Transocean Says Tiber Well Is Deepest Ever

Another billion barrels @ 35,000 feet TVD.

Transocean Press Release: Deepwater Horizon Drills World's Deepest Oil & Gas Well.

ZUG, SWITZERLAND—Transocean Ltd. (NYSE: RIG) today announced that its ultra-deepwater semisubmersible rig Deepwater Horizon recently drilled the deepest oil and gas well ever while working for BP and its co-owners on the Tiber well in the U.S. Gulf of Mexico. Working with BP, the Transocean crews on the Deepwater Horizon drilled the well to 35,050 vertical depth and 35,055 feet measured depth (MD), or more than six miles, while operating in 4,130 feet of water.

"This impressive well depth record reflects the intensive planning and focus on effective operations by BP and the drilling crews of the Deepwater Horizon," said Robert L. Long, Transocean Ltd.'s Chief Executive Officer. "Congratulations to everyone involved."

These achievements are the latest in Transocean's history of world and other records dating back to the 1950s. In 2005, the ultra-deepwater drillship Discoverer Spirit set the record for the longest Gulf of Mexico oil and gas well at 34,189 feet, MD. Most recently, the Transocean jackup GSF Rig 127 drilled the industry’s longest extended-reach well in 2008 while working for Maersk Oil Qatar AS at 40,320 feet MD with a 35,770-foot horizontal section. The well was drilled offshore Qatar in 36 days and was incident-free.

Transocean also holds the current world water-depth record of operating in 10,011 feet of water set while working for Chevron in the U.S. Gulf of Mexico.

The Deepwater Horizon, placed into service in 2001, is a dynamically positioned ultra-deepwater semisubmersible rig capable of working in water depths of up to 10,000 feet.

Bad News For Daewoo Is Good News For Transocean

Bad news for Daewoo is good news for Transocean and Daewoo suitors including POSCO: Daewoo Ship Shows Subprime Woes Overcome Drill Orders.

Sept. 4 (Bloomberg) -- Park Chang Suk isn't waiting to learn what Daewoo Shipbuilding & Marine Engineering Co. will be worth when the South Korean government sells the maker of oil tankers, submarines and ferries this fall.

The 35-year-old Park, who oversees the equivalent of $481 million at NH-CA Asset Management Co. in Seoul, dumped his shares as orders fell by one-third from January to June and the Seoul- based company canceled a container-ship contract for the first time in its 35-year history.

State-run Korea Development Bank and Korea Asset Management Corp. plan to sell their 50.4 percent interest in the world's third-biggest shipbuilder for as much as 7 trillion won ($6.1 billion), according to Cho In Karp at Good Morning Shinhan Securities Co. in Seoul. Steelmaker Posco and Hyundai Heavy Industries Co. last week joined two other companies in making separate offers. The bidding has failed to stir the shares, now at their lowest in five months.

``The shares could move higher on the sale, but for me that's not enough to change my position on Daewoo Shipbuilding,'' said Park, who earned a Master of Business Administration degree from the University of Washington. ``The shipbuilding industry has already reached its peak. Demand has weakened. And Daewoo Shipbuilding is just too expensive.''

2 months ago things were a lot different: Daewoo Ship Receives Record 2.44 Trillion Won Order.

Soros Loads Up Petrobras

Petrobras: Buy and Sit Tight Like Soros.

As reported at Bloomberg.com, George Soros purchased an $811 million stake in Petroleo Brasileiro SA (PBR), (better known as Petrobras) in Q2. The Brazilian oil company is now the largest holding in his fund, amounting to 22 percent of the total $3.68 billion of stocks and American depositary receipts held by Soros Fund Management LLC. Of course, crude oil has taken a dive in the last month, helping to push Petrobras down 28 percent since his purchase and costing Soros $235 million. I guess we would all like to be in a position to lose nearly a quarter billion dollars and still be "OK". Then again, if Soros holds tight, he could end up doing well.

While the timing for Soros may not be perfect for this trade, a number of other people are also betting on Petrobras. As quoted by Ricardo Kobayashi from UBS Pactual SA: "Petrobras has something that other oil companies don't have: oil - lots of it and they're going to find more. If you can buy now and hang on, if you have the staying power, it's great.''

As written in a previous post , estimates have the Tupi-area fields in Brazil costing between $200-$240 billion to develop, in part due to deepwater rigs causing $600,000 a day to rent, forcing Petrobras to look for capital. Yet the cost might eventually be worth it given that the offshore fields are expected to hold up to 50 billion barrels. Petrobras has already leased approximately 80% of the deepest-drilling offshore rigs (see post). The company is also buying new rigs and production platforms.

If oil prices stabilize, companies to consider would be Transocean (RIG), Nobel (NE), and Nabors (NBR), each of which have sold off with lower crude prices, but each of which are also near some key support levels. For longer-term investment, some capital-intensive E&P oil companies such as Exxon Mobil (XOM) should do well, even without direct investment. Of course, this all requires crude oil to stabilize, probably stay over $100 a barrel, and potentially continue its march higher. If not, you may be experiencing the short-term returns of Soros, and not necessarily the longer-term ones.

And I'm not even going to make any Communist jokes about Soros or Lula.

Transocean Q2 Results

Transocean Inc. Reports Second Quarter 2008 Financial Results.

HOUSTON--(BUSINESS WIRE)--Aug. 6, 2008--Transocean Inc. (NYSE:RIG) today reported net income for the three months ended June 30, 2008 of $1.107 billion, or $3.45 per diluted share, compared to net income of $549 million, or $2.63 per diluted share for the three months ended June 30, 2007. Revenues for the second quarter of 2008 were $3.102 billion compared to $1.434 billion for the second quarter of 2007.

For the six months ended June 30, 2008, net income totaled $2.296 billion, or $7.15 per diluted share, on revenues of $6.212 billion. For the same period last year, net income totaled $1.102 billion, or $5.24 per diluted share, on revenues of $2.762 billion.

Transcript.

And, our next question comes from Lee Cooperman with Omega Advisors. Please go ahead.

Lee Cooperman

Thank you. Just, I apologize if I ask a question that was redundant, but I had to leave the call for a few minutes. I have two questions. Your contract back, I’m sorry, okay, You contract backlog is now $40.7 billion and our estimate that the cash margin is about $24.4 billion. If we back out the $4 billion in remaining newbuild CapEx, that leaves about $20.4 billion, which now I guess compares to debt of around $15.3 billion. So, this issue of returning money to shareholders I assume is going to be an issue that will be discussed sometime this year. Is that a reasonable view?

Bob Long

I think it’s reasonable to say that it will be discussed this year. We are already thinking hard about what we are going to do there, Lee. On your numbers, I think you are a little bit high with your net and I suspect what you have left out is cash taxes and some allocated local costs.

Lee Cooperman

Got, you. Okay. But in principle this is a possible this year type of discussion?

Bob Long

It’s definitely a this year type of discussion. I won’t promise you that we will make a decision to do anything this year, but.

Lee Cooperman

My only promise I want from you is that we don’t buy back overvalued stock. If we go the route of stock repurchase, we want to make sure that it’s undervalued.

Bob Long

Understood.

Lee Cooperman

Okay. Now, the second question, when we first met three or four years ago we talked about the issues that would determine the outlook for the Company, and some of the issues. We talked about the importance of the commodity price and you had said back then that deepwater drilling was economic down to prices as low as $35 a barrel.

Second, you said important for prospectivity, in other words that if we don’t find stuff the customer is not going to come back and keep drilling. Third was the risk of over builds. I’m just wondering how you would see these three issues today in other deepwater is economic down to prices as low as X given the inflation in oil country goods, second how is prospectivity lined up, in my own advantage point it looks like the only place that’s undiscovered -- deposits exist is deepwater offshore, which is terrific for us. Third, this financial environment we are in would seem to suggest that overbuilding, if it’s a risk, would be a risk that is being pushed out somewhat because of the constrained credit environment. But I would love your inputs on these three items as you gave several years ago.

Bob Long

Okay, I will take a stab at it. But on the price of oil that will justify deepwater, it’s difficult to say based on some input from a few operators that we hear consistently. My guess would be -- and it’s obviously a total guess -- is that $35 a barrel range is probably up now to the $60 or $65 a barrel range, maybe higher in certain areas. But I’m guessing its somewhat in that range. On the prospectivity its seems to me and this maybe the result of the escalation of the old prices that prospectivity has not been problem that potentially it could have been, in part they also be due to technology, but clearly the success rate that the operators are having, particularly in deepwater, has been significant. There is a big backlog of development and appraisal opportunities out there. There is also a growing need for additional deepwater exploratory efforts. I think many of the operators have been concerned about the inability to get drilling capacity to dedicate to an exploration program. So I don’t think that prospectivity is going to be an issue in any kind of a near-term future. On overbuilding, I think that we have seen such an increase in demand that despite the fact that we have had a lot of new construction in the floater business, 70% or more of that is already contracted. I am very confident that the rest of the speculative newbuilds, given the demand we see out there, is going to get contracted. And given the shipyard delivery times now, I think the last deepwater rig that was ordered has a 2012 delivery. You are not going to see much additional capacity come into this business for the next four years. So I think your characterization that some of these risks have been pushed out is accurate.

Lee Cooperman

Thank you very much. Let me just take a moment to thank you and your whole team for doing such a wonderful job for the shareholders.

Transocean Wins $3 Bln In Drilling Contracts From Petrobras

Transocean Inc. Announces Petrobras Approval of Contracts for Four Brazil-based Rigs

HOUSTON, July 15, 2008 (PRIME NEWSWIRE) -- Transocean Inc. (NYSE:RIG - News) today announced that the board of directors of Petroleo Brasileiro S.A.(Petrobras) has approved contract awards for four of the company's rigs totaling 22 rig years and approximately $3.0 billion in combined estimated contract revenues. Estimated contract revenues for each rig represent the maximum amount of revenues that may be earned in the applicable contract period, including revenues from a 15% additional rate, payable unless rig downtime exceeds 5 percent, and excluding revenues from cost escalation and demobilization. The approved contracts are expected to be executed by subsidiaries of Petrobras and Transocean in the next 30 to 60 days.

Drilling Deep And Flying High

Last week's Barron's article: Drilling Deep and Flying High

Brazil's Petrobras could become one of the world's top oil companies if its three new deepwater wells are as plentiful as some expect.

THERE ARE GUSHERS and then there are gushers.

At a time when the oil industry is struggling mightily to find new wells, Brazil's Petrobras is sitting atop what appears to be the Western Hemisphere's biggest find in 30 years. The Tupi oil field, discovered off Rio de Janeiro two years ago and 65% owned by Petrobras, may contain as much as eight billion barrels of oil, an amount that would boost Brazil's reserves by more than 50%.

As if that weren't enough, the company has since found three other potentially lucrative, deepwater wells in the same area. And, with sophisticated operations in the Gulf of Mexico, it could be a big winner in President Bush's new drive to lift U.S. moratoriums on offshore drilling.

All this and high oil prices, too. Can it get any better?

In fact, Petrobras is a singularly tantalizing investment. "Buying Petrobras today is like having the opportunity to invest in Saudi Aramco 40 years ago," says Shawn Reynolds, portfolio manager of Van Eck Global's $1.03 billion Hard Assets Fund. Saudi Aramco, Saudi Arabia's state-owned oil company, today is the world's largest oil corporation in terms of proven reserves and production.

Investors already have struck it rich with Petrobras' stock (ticker: PBR for the American depositary receipts). Recently trading around $70, it has more than doubled over the past 12 months, far outpacing such rivals as ConocoPhillips (COP), Chevron (CVX) and ExxonMobil (XOM). Yet, bulls say the stock could climb another 25% or so within a year, perhaps hitting $90.

"If you're in oil, you have to own this stock," says Robert Levitt, asset manager of $500 million Levitt Capital Management, in Boca Raton, Fla. "They are sitting on the biggest oil find in years, that's why. You don't look at resource companies based on earnings; you look at their oil reserves. Exxon and Conoco aren't making any new discoveries. Petrobras just made the biggest one in years."

JP Morgan Upgrades Transocean

JP Morgan upgrades Transocean

July 9 (Reuters) - J.P. Morgan Securities upgraded Transocean Inc (RIG) to "overweight" from "neutral" on Wednesday, a day after the world's biggest offshore drilling contractor said it received a lucrative five-year contract.

Transocean said on Tuesday one of its deepwater drill ships was given a contract worth a record $650,000 per day. The contract is expected to start in March 2010 and generate revenue of $1.19 billion over the five years.

JP Morgan said recent contracts including the Transocean one indicated the deepwater market is strong.

"(Transocean's) valuation does not reflect visibility and strength of deepwater market," the brokerage said in a note to clients.

Transocean Signs Record $650,000 Day Rate

Transocean rig gets record $650,000 dayrate

HOUSTON, July 8 (Reuters) - Transocean Inc (RIG), the world's largest offshore drilling contractor, said on Tuesday one of its deepwater drill ships has been awarded a five-year contract worth a record $650,000 per day.

Shares of Transocean, whose operations are based in Houston, climbed as much as 2.5 percent on the news before retreating to trade slightly lower along with other energy stocks.

Record crude oil prices have stirred booming demand for offshore drilling rigs, which are currently in tight supply worldwide.

The contract for the Deepwater Pathfinder is set to start in March 2010. The agreement with a subsidiary of Eni (ENI) is for drilling primarily in the U.S. Gulf of Mexico.

"The new Eni contract represents a new record day rate for the industry and a meaningfully positive datapoint for Transocean and deepwater peers ... ," Bill Herbert, oilfield services analyst with Simmons & Co Int'l, wrote to clients.

Transocean Signs Billion Dollar Petrobras Deal

Newbuild Drillship to Have a 10-Year Drilling Contract With an Optional 10-Year Extension

HOUSTON, June 23, 2008 (PRIME NEWSWIRE) -- Transocean Inc. (NYSE:RIG) today announced that its subsidiaries have reached an agreement with subsidiaries of Petrobras and Mitsui to acquire a newbuild ultra-deepwater drillship under a capital lease contract. In conjunction with the capital lease contract, subsidiaries of Petrobras and Transocean have entered into a 10-year drilling contract covering worldwide operations with an option by Petrobras to extend the term of the drilling contract by up to an additional 10 years.

The capital lease contract has a 20-year term, after which Transocean will have the right and obligation to acquire the drillship for $1. Total capital costs to be incurred by Petrobras and Mitsui for the construction of the drillship are estimated to be $750 million, including $65 million of capitalized interest.

The 10-year drilling contract is expected to commence in the third quarter of 2009 following shipyard construction, sea trials, mobilization and customer acceptance. The drilling contract commencement is contingent on vendor performance and other factors. At least 12 months prior to the expiration of the initial 10-year term, Petrobras may elect to extend the term of the drilling contract by up to an additional 10 years at a mutually agreed operating dayrate which would then apply to the extension period.

Contract revenues over the initial 10-year contract term are estimated to be $1.68 billion, including monthly bonuses which could be as high as 12 percent of dayrate revenue each month. Estimated contract revenues are before taxes, which will be paid by Transocean and fully reimbursed by Petrobras. Additionally if the rig is operating in a jurisdiction where the company has a valid dual activity patent, an additional 5 percent royalty would be paid to Transocean. Estimated contract revenues represent the maximum amount of revenue that may be earned in the firm 10-year contract period, excluding revenues for reimbursed taxes, royalties, mobilization, demobilization and cost escalation.

Transocean Doubles Day Rate To BP

Transocean in 5-yr, $1.06 bln rig contract renewal

HOUSTON, June 19 (Reuters) - Transocean Inc (RIG), the world's largest offshore contract driller, said on Thursday a contract has been renewed for one of its ultra-deepwater rigs that may be worth as much as $1.06 billion.

The rig will be contracted at a rate of about $581,000 per day, more than double its prior daily rate of $208,000.

Owned.

Goldman Upgrades SLB, RIG, & HAL

Better late than never I guess: U.S. Stock Futures Rise on AIG, Oil-Service Recommendations

Schlumberger Ltd., Transocean Inc. and Halliburton Co. climbed after Goldman Sachs Group Inc. raised oil service companies to ``attractive'' from ``neutral'' on prospects for higher earnings.

Ahead of the Bell: Goldman upgrades oil services

NEW YORK (AP) -- A Goldman Sachs analyst upgraded the oilfield services sector to "Attractive" from "Neutral" Thursday, predicting strong profit growth due to greater drilling activity and high oil prices.

Analyst Charles Minervino expects earnings to grow in the double digits through 2011 as high oil prices lead to more rapid rig construction, and both drilling activity and the rates oil companies pay for drilling will increase.

Minervino raised price targets throughout the sector, and said deep water drillers Transocean Inc., Diamond Offshore Drilling Inc. and Pride International Inc. will be paid higher rates. He also favors land services that do a significant amount of business in North America, including Halliburton Co., Nabors Industries Ltd. and Helmerich & Payne Inc.

He added that Schlumberger Ltd. will also benefit from higher spending and increased rig counts.

Oil prices ticked down Thursday morning, but reports indicated that a militant group attacked an oil installation in Nigeria.

Bounties Of The Deep

Bounties Of The Deep.

A multinational consortium has struck oil in ultra-deep waters in the Gulf of Mexico.

The companies said an exploration well called Stones #3 had hit reservoirs of natural gas and oil in 7,500 feet of water and at a total depth of 29,400 feet.

Transocean Sells Another Ultra-Shallow Asset

PetroGulf of Kuwait Buys Transocean Nordic Rig for $170 Million

May 25 (Bloomberg) -- Gulf Petroleum Investment S.A.K.C., or PetroGulf, the Kuwait-based provider of technical services to the oil and gas industry, agreed to buy an offshore oil-drilling rig for $170 million.

PetroGulf agreed to purchase a Nordic rig from U.S. offshore drilling contractor Transocean Inc., the Kuwaiti firm said in a filing to the Kuwait Stock Exchange today.

Transocean Drills World's Longest Well

40,320 feet: Transocean Drills World's Longest Well on Qatar Coast.

May 21 (Bloomberg) -- Transocean Inc., which owns one- fourth of the global supply of deepwater oil rigs, drilled the world's longest well off the coast of Qatar, surpassing the old record by almost a half mile (805 meters).

The well extends for 40,320 feet, including a 35,770-foot horizontal section, the Houston-based company said today in a statement. Transocean's offshore GSF Rig 127, which has retractable legs that extend to the seafloor, drilled the well in 36 days as part of a $6 billion A.P. Moeller-Maersk Group project.

The well exceeded the previous record length of 38,322 feet set earlier this year at Sakhalin Island off Russia's Pacific Coast, Transocean said. Maersk Oil & Gas, a unit of Copenhagen- based A.P. Moeller, plans to boost output from Qatar's Al Shaheen field to 525,000 barrels a day by the end of next year.

Oil and gas producers including Exxon Mobil Corp. and Royal Dutch Shell Plc are using more horizontal wells to tap reserves formerly regarded as uneconomical.

Lehman Ups Transocean Target

Ahead of the Bell: Transocean shares rise

NEW YORK (AP) -- Shares of Transocean Inc. edged higher in premarket trading on Tuesday after a Lehman Brothers analyst raised his price targets on more than three dozen oil service and drilling companies.

James Crandell raised his price target to $192 from $180 and maintained his "Overweight" rating on Transocean, a Houston-based offshore driller.

The new target price implies a return of 19 percent on Monday's closing price of $161.39. On Tuesday, shares rose 61 cents to $162 in electronic trading.

Crandell said in a note to investors that he expects a strong recovery for North American natural-gas drilling in 2008 and through 2009. He also predicted substantial growth in overseas operations for oil service and drilling companies over the next several years.

This Oil Move Is For Real

Jim Cramer: This Oil Move Is for Real

It doesn't stop. I hear about less gasoline use. I hear about big alternatives to energy. I hear about mass transit. They are meaningless to oil. Far more important to oil is the Petrobras decision to try to glom onto 80% of the world's rigs. That's a killer. No one else can drill deep if they do that. Plus, the cost of drilling is monumental now. Meanwhile, in the political landscape, we worry about the Strategic Petroleum Reserve, not drilling offshore where there is lots of oil and gas. We worry about taxing oil companies' windfalls, not encouraging them to drill year-round. And the result? Look at your screen. There is still, even at these prices, no marginal oil available. As an aside, why don't all the pundits ask the speculators to sell us some? They are sure to replace it with drilling.

LOL.

Petrobras Hires 80% Of Deepwater Rigs

Bloomberg: Petrobras Hires 80% of Deepwater Rigs, Inflates Rents

May 15 (Bloomberg) -- Petroleo Brasileiro SA, Brazil's state-controlled oil company, leased about 80 percent of the world's deepest-drilling offshore rigs to explore prospects including the Western Hemisphere's biggest discovery in decades.

Petrobras, as the Rio de Janeiro-based company is known, is hiring rigs that can drill in at least 3,000 meters (9,800 feet) of water, Chief Executive Officer Jose Sergio Gabrielli said in an interview last week. The world has 21 such vessels, according to Rigzone.com, which tracks the offshore drilling industry.

The company's ``insatiable'' demand is forcing producers including Exxon Mobil Corp. and BP Plc to pay more as they compete for the remaining units, said Kjell Erik Eilertsen and Truls Olsen, analysts at Fearnley Fonds AS in Oslo. Explorers that don't have rigs under contract may delay projects or pay rents of more than $600,000 a day.

``The oil majors have their backs against the wall as Petrobras has aggressively locked up significant rig capacity,'' said Omar Nokta, head of maritime research at Dahlman Rose & Co. in New York.

Petrobras is negotiating for as many as 17 more vessels to probe the Tupi discovery and neighboring fields, said Bill Herbert, an analyst at Simmons & Co. International in Houston. The company already controls almost seven times as much capacity as the next biggest user of rigs that can drill in 7,500 feet of water, according to research by Dahlman Rose. ...

Petrobras is in talks with Transocean Inc., the world's biggest offshore driller, to extend leases as much as three years ahead of expiration, Robert Long, chief executive officer for the Houston-based contractor, said last week.

See video here.

UBS Bullish On Offshore Drillers

Transocean should do well today.

UBS bullish on US offshore drilling sector

May 15 (Reuters) - UBS started coverage of the U.S. offshore drilling sector with a positive stance based on a healthy longer-term macroeconomic outlook, strong commodity prices, and increasing demand for offshore rigs over the next several years.

The brokerage, which added the world's largest oil and gas drilling contractor Transocean Inc (RIG) to its strategic stock selections list, said high oil prices will drive increased exploration spending.

"We prefer offshore drillers with deepwater exposure and higher specification jackup rigs to take advantage of rising dayrates in these classes of rigs," analyst David Anderson said in a note to clients.

Investors should favor companies with fewer deepwater contracted rig days and more jackup contracted rig days as dayrates for deepwater rigs are likely to continue to rise through 2011, while average jackup dayrates are likely to fall in 2009, Anderson said.

The analyst said offshore drillers are highly correlated to oil prices, which he believes will remain at very high levels over the next several years.

UBS eyes oil's surge, Chevron, drillers.

Transocean (RIG) drew the distinction as top pick at UBS as it waded into several oil-services firms that specialize in drilling and other technologies for extracting precious fossil fuel [LOL].

After purchasing GlobalSanteFe in recent months, Transocean has emerged as "not only bigger but better," according to the bank.

With the largest fleet of deepwater rigs, Transocean ranks as the largest offshore driller in the world, UBS noted.

"As we are more bullish on deepwater-activity levels well into the next decade, we view Transocean as a core holding in the offshore-drilling sector," it said. "Although near-term integration issues are to be expected, Transocean is one of the best operators in the business and will be one of, if not the primary beneficiary of rising deepwater day rates."

Dahlman Analyst Sees Higher Rig Rates

Sector Snap: Drillers down, but analyst bullish

National oil companies have been locking in drilling contracts in recent months while most publicly traded oil majors "have been waiting on the sidelines," analyst Omar Nokta wrote in a client note."Now, with limited availability and record high leading edge rates, they must combat declining reserves and production to satisfy stakeholder demands."

Nokta and colleagues boosted their forecasts for average drilling rates by $50,000 per day, meaning that they now expect the priciest ships, which can operate in very deep water under harsh conditions, will fetch an average of $600,000 per day over the next three years.

"We believe Transocean (RIG) stands to benefit the most from the tight deepwater market as it controls seven of the 16 ultra deepwater rigs available to market through the end 2010," Nokta wrote. "We expect the company to negotiate attractive contract terms that allow for substantial visibility deep into the next decade."

And here: Energy Sector Roundup: Oil Backs Off a Record

Major oil companies "have their backs against the wall" when it comes to getting offshore drilling contracts, according to Dahlman Rose & Co. managing director Omar Nokta.

Nokta says Brazil's national oil company, Petrobras, has aggressively locked up a significant amount of rig capacity. As a result, dayrates have been pushed to record levels.

"We expect the few deepwater rigs available during the next three years will see significant enquiry and lead to higher dayrates and contract durations," said Nokta. "We are raising our dayrate assumptions for ultra deepwater floaters (7,500-feet drilling capability or more) to $570,000/day, harsh environment ultra deepwater floaters to $600,000/day and standard 5,000-feet deepwater floaters to $475,000/day. These dayrates are $50,000/day higher than our prior forecasts."

Nokta thinks Transocean Inc. could benefit most from the tight deepwater market since it controls seven of 16 rigs available through the end of 2010.

Transocean: Best Company In The World

After hearing Charlie Munger trash diversification over the weekend (see here, here, and here) I increased my already overweight (14%) position in Transocean (RIG) to well over 20%. Yes she's the prettiest girl in school but with a p/e of 9 it's not clear to me that everyone knows it. Does anyone know of another company that has profit margins and return on equity in excess of 30%? Q1 Transcript.

Transocean Is Coastin'

The margin picture, however, brightened meaningfully. Field operating income margins lifted from the upper 50% range into the lower 60s. Note that this includes all revenue sources, some of which are lower-margin than drilling, so the figure is understated compared to the contract drilling margins I tend to talk about when I praise Noble's (NYSE: NE) dynasty or ENSCO International's (NYSE: ESV) excellence.

I've talked about the tax rates of some of these drillers, which vary widely due to geographic factors. Diamond Offshore (NYSE: DO) reports about the highest rate that I've seen, while the two aforementioned aces fall in the high teens. Transocean did them one better, with an effective tax rate of 15.5% -- and that included some unfavorable items. This light tax treatment helped Transocean turn out a solid 38% net income margin.

Transocean's been scoring some big contract wins in India, an exciting basin that has been overshadowed by the exploration exhilaration in places like Angola and particularly Brazil. Reliance Industries, a bit like a Petrobras (NYSE: PBR) of India (granted, Reliance has more competition vis a vis ONGC), is exploring aggressively in what's known as the KG basin, offshore India. Yesterday's announcement of a new drillship order takes Reliance's deepwater vessel commitments with Transocean up to six, with three active rigs and both vessels from Transocean's joint venture with Pacific Drilling under construction. If Reliance hits anything like Petrobras' Tupi, Jupiter, or Carioca finds, then expect the fireworks to really fly.

With 80% of deepwater drilling records, Transocean has a wide economic moat. The latest enhanced Enterprise-class drillship ordered from Daewoo costs $730 million. They already have 4 of these bad boys under construction (Discoverer Clear Leader, Discoverer Americas, Discoverer Inspiration, and the yet unnamed GSF Newbuild), each capable of drilling in 12,000 feet of water and to 40,000 feet total depth. The earliest a competitor can get one is 2011 and they would still have to pay Transocean for the patent on dual activity. This is a $50 billion company earning $4 billion a year and growing. Right behind Google (GOOG) in terms of estimated long term earnings growth.



Thursday's Options Report.

Transocean (RIG) – Sky-high earnings from the world’s largest offshore oil driller failed to patch through to any great effect to Transocean’s share price, which is .27% lower at $157.42 – about $3 off the 52-week high. While some analysts have noted that the company’s share price has already exceeded some targets, perhaps adding to the lackluster action, option traders responded in two fashions – first by appearing to sell May 145 puts and 160 calls in what could indicate an expectation of very rangebound share price activity in the coming month; then by deferring new price bets to the August contract, where we noted heavy volume in out-of-the-money calls at the August 170, 200 and 210 strikes, and selling action in 120 puts.

I'm also a fan of National Oilwell Varco (NOV). Q1 Transcript.