According to Barclays, global spending on oil exploration and production is expected to rise from $604 billion in the previous year, to around $644 billion in the current year. This will be driven by an upsurge in the capex of the oil companies, that are expected to increase by 9% this year. Global rig delivery in 2013 is estimated to be around 62, which was just 33 in the previous year. Looking at the increased spending on exploration and production activities, the investors can anticipate further growth in the revenues, for the oil-drilling contractors.
I have screened three such companies in this article. Let’s investigate how they plan to maximize their performance with the increase in oil exploration activities.
Capitalizing in the U.S. and Brazil
Noble Corporation (NYSE:NE). is a leading offshore drilling contractor, and it is planning increases to its offshore drilling and deepwater drilling operations in the Gulf of Mexico. The company is relying upon the Gulf of Mexico for its growth, as this region is a prime focus for U.S. oil producers. Recently Noble Corporation (NYSE:NE) signed a three-year contract with Plains Exploration & Production Company (NYSE:PXP) for two ultra-deep water drills in the Gulf of Mexico. This contract is expected to generate revenue of around $693 million per rig for the company over three years. Noble Corporation (NYSE:NE) currently operates eight rigs in the Gulf of Mexico, and the continued addition of rigs will further increase the revenue of the company.
To achieve self-sufficiency in oil and gas, Brazil intends to double its oil and gas production by the end of 2020. Noble Corporation (NYSE:NE) increased its operations in Brazil in the first quarter of 2013 to take advantage of this opportunity. It operates nine rigs in this region. The company’s revenue increased by 2%, year-over-year, in the first quarter of 2013. This increase is attributed to improved operations of its semi-submersible rig, the Noble Corporation (NYSE:NE) Max Smith, in Brazil. Additionally, Noble Corporation (NYSE:NE) is contracted to provide drilling and exploration facilities in Brazil to Petroleo Brasileiro Petrobras SA (NYSE:PBR). The contract has potential revenue of around $4 billion and is expected to continue until 2017. Due to strong growth opportunities in Brazil, company revenue will continue to increase.
New contracts and technology upgrades
provides drilling services to the oil and gas exploration companies.Its contract with Murphy Oil Corporation (NYSE:MUR) was extended for another two years at a day rate of $465,000. In the previous contract, Diamond Offshore Drilling, Inc. (NYSE:DO) was receiving $305,000 per day, 35% less than the new contract. Recently, it also signed a three-year contract with British Petroleum for initial usage of its rigs in South Australia, for the day rate of $585,000, and further rise is expected, to offset increasing operating costs. Looking at the contracts of the company, , there will be a rise in total revenue to $4.33 billion in the current year, from $3.54 billion in 2012.
Due to increasing demand of crude oil, the company plans to upgrade and add new rigs to its fleet. In May 2013 it awarded a new $755 million contract to Hyundai Heavy Industries for the construction of semi submersible rig “Moss CS60E”, which will work in harsh environmental conditions. The rig is slated for delivery in 2015. The company is expecting to invest around $1.75 billion for the upgrade and construction of new rigs this year. In the event of higher expenditure, it has revolving credit of around $750 million which can be used until 2017. Through new construction and upgrades, the company will remain competitive, and it will aid in increasing its market share.
Focusing on the North Sea
Transocean LTD (NYSE:RIG) is the largest contractor of offshore drills in the world. In 2010, border issues between Norway and Russia were resolved, and a treaty was signed to allow oil and gas exploration in the Barents Sea.
Mapping and assessment completed by Norway estimates undiscovered oil in the region to be as high as 8 billion barrels of oil equivalent, up 31% from its previous estimate. The company operates seven rigs in this region and will benefit from the higher oil estimates. Additionally, Transocean LTD (NYSE:RIG) has a contract with Norwegian company, Statoil ASA(ADR) (NYSE:STO), which is planning increases in regional oil production. Due to these beneficial factors, the company’s revenue will increase to $11.04 billion this year, in comparison to around $9.6 billion in the previous year.
In addition to Barents Sea activity, Transocean LTD (NYSE:RIG) is also focusing on the North Sea, as this region accounts for around 12% of the total oil production from mobile offshore rigs. . Weather in this region remains challenging throughout the year and requires the latest technology to drill; Transocean LTD (NYSE:RIG) has the expertise for drilling despite the challenges. Out of total 82 rigs, the company operates around 15 rigs here and considers it to be the second-most important region.
In the North Sea, six harsh-environment floaters operate with a day rate of around $470,000 each. Seven midwater floaters and two jackup rigs are also operating in this region, at a day rate of $300,000. Due the large footprint the company enjoys in the North Sea, it is expected that the inflow of revenue will continue.
Conclusion:
Transocean LTD (NYSE:RIG) will reap the benefits of its advanced technology for extreme climates. The company’s focus on Norway and North Sea will improve the revenue in upcoming years.
Noble Corporation (NYSE:NE) will benefit from production increases in the U.S. and Brazil, driving higher profits for the company.
New contracts for Diamond Offshore Drilling, Inc. (NYSE:DO) will increase revenue, and the company’s spending in technology and projects will result in long term gains.
Therefore, a buy is recommended for all three stocks.
Madhu Dube has no position in any stocks mentioned. The Motley Fool owns shares of Transocean LTD (NYSE:RIG).
The article Don’t Miss Out on These Oil & Gas Drilling Companies originally appeared on Fool.com.
Madhu is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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