* 100 new rigs to enter fleet over next two years
* More detail sought from execs on potential contracts
* Transocean pulling 3 rigs off market seen as bad sign
By Braden Reddall and Thyagaraju Adinarayan
SAN FRANCISCO/BANGALORE, April 18 While it
seems things can only get better for offshore drillers as they
put the Gulf of Mexico disaster behind them, executives face
hard questions about the shape and timing of that recovery.
Their first-quarter earnings are expected to represent the
low point for 2011, and the sector's prospects have been buoyed
somewhat lately as permitting in U.S. waters picks up, however
slowly, and a barrel of oil fetches more than $100.
"If this isn't the worst quarter of the year, they're in a
lot of trouble," said Brian Uhlmer, analyst at Global Hunter
Securities, who wants to hear more specifics on potential deals
for the many newly built rigs coming on the market this year.
In addition to those, plans for dozens of new rigs have
been announced in the past two quarters, along with repeated
assurances from executives that work will be found for them.
"Here we are in April, and we have not seen anything really
constructive to benefit these guys," Uhlmer added.
In fact, last week, sector leader Transocean Ltd RIGN.VX
announced it had pulled three floating rigs from the market,
knocking 3 percent off its shares on Friday. [ID:nN14100685]
Noble Corp (NE.N), the No. 2 player by fleet size, reports
first-quarter results on Wednesday -- exactly a year after a
blow-out destroyed Transocean's Deepwater Horizon, causing a
disastrous spill that stalled drilling for months.
The day after Noble's, earnings reports will come from
Ensco Plc (ESV.N), which will overtake Noble through its Pride
PDE.N acquisition, and Diamond Offshore Drilling Inc (DO.N).
Transocean and deepwater rival Seadrill Ltd (SDRL.OL) are
due to report earnings next month. (For a table on earnings
expectations, click here link.reuters.com/sat98r )
ANYONE NEED SOME RIGS?
As owner of the largest fleet, Transocean's move to pull
rigs off the market bodes ill for others in an industry where
the rates paid for rigs reflect overall global demand.
Hopes for a big near-term draw from major deepwater regions
such as Brazil and the Gulf of Mexico have been dashed.
Petrobras (PETR4.SA) canceled a recent tender for rigs, with a
new one expected in the months ahead, while U.S. regulators
have issued only 10 deepwater permits since late February.
David Smith, analyst at Johnson Rice & Co, says this works
out to an average of 1.5 permits per week, whereas the 29
deepwater rigs still in the Gulf of Mexico would need about an
average of two per week to maintain steady work all year long.
While he would not hazard a guess on timing of the
recovery, Smith believed rising U.S. gasoline prices would help
increase political pressure to speed up Gulf permitting.
"Not because the oil industry is that much more motivated,"
he said, "but because voters outside the Gulf Coast states are
drawn into the political debate, and their representatives are
likely more inclined to work toward increasing domestic oil
Far more drilling will need to take place somewhere if the
industry is to avoid a rig glut, with 100 new ones due over the
next two years to enter a global fleet that is now less than
600 strong. [ID:nN31126320]
"It's unbelievable how much capital is being put to work,"
Uhlmer said of all the building. "Each asset may look like a
good investment, until you've built 100 of them."
Estimates for offshore drillers' earnings already assume a
return to normal operations in the Gulf of Mexico by 2012,
according to Smith at Johnson Rice.
So Smith, speaking late last week, said diversified
oilfield service companies such as Baker Hughes Inc (BHI.N) and
Halliburton Co (HAL.N) had even more to gain from increased
offshore work, since a deepwater rig provided 15 times as much
revenue opportunity for them as a land rig.
On Monday, Halliburton posted a better-than-expected
profit, driven by increased U.S. land activity.[ID:nN15257560]
(Reporting by Braden Reddall in San Francisco and Thyagaraju
Adinarayan in Bangalore; Editing by Gary Hill)