Categories

Economy & Politics Liberty Investor Alert

Tools

  • Economy & Politics
  • Investing
  • Personal Finance
  • Related Posts


    An Annotated History Of World Oil Price Shocks
    Insolvent Chinese Construction Company Gets Last Minute Bailout, Avoids China’s Second Bond Default
    Rebels Shoot Down Two Ukraine Fighter Jets, Defense Ministry Reports
    US State Department “Confident” MH17 “Mistakenly” Downed By Separatists, Finds No Direct Link To Russia
    The Stealing Of America By The Cops, The Courts, The Corporations And Congress
    Poroshenko Demands Ukraine Separatists Be Declared “Terrorists” Under International Law
    Krugman’s Latest Debt Denial: Why His Two Magic Numbers Don’t Cut It
    The Baltic Dry Index Collapses To 18-Month Lows; Worst July Since 1986
    California’s Drought Could Tip America Toward Economic And Social Turmoil
    IRS Says Lerner’s Emails May Be Recoverable After All
    Department Of Justice, Homeland Security Must Go On Offensive Against Growing Right-Wing Threat
    Is There A Fracking Bubble?
    This Emerging Malware Sends Secret Messages And Is Practically Impossible To Detect
    The Long-Term Joblessness Battle Isn’t Over
    Courts Can’t Fix Obamacare


    The New Energy Boom: Deepwater Offshore

    One of the most important trends we have seen take place in the past 20 years is the shift from cheap oil to expensive oil.

    Most nations generally have had higher oil prices than the United States has had. In the United States, it has been somewhat of a national birthright to have cheap oil and derivatives like gasoline. In Turkey, Norway (a leading oil producer) and the Netherlands, consumers pay an average of more than $9 per gallon of gasoline.

    As a matter of fact, much of Europe pays more than $8 a gallon.

    But it doesn’t end in Europe. In Hong Kong gasoline is at the $8 level; and in Israel, most of Eastern Europe, the Baltics, South Korea, Japan and Australia, it costs $6 to $7 a gallon.

    While Americans talk about how high prices have risen here, it’s important to bear in mind that the rest of the developed world is paying two to three times as much for their petroleum needs.

    But the one thing the United States has that most of these other nations don’t is a significant amount of untapped and underused oil reserves. This has made the transition from the world’s biggest importer of oil to one of the leading exporters of gasoline a relatively calm process.

    But its implications are huge.

    Most other nations have built a lot of taxes and risk premiums into their gasoline prices, since most of their fuel is and will continue to be imported from rather unstable parts of the world.

    The United States has the advantage of tapping into its own resources for oil, natural gas and their derivatives. Also, the fact that the United States has a significant amount of refining capacity helps as well.

    But in the global scheme of things, beyond U.S. shores and demand, the great search for oil grows as more emerging economies increase global demand for energy on consumer and industrial levels. And many companies and state-owned enterprises are looking at the possibilities of offshore drilling.

    There have been some monster finds in recent years off the coasts of Brazil and Africa. The greatest challenge was getting to the fields. Many of the wells were in extremely deep water, a kilometer or two below bit-shredding bedrock.

    But now the technology is available to go after this oil, and the race is on.

    LedePic

    While not as easy or cheap to extract, these fields are so large that they could become national and corporate treasures for decades to come, ushering in energy independence to nations that have struggled with balancing pressing internal needs with uncontrollable outside forces.

    A colleague of mine and one of the top analysts in this field is Elliott Gue, editor of Energy and Income Advisor.

    In a recent issue he featured an article examining the promising developments in this field:

    [E]xploration and production in deepwater and harsh environment–the final frontier for major oil finds–has continued apace. In 2011 and 2012, operators announced an annual average of about 30 discoveries in water depths of at least 4,500 feet, compared to 23 in 2008-10, 16 in 2002-04 and four in 1996-98. We expect this trend to accelerate dramatically in coming decades, as producers push into ultra-deepwater and Arctic regions in search of output growth.

    The industry has already invested massive sums to identify and exploit major deepwater oil fields. Over the past two years, contract drillers have ordered about 87 drillships and semisubmersible rigs capable of operating in water depths of at least 4,000 feet.

    Not only does this trend reflect accelerating exploration and development in these frontier basins, but the contract drilling industry is also in the midst of a youth movement, with established players seeking to revitalize their fleets with high-specification rigs that command higher day-rates–a huge opportunity for equipment suppliers.

    Despite these significant capacity additions, utilization rates for these rigs have remained elevated, as high oil prices and declining production from mature fields prompt upstream operators to ramp up offshore exploration and development. Meanwhile, the resurgence of permitting and drilling activity in the Gulf of Mexico, has further tightened the market for deepwater-rated rigs.

    The supply demand-balance becomes even tighter in the ultra-deepwater segment, a category that includes rigs capable of drilling in water depths that exceed 8,000 feet. According to data from trade publication Riglogix, the utilization rate for ultra-deepwater rigs currently stands at 100 percent. Not only do the daily rates that these vessels earn continue to range between $550,000 and $650,000, but an upsurge in longer-term fixtures in the back half of 2012 also suggests that upstream operators expect the market to remain stretched….the bull market for ultra-deepwater units should support another year of solid ordering trends–a boon for well-positioned equipment providers. As the offshore discoveries of recent years reach the development stage, the industry will benefit from rising orders for subsea equipment and floating production, storage and offloading facilities (FPSO).

    Elliott has found his most promising candidate to take advantage of this enormous trend in the energy sector:

    Cameron International Corp’s (CAM) diverse business footprint and exposure to key secular growth trends in offshore and deepwater drilling make the stock an excellent pick for investors seeking long-term growth.

    Six of Cameron International’s 11 business lines target deepwater operations, and the company holds the No. 1 or No. 2 market share in the majority of its product categories. The firm also generates about two-thirds of its sales outside North America–a favorable revenue mix given the well-documented uncertainties in that geographic market.

    Cameron International operates three business segments: drilling and production systems (about 57 percent of 2012 revenue), valves and measurement (25 percent), and compression systems (18 percent). In the fourth quarter of 2012, each segmented posted double-digit revenue growth on a year-over-year basis, driving overall sales growth of 20 percent.

    Order intake, a critical metric for capital equipment companies, surged to a fourth-quarter record of $3.4 billion–up 80 percent from year-ago levels. Full-year orders totaled $10.9 billion, another all-time high, eclipsing last year’s number by about 39 percent and equating to an enterprise-wide book-to-bill ratio of 1.4. At the end of 2012, Cameron International’s backlog stood at $8.6 billion, up from $6 billion at the beginning of the year.

    It’s time to at least take a toehold in this field.

    GS Early

    Discuss this Story:

    Comment Policy: We encourage open discussion. Comments including racist statements, profanity, name calling or spam will be removed at our discretion. We use filters for spam protection. If your comment does not appear it is likely because it violates the policy.

    When Terrorists Have Drones
    Japan Readies Fuel Cell Subsidies In Bet On Toyota’s Next Big Thing
    U.S., European Airlines Halt Flights To Israel Due To Instability
    Puerto Rico Debt Crisis Headed For U.S.-style Bankruptcy Resolution
    The Latest Updates About Ukraine And Flight MH17: News Roundup
    CPI Remains Stubbornly High As Yellen’s “Noise” Won’t Go Away
    Chinese Premier Li Admits Central Planning May Not Be Optimal
    Putin Speaks: Will Respond “Adequately” To Ongoing NATO Buildup; “Wont Tighten Screws” In Response To Threats
    Bank Of England Pushes For TBTF Proposals Ahead Of G20 Meeting
    Russia Says Has Photos Of Ukraine Deploying BUK Missiles In East
    The New Scariest Chart In America
    With ISIS Now Controlling 35 Percent Of Syria And Most Of Its Oil Fields, Iraq Issues An Ultimatum To The U.S.
    Vietnam Says China Backing Down In Oil Rig Dispute
    Is This Glenn Beck Charity Wrong?
    In 2014, Nearly Half Of Americans Aren’t Sure If Barack Obama Is A U.S. Citizen
    Immigrants With Criminal Pasts Often Go Free In The U.S. When ICE Runs Out Of Options
    IRS Reveals More Crashed Computers With At Least One Thing In Common: Lois Lerner
    Meet The Online Tracking Device That Is Virtually Impossible To Block
    California Halts Injection Of Fracking Waste, Warning It May Be Contaminating Aquifers
    Does The World Still Need The World Bank?
    Do We Need Some Nationalism About Now?
    Good Luck At The Government’s Yard Sale
    Putin May Have Killed Russia’s Brand
    Money Still Fuels The Political Machine
    A Carbon Tax Even Republicans Can Support
    Democrat Turnout Woes Boost Republican Senate Odds
    How Obama Can Exploit A Do-Nothing Congress
    The German Case For A Pay Raise
    High Gasoline Prices Push Up U.S. Consumer Prices
    U.S. Congressman Raps Boeing, Trade Group On Ex-Im Bank
    Read more from Economy & Politics...

    Liberty Investor Digest

    Get today's most important
    financial headlines all in
    one place by email!



    Sources


    close[X]

    Sign Up For Liberty Investor Digest™!

    Get Liberty Investor Digest FREE By Email!

    Input your name and email address in the fields below and get today's most important financial headlines sent straight to you inbox!

    Privacy PolicyYou can opt-out at any time. We protect your information like a mother hen. We will not sell or rent your email address to anyone for any reason.