during the late 1990s. The shares of drillers are poised to replace oil and gas producers as the industry leaders, Hodges said.
(Bloomberg News, 26/02/2007)