Dril-Quip

Dril-Quip Inc. (NYSE:DRQ)

"Dril-Quip, Inc. is one of the world's leading manufacturers of precision-engineered offshore drilling and production equipment that is well suited for use in deepwater, harsh environments and severe service applications. The Company designs and manufactures subsea, surface and offshore rig equipment for use by oil and gas companies in offshore areas throughout the world. Dril-Quip also provides installation and reconditioning services as well as rental running tools for use with its products."

"At its world headquarters located in Houston, Texas, Dril-Quip provides in-house forging and heat-treating capabilities. The world headquarters operates one of the largest rough and finish machining facilities in the industry. Dril-Quip also maintains and operates regional headquarter offices and facilities that include full capabilities in Aberdeen, Scotland, Singapore and Macaé, Brazil."

Market Value: $956 million

P/E 8.86

P/B 1.6

Revenues 9M/08: $407.2 million 2007: $495.6 million(equipment sales 84%, services 16%) 2006: $442.7 million 2005: $221.6 million 2004: $221.6 million 2003: $219.5 million

Operating Income(millions) 9M/08: $108.3 2007: $138.4 2006: $122.4 2005: $49.2 2004: $18.3 2003: $14.5

Operating Margin: 9M/08: 26.6%, 2007: 27.9%, 2006: 27.6%, 2005: 22.2%, 2004: 8.3% , 2003: 6.6%


EPS 9M/08:$1.98 2007:$2.63 2006:$2.15 2005:$0.90 2004:$0.36

Balance Sheet on 30/09/2008

Assets
Current 552.6 million
Total $699.8 million

Liabilities
Current 98.4 million
Total 107.4 million

Backlog: 30/09/2008: $528 million,31/12/2007: $429 million, 30/09/2007: $457 million, 31/12/2006: $336 million

Major shareholders: Founders Larry E. Reimert 6.3%, Garry D. SMith 7.7%, J. Mike Walker 10.1%, Goldman Sachs Group 7.3%, Barclay Global Investors 5.14%


Competition (mcap): Cameron ($5.08 billion) P/E 8.37, P/B 2.1(ex-goodwill 3.1), FMC Tech.($3.7 billion)P/E 11, P/B 4.3, NOV P/E 5.66, P/B 1.12(ex-goodwill ~1.5) Aker Solutions($1.2 billion), VetcoGray & Hydril(both are part of GE)

-Dril-Quip manufactures: subsea wellheads, subsea productions trees(market share 4%), production and drilling risers, specialty connectors, mudline suspension systems

-"In 2007, the Company’s top 15 customers represented approximately 51% of total revenues, with no customer accounting for more than 10% of the Company’s total revenues"

-"The Company has substantial international operations, with approximately 66%, 65% and 69% of its revenues derived from foreign sales in 2005, 2006 and 2007, respectively"

-"The Company's manufacturing process is vertically integrated, producing inhouse,majority of its forging requirements and essentially all of its heat treatment, machining, fabrication, inspection, assembly and testing."

Notes: P/B seems low compared to most peers and the balance sheet looks solid. The Brazilian manufacturing operations may be major advantage in the future. The lack of a dividend is a minus, but most of its peers don't pay dividends.
A severe and prolonged global economic down term may slow down the growth offshore oil production, but the long term trend is clear and strong: offshore is the place where the remaining significant deposits are. DRQ could be one of the biggest beneficiaries of Brazil's pre-salt hydrocarbon discoveries.
DRQ's vertical integration has been a big plus in recent years when the demand for subsea equipment has outpaced supply, however if demand falls significantly those inhouse resources become underutilized and turn from an asset into a liability.
The operating margin is at an unsustainable level and will most likely fall in the range of 9 to 15 percent(the five year average for FMC Tech. is 12.12%). Revenue will most likely dip by 20 to 40% during next 18-24 months after which it'll resume on the path of growth and the 2008 level will be surpassed in 2011 at the latest.

FORECAST: Subsea spending to exceed US$80 billion

E&P Energy Trust Returns

Top three Canadian E&P energy trusts based on 12 month unit price appreciation/depreciation:

1.Daylight Resources Trust(DAY.UN) +7.5%
2.Crescent Point Energy Trust(CPG.UN) -1.3%
3.Baytex Energy Trust(BTE.UN) -20.9%

In this twelve month period DAY.UN paid C$1.38 in distributions, CPG.UN C$2.64 and BTE.UN C$2.64. During the same period the TSX Capped Energy Index returned -35.3%.

The production profile of these trusts is diverse: CPG's production is 84% light/medium oil, BTE 57% heavy oil and DAY 69% natural gas. Changes in average daily production:
DAY Q4/07: 20 583 boe/d Q3/08: 21 782 boe/d change: +5.8%

CPG Q4/07: 33 351 boe/d Q3/08: 37 630 boe/d change: +12.8%

BTE Q4/07: 39 304 boe/d Q3/08: 42 538 boe/d change: +8.2%

Rig Count

The number of active oil & gas rigs in the U.S. drops by 43 units(5 in offshore). Drilling activity in Canada however increases by 6 rigs from last week.
BH Rig Count

O&G Inquirer: Weak Or Worse: Field Activity Will Likely Decline, Perhaps Steeply

Selected quotes:

"Herring strongly doubts that the oil and gas sector now faces a long 1980s-style spell of poor commodity prices. The repeated downturns of the 1980s and early '90s, in his view, were caused by economic weakness (and thus weak energy demand) coupled to ample energy supplies, especially for natural gas. "Even if the world economy does not expand as rapidly as it has in the recent past, global energy supplies are now much closer to the razor's edge. More oil and gas activity has to occur or there won't be enough supply to meet the demand," the CAODC president comments."

"Furthermore, it's getting harder to tap new oil and gas supplies, which means more work for service companies. "In 2007, the average well took 7.4 days to drill, compared to nine days in 2008. That's a material difference," Herring says. For 2009, the CAODC anticipates that the trend toward more drilling days per well will continue, driven by unconventional gas plays in British Columbia, the Bakken tight oil play in Saskatchewan, and deeper natural gas wells generally."

"According to the Calgary-based consulting firm, a producer requires $9 per Mcf to earn a 15 per cent return on a full cycle basis from newly drilled natural gas wells. (Ziff's figures include $2 per Mcf for drilling; $1.50 for processing, pipe, and other wellhead facilities, $1.25 for operating costs, administrative overhead of $0.50 or so, and $1.75 in Crown royalties.) The Alberta spot gas price this fall was less than $7 per Mcf and now it is below $6. "At that price, a producer suffers a technical loss if its costs are average," Gwozd says."

"The first step in oil and gas development is seismic surveying, and the geophysical sector's health is traditionally seen as a signal of what could be coming for other services in conventional oil and gas. "For our members, 2008 was the worst year in a decade. It was almost unbelievably bad," says Mike Doyle, president of the Canadian Association of Geophysical Contractors [CAGC]. "The first quarter was decent. Then we got hammered by the Alberta government royalty review, the high Canadian dollar [versus the U.S. dollar], and finally the global financial crisis.""

The outlook for North American natural gas producers(and drillers) looks very bleak: domestic and foreign supply is up, consumption is down(at least temporarily), production costs are increasing and these increases are mostly irreversible as they are due to geology. Ironically it looks like only politicians could improve the situation.

Canadian Oil Sands Trust Q4

Net Income C$124 million (-75%)

Net Income per trust unit C$0.26 (-75%)

Operating Costs per barrel C$32.10 (+17%)


The Report

Update:Canadian Oil Sands Trust a buy target?

World's First Drilling FPSO Heads to Congo for Azurite Deepwater Operations

RIGZONE:

"The world's first Floating, Drilling, Production, Storage and Offloading vessel (FDPSO), which is owned by Prosafe Production, has left Keppel Shipyard in Singapore on January 24, 2009. After a short stay at anchorage, it will head for the Republic of Congo where it will be deployed at Murphy West Africa Ltd's (a subsidiary of Murphy Oil Corporation) deepwater Azurite development in the Mer Profonde Sud Block.

In November 2007, Prosafe was awarded a $400 million contract for the conversion and operation of a Floating Drilling, Production, Storage and Offloading unit. Named the Azurite, this first of its kind FPSO with drilling capabilities incorporates a design that is cost efficient and effective for drilling and producing deepwater fields.

The vessel is equipped with a modular drilling package that can be removed and reused elsewhere when the production wells have been drilled. The Azurite has a storage capacity of 1.4 million barrels of oil and a process capacity of 60,000 bfpd/40,000 bopd and will be spread-moored at a water depth of 1,400 meters."

Dockwise

Dockwise Ltd.(OSE:DOCK)

"Dockwise Ltd. is the Bermuda domiciled/resident holding company of the Dockwise group. The Dockwise group of companies comprises four global operating companies that provide specialty services primarily in the heavy marine transport and the oil and gas services industries."

"Dockwise operates in 6 different market segments:
Offshore Structures: all fixed and mobile structures used for the production of Oil & Gas, i.e. jackets, modular topsides, floating production units, SPAR buoy’s, TLP’s and semi-submersible platforms. Drilling Rigs: this segment includes 2 sub segments: jack-up drilling rigs and semi-submersible drilling rigs. Military: all military related transports, i.e. submarines, mine sweepers/hunters, dry-docks, radar platforms and all associated logistics services as well as testing.
Cranes: all container terminal related heavy equipment such as: pre-assembled container cranes, rubber tired gantry cranes, etc. Port & Marine Infrastructure: this segment includes all equipment associated with building and operating of marine infrastructure, i.e. dredging equipment, floating cranes, grain elevators, power barges, transport barges, dry-docks and yard facilities, etc. Yachts: Transportation of luxury yachts."

Market Value: 1.086 billion NOK(~$159 million)

Revenue: 2007: $290.1 million(Heavy lift 86%, Yacht transport 14%) 2006: $252.0 million 2005: $208.3 million

EBITDA 2007: $104.53 million 2006: $101.8 million 2005: $89.3 million

Order Backlog: 30.09.2008 $412 million, 31.12.2007 $233 million

EPS: FY2007: $-0.43

Total Assets(30/09/2008): $1,700 million

Total Liabilities: $1,700 million

Fleet: 14 semi-submersible open deck vessels, 3 Dock-type vessels,4 Yacht Carriers

Top Five Shareholders: INVESCO Asset Management Limited 6.3%,Franklin Templeton Investment Management Ltd.6.3%, ODIN Forvaltning AS 5.4%, Schroder Investment Management Ltd. 2.4%, Wellington Management Company LLP 1.9%

Dockwise was offloaded to the Oslo Stock Exchange by the British private equity group 3i and crude carrier Frontline in 2007. Like most public companies that have recently been in the hands of private equity Dockwise is loaded with debt. All the cash that the company generates is used to pay interest and reduce debt and there are currently no earnings to report.

With the increase in offshore oil exploration and production in the recent years and in the future the transportation of drilling vessels, production installations and large components will grow significantly. The risks of this business are very real and significant, example one and two.
In the end of September the company had a order backlog $412 million including contracts that will be executed in 2014. Great majority of the heavy transport contract are completed months or years prior to the actual transportation, which should provide visibility into the development of Dockwise's business.

Dockwise pr-video(Youtube)

Sunny days for breakbulk(from 2007)

Total heads for the Hills

As it bids for UTS Energy, which has a 20% stake in the Fort Hills tar sand project.

also

Total said it may delay start-up of its Joslyn oil sands project in Canada

Total's move for UTS is interesting as the costs of the Fort Hills project have been sky rocketing and the break-even level for the synthetic crude oil or bitumen to be produced is estimated to be between 45 and 100 dollars per barrel. The only advantage that the tar sands have in the current economic and political environment is their location on soil where property rights are respected. It seems that this single advantage outweighs the large number of disadvantages associated with tar sands(high costs, low yielding products, significant environmental impact etc.).

Canadian Midstream Income Funds

Wiki: "The midstream industry processes, stores, markets and transports commodities such as crude oil, natural gas, natural gas liquids (LNGs, mainly ethane, propane and butane) and sulphur."

Keyera(TSX:KEY:UN)

"Keyera operates one of the largest natural gas midstream businesses in Canada. Its three business lines consist of: natural gas gathering and processing; the processing, transportation, and storage of natural gas liquids (NGLs) and crude oil; and the marketing of NGLs."

Market Value: C$1.090 billion

P/E: 6.9

Yield: 10.381%(C$0.15/month)

Payout Ratio: 78%(9m/2008),63%(FY2007)

Revenues: 1.479 billion(Marketing 84.5%, Gathering and Processing 12.5%, NGL Infrastructure 3%)

Total Assets: 1.618 billion(goodwill 71 million)

Total Liabilities: 1.021 billion

-"Diluent Key to Keyera’s Oil Sands Strategy: In-situ oil sands producers require diluent to enable bitumen to flow to upgraders for processing->Condensate is the preferred diluent"

-"Likely to consider a conversion to a corporate structure in 2011 or 2012"

-Keyera Midstream 101 video


Pembina Pipeline Income Fund (TSX:PIF.UN)

"Pembina’s business is structured in three key segments: Conventional Pipelines, Oil Sands Infrastructure and Midstream. Pembina has an extensive network of conventional pipelines in Alberta and British Columbia ("BC") that provide dependable, cost effective transportation service to approximately 65 customers. During 2007, these pipelines collectively moved approximately 450,000 barrels per day of conventional crude oil and natural gas liquids (NGLs).Pembina has 775,000 bpd of fully contracted synthetic crude oil transportation capacity in three distinct pipelines serving customers in the Athabasca oil sands region. The Midstream & Marketing business consists of Pembina's 50 percent non-operated interest in the Fort Saskatchewan Ethylene Storage Facility and the wholly-owned terminalling, storage and hub services operated across segments of Pembina's conventional pipeline systems."

Market Value: C$1.888 billion

P/E 12.11

Yield: 11.040%(C$0.13/month)

Payout Ratio: 97%(9m/2008), 95%(FY2007)

Revenues(2007) C$504,788 million(Conventional pipelines 49.5%, Midstream business 38.5%, oil sands infrastructure 12%)

Total Assets: 2.121 billion(goodwill 356 million)

Total Liabilities: 1.222 billion

*"Plans to convert to a dividend paying corporation by the end
of 2010"

Inter Pipeline Fund(TSX:IPL.UN)

"Inter Pipeline is an integrated energy infrastructure business that owns and operates four business segments:Conventional Oil Pipelines, Oil Sands Transportation, NGL Extraction, Bulk Liquid Storage"

Market Value: 1.754 billion

P/E: 7.33

Yield: 11.053%(C$0.07/month)

Payout Ratio: 63.5%(9m/08), 83.8%(FY2007)

Revenues: 1.144 billion(Oil sands transportation 9.5%, NGL extraction 66%, Conventional oil pipelines 11%, Bulk liquid storage 13.5%)

Total Assets: C$3.964 billion(including 220 million of goodwill)

Total Liabilities: C$2.889 billion

-"Canada’s largest oil sands gathering business", Oil Sands production volume is estimated to grow ~200% by 2020

-Conventional oil pipeline and NGL extraction revenues are partly based on commodity prices(~30% of '08 cashflow)

Fort Chicago(TSX:FCE.UN)

"Fort Chicago Energy Partners L.P. is a publicly traded limited partnership.Fort Chicago owns and operates energy infrastructure assets across North America within three principal business segments - pipeline transportation, natural gas liquids ("NGL") extraction, and power."

Market Value: 1.046 billion

P/E: 9.94

Yield: 12.815%(C$0.083/month)

Payout Ratio: 72%(9m/2008),70%(FY2007)

Revenues: 589 million(Pipeline Business 61.5%, NGL Business 34.5%, Power Business 4%)

Total Assets: 3.013 billion(goodwill 19.9 million)

Total Liabilities: 2.216 billion

-"Based on WTI crude price of US $40 to US $60 per barrel and a Henry Hub
natural gas price of US $6 to $8 per mmbtu, Forecast 2009 distributable cash expected to be in the range of $0.94-$1.23, down from 2008 due to market turmoil"

-"No required debt refinancing in 2009"

E&P Companies Demand Discounts

Exploration & Production companies operating on the Norwegian Continental Shelf are demanding 20-30% price reductions from service and equipment suppliers to current and future contracts, because of the drop in energy commodity prices.

DN:Aldri vært med på lignende

Other news
Rowan cancels and suspends jackup construction

Schlumberger cuts

Baker Hughes cuts

Petrobras's Business Plan 2009-2013

"The Business Plan 2009-2013 has established the following oil production targets in Brazil: 2,680 thousand barrels of oil per day (bpd) in 2013, 3,340 thousand bpd in 2015
and 3,920 thousand bpd in 2020. In addition to the Tupi Pilot System, to begin production in 2010, three systems are scheduled to go into production in the pre-salt layer of the Santos Basin during the period 2009-2013: Tupi 1 and Guará 1 in 2012 and Iara 1 in 2013. The 2015 target in the 2008-12 Business Plan of 2,812 thousand bpd has been increased by 528 thousand bpd as a result of these additional production projects.

Including natural gas production, domestic output will reach 3,310 thousand barrels of oil equivalent per day (boed) in 2013, 4,140 thousand boed in 2015 (685 thousand
boed more than for the 2008-12 Business Plan) and 5,100 thousand boed in 2020."

"The plan, which for the first time includes investments in the pre-salt area in Santos Basin, envisages total investments of US$ 174.4 billion in 2013, . This represents an annual average of US$ 34.9 billion, 90% of which (US$ 157.3 billion) in Brazil and 10% (US$ 16.8 billion) abroad and 55% more than the previous Plan."

"Despite the current financial crises potential impacts in the short term oil demand, in the long term, the supply of oil is still expected to be lower than the demand due to depletion in the existing production fields. Petrobras uses the average Brent price assumption of US$ 42 per barrel for its analysis of financiability, leverage targets and rates of return. The Plan also contemplates the analysis of the world production growth, exchange rate and oil and oil products price assumptions."

Da Plan(pdf)

Very ambitious numbers, the oil price assumption is rather prudent.

US Rig Count drops By 53 Units

UPSTREAM:

"The number of rigs actively exploring for oil and natural gas in the US, dropped by 53 this week to total 1515.

Of the rigs running nationwide, 1185 were exploring for natural gas and 318 for oil, Houston-based Baker Hughes reported."

The number of active offshore rigs in the United States fell by 4 to 65.

First OrCrude Synthetic Crude Produced

OPTI:

"OPTI Canada Inc. (OPTI) is pleased to announce
the start-up of the Long Lake Upgrader and production of its first Premium
Sweet Crude (PSC(TM)). The Long Lake Project (the Project) includes a steam
assisted gravity drainage (SAGD) project integrated with on-site upgrading
using the proprietary integrated OrCrude(TM) process, combined with
gasification and hydrocracking, that is expected to yield the highest quality
synthetic crude oil to come from Canada's oil sands with low operating costs."

"Based on industry experience, we anticipate that the Upgrader will ramp up to full design rates of approximately 58,500 bbl/d of high quality, 39 degrees API PSC(TM) and
other products in 12 to 18 months."

The break-even level for Long Lake OrCrude is above C$35 and the current price for Light Sweet Crude at Edmonton is C$46.

Libyan Terror Chief Plans Theft

Upstream: Gaddafi talks nationalisation

Libyan leader Muammar Gaddafi said today he was looking into nationalising oil companies due to low crude prices and suggested Tripoli might not meet Opec production quotas...

Hopefully these are just empty ramblings of a mad man. If he's serious Verenex will be decimated.

Update
Is Libya Going To Boot U.S. Oil Companies?

Just a bluff?

Noble Corp. Q4

Offshore driller Noble(NE) reports Q4

Revenues(MUSD) 910 (+9.5%)

Operating income(MUSD) 514(+21%)

Net income per share $1.59 (+23%)

Balance Sheet

Total Assets (MUSD) 7,102(+20%)

Total Liabilities(MUSD) 1,817 (+15%)

Outlook

"While we believe the long-term fundamentals of our industry are sound, the condition of the global economic environment is clearly a cause of concern and a reason for caution," said Williams. "That said, the strength of our balance sheet, the extent of our contract coverage and the quality of our customer base should position us well to both weather the current economic storm and capitalize on opportunities for growth in a disciplined manner."

The Report

Surprises: Non.

News(Oil-Gas-Offshore)

ExxonMobil tastes oil at 'mega prospect'

"US supermajor ExxonMobil has notified Brazilian regulatory authorities that it has detected hydrocarbons on a deep-water pre-salt prospect that is billed as the biggest yet in the emerging Santos basin province."

"Marcio Mello, a respected Brazilan petroleum geologist who worked on the pre-salt concept with Petrobras before setting up his own consultancy, has predicted that Azulao alone will land the BM-S-22 with recoverable reserves of more than 10 billion barrels."

NZ Sees Bright Future with Major Offshore Oil Finds

"Confirmation of large oil fields in the offshore waters of New Zealand could provide a step change in national income for the country, an energy briefing to the new Minister of Energy and Resources Gerry Brownlee says.

The Vote Energy briefing from the Ministry of Economic Development made public by Brownlee, says there are potentially several 1-10 billion barrel oil fields in the Great South Basin alone.
Any discoveries would perhaps allow New Zealand to follow in the economic footsteps of Norway and emerge as a serious source of energy for the world, the briefing says..."

Tullow Makes 17 Discos in '08, Boasts 100% Exploration Success in Africa

"100% exploration success in 2008 in Ghana and Uganda. 17 discoveries from 22 wells in overall drilling program;
In Ghana, Jubilee field appraisal confirms major resource potential of up to 1.8 billion barrels and a most-likely case of up to 1.2 billion barrels"

Lebanon cautions over Israeli gas discovery

"The discovery, which may be the largest ever made by operator Noble Energy, is in the Matan license offshore Israel. The Tamar No. 1 well, in water depths of around 5,500 feet (1,676 m), was drilled to a total depth of 16,076 feet (4,899 m) by Atwood Oceanics semi Atwood Hunter"

Bid for Basra autonomy vote fails

Gobert: Signs of a gas bottom

Financial Post:

"A recovery in crude oil prices is directly and wholly dependent on OPEC balancing world crude markets by reducing OPEC supply."

"The North American natural gas market is different. Except for a small quantity of LNG imports, and primarily during the summer, more than 90% of consumption is supplied within North America. The economic recession and demand destruction, such as the closing of industrial plants, is causing a decline in consumption. In the absence of a supply response, an economic recovery would be needed to balance the market."

"Fortunately, natural gas supply is very price elastic and production rates decline much faster for new gas wells than for oil wells. Natural gas wells lose 30% or more of their production capacity after the first year and more than 50% after two years. Up to 50% of North American gas production comes from wells drilled during just the past five years. Total industry production capability from existing wells declines by an average of more than 20% per year. In the absence of a sufficient quantity of new wells being drilled, supply goes down."

I think that the price of natural gas has bottomed(or is very near it), because we're currently($4.80) near the break-even levels for most North American unconventional gas plays. The demand may still drop as the weather gets warmer and industrial output winds down.

Pemex To The Rescue?

Mexico Looks to Play Catchup with Deepwater Oil Exploration

"While the U.S. has spent two decades scouring the deep waters of the Gulf of Mexico for oil, neighboring Mexico is just getting started.

Output from Mexico's traditional fields is in free fall, forcing state-run Petroleos Mexicanos to move into more difficult terrain in an effort to maintain its status as a major crude exporter.
Pemex is paying the price for the late start. It expects to see its first barrels from fields in waters deeper than 1,640 feet in 2015. By 2017 the company forecasts 92,000 barrels a day in deepwater output, a fraction of total production and not enough to offset the 500,000-barrel-a day decline it expects to see at the giant Cantarell oil field over the next nine years."

"This week Pemex said it plans to drill 27 wells in waters deeper than 1,640 feet from 2008 through 2012, compared with six from 2004 through 2007. Pemex planned to drill three last year but hasn't released any results.

Pemex Chief Executive Jesus Reyes Heroles said the company's exploration campaign could benefit from the downturn in oil prices. There was a huge backlog for deepwater platforms when Pemex placed its orders because record oil prices drove a boom in offshore oil development. Now some oil companies are slashing offshore budgets owing to the oil price drop and tight credit markets, and some platforms could free up."

"Pemex says it has 53.8 billion barrels of potential oil reserves, of which 54.8% are in waters deeper than 1,640 feet."

The move into deep water exploration is not a choice for Pemex, it is mandated by it's rapidly declining production and by it's reserve profile. The long term fundamentals for deep water drillers remain strong as it becomes more and more clear that the deep water ocean floor has the most potential for significant oil discoveries.

US rigs down by 21

Upstream:

"The number of rigs actively exploring for oil and natural gas in the US, dropped by 21 this week to total 1568.

Of the rigs running nationwide, 1235 were exploring for natural gas and 324 for oil, Houston-based Baker Hughes reported.

A total of nine were listed as miscellaneous. A year ago, the rig count stood at 1732..."

Morgan Stanley's Ola Slorer Bullish On Oil Service Companies

Morgan Stanley's analyst Ola Slorer sees 300-500% upside in oil service company stock's in the next 3-5 years.

DN:Aldri vært mer "bullish"

Transocean Cancels Rig Deal

Upstream:

"Offshore driller Transocean has canceled a record $550,000-a-day rig lease with Burgundy Global Exploration after the energy company failed to deposit cash in escrow..."

Deep water exploration is due to it's high costs reserved for E&P majors. To me it seems that Burgundy was trying chew more than it could swallow and it's timing was way off.

Verenex strikes again

Verenex confirms oil and gas discovery in Libya at H1-47/02 well

"CALGARY, Jan. 12 /CNW/ - Verenex Energy Inc. ("Verenex" or the "Company")
(TSX - VNX) is pleased to provide an update of its operations in Libya and to
confirm an oil and gas discovery at the H1-47/02 new field wildcat ("NFW")
exploration well in Area 47 in the Ghadames Basin. The H1 discovery is the
Company's tenth oil and gas discovery in Area 47 since drilling began in
September 2006. The Libyan National Oil Corporation ("NOC") has also announced
this discovery..."

By the end this month there should more information on Verenex's future. The likeliest scenario is that the company will bought by CNPC, Pertamina or RWE.

Petroleum Related Humour

The Onion: Texas Oil Buffoon Pumping 8,000 Barrels Of Oil Into Ground Every Day

Youtube Classic by "Horsecents": Peak Oil debunked in 4 minutes

Daily Show: Aasif's Oil Chart,

My Name is Oil

Rig Count In Steady Decline

The number of active rigs in the US fell by 34 units from the week before and the count is 155 below what it was at the same last year.

2 x Cancellation

Scorpion cancells it's order for a deep water semisubmersible and Lewek Shipping scrappes it's order for a multi-function support vessel.

To my surprise SDRL continues with construction of the four premium jackup's:

"Seadrill has agreed with the PPL Shipyard and Keppel FELS to make certain amendments to the construction agreements for four new jack-ups entered into in June last year.

Seadrill initially ordered two jack-ups at the PPL Shipyard and two jack-ups at Keppel FELS for delivery scheduled in 2010. In the amendments to the existing contracts the yards have agreed to postpone all remaining milestone payments for the second units to be built at both yards until delivery and revise the milestone payment schedule for the first two units. Seadrill has agreed to issue corporate guarantees for the remaining instalments on the first two units, however, no corporate guarantees have been provided for payments of the second units at the yards. As such, the construction of all four newbuilds will continue under the project supervision of the current project teams sponsored by Seadrill.

Alf C Thorkildsen, Chief Executive Officer in Seadrill Management AS, says, "These amendments to the existing contracts mirror Seadrill's strong industrial relationship with the Singaporean yards. We are confident that these arrangements serve the best interests of the involved parties."

Oil service companies - welcome to hard times!

An article by Oil Voice's David Bamford on service company outlook.

"During the recent surge in oil prices to almost $150 per barrel, ‘oil patch’ costs have risen substantially, arguably relatively more than the oil price, squeezing oil & gas company margins which were in fact higher in % terms at $30 per barrel than at $100 plus. Meanwhile large amounts of money have sloshed in the direction of most oil field service companies: only occasionally have their prices contained a willingly-paid premium for new or top-of-the-line technology – mostly they have been the result of a deep demand/supply imbalance, to the advantage of these suppliers."

"Secondly, we are beginning to see the beginnings of a consolidation phase in which a significant percentage of oil field service companies’ customers will disappear as Majors and Independents once again find it both opportune and cheaper to “explore on Wall Street” to fill portfolio gaps, by acquiring reserves-rich competitors."

"Although specialised, deep water drillers have been able to negotiate 3+year deals for 4th and 5th generation rigs; such extremely predictable revenue is not available, say, to drillers onshore in North America."

"The shape of the future is not yet clear but the following may well be important themes for those, such as seismic companies, that are more exposed to capital expenditure cut-backs:

1. At least 80% of the world’s reserves are in the hands of government-owned NOCs such as Saudi Aramco, the Iranian NIOC, the Libyan NOC, Venezuela’s PdVSA etc and less than 20% in the hands of public companies such as ExxonMobil, BP, Total etc.

2. By and large, where the oil field services sector (especially the seismic companies) got into “dire straits” last time around was by pandering to the wishes of the ‘owners’ of the “20%”, in particular the explorers amongst them.

3. Surviving and even prospering during the next down-turn may seem to depend on building relationships of “mutual advantage” with NOCs, and also on focusing on reservoir management, as opposed to exploration and appraisal."

"...one could imagine that a Russian company such as Integra could grow to be a player on the global stage."

"My prediction is that that 2009 and 2010 will see a major re-shaping of the oilfield service company landscape as the Majors, the bigger IOCs, the NOCs and host governments assert – or re-assert – themselves…"

Painted Pony Petroleum

Painted Pony Petroleum Ltd. TSX-V:PPY.A and PPY.B


"Calgary, Alberta based junior oil and gas company. Completed initial public offering in May 2007 into a tax-loss company, started trading on TSX.V. Bought NE BC assets March 2008"


Market value(05.01.2009): C$49 million

P/E: 7

Production: YTD average 622 boe/d, September-08 production 1060 boe/d, Light Oil 49%, 51% Natural Gas+NGL+Condensate

Operating Costs: 9 months/08 C$8.29/boe(C$9.10)

Netbacks: 9M/08: $57.87($87.82 for crude oil and $24.68 for Gas&NGL) with WTI at C$111.7

Reserves: no official estimate yet. The company controls 80 net sections of Bakken-land. According to PPY there are 4 to 6 million bbl's OOIP per section. Petrobank estimates that there are 600 000 bbls of 3P reserves on every section, Tristar Oil & Gas's estimate for their Bakken-land is 500 000 per section. 80x500 000=40 million bbl's. The recovery factor used in the estimates of PB and TOG may be doubled through the use of water flooding and so there is significant potential upside.
In addition to the Bakken operations the company has 88 700 acres of potential shale gas land in NE British Columbia(see Montney) and 480 boe of daily natural gas production.

Total assets: C$100,933,521

Total debt: C$21,051,736 of current liabilities, no long term debt

"To date, Painted Pony has not undertaken any hedging or commodity price contracts."

"Painted Pony continues to develop its land base through drilling to earn land, freehold leasing and participation at crown land sales. By the end of October, 2008, the undeveloped land within Saskatchewan was over 51,000 net acres."

"At the end of September 2008, the Company had a positive working capital position of $21.3 million and nothing drawn on the two bank credit facilities totalling $22.0 million."

*"Directors and mgmt own 18% of current outstanding shares, based on votes"

Analysis or something resembling a one: The company has no net debt and is likely to have 40 to 100(through water flooding) million barrels of light of oil(>41 API) in reserves. The flow rates in the Bakken are very slow: on average 50-200 bbl's per day per well. The Saskatchewan Bakken oil is commercially viable with the price of oil at 40 dollars per barrel according to Crescent Point Energy Trust(which is the biggest operator in the Canadian Bakken). If the company earns merely 2 dollars per barrel from the oil produced from Saskatchewan and one uses the 40 million barrel estimate for the recoverable oil reserves, the net value for the Bakken assets would be 80 million dollars, which is 60% higher than the current market value. This estimate assumes no value for the BC operations, which are already producing natural gas and generating cashflow. I would estimate that with WTI at $60(long term average?) and recoverable reserves of 40 million bbl's there is potential upside of >600% in the share price.
Access to funding at the moment is difficult for most companies and damn near impossible to oil & gas and mining juniors. PPY's financial situation is adequate, as it had in the end of 3rd quarter a positive working capital of 21 million, undrawn credit lines worth of 22 million and cashflow generating assets. PPY should be able to maintain and even increase it's production in the near future without new capital.

3rd Quarter 2008 Gasoline Use in California Declined 6.1%; Diesel Use Dropped 10.4%

GCC:

The California State Board of Equalization (BOE) released gasoline and diesel consumption figures for September and complete figures for the third quarter of 2008. The third quarter of 2008 marked the tenth consecutive three-month period to show lower gasoline consumption. In the third quarter of 2008, Californians used 242.6 million gallons less than the third quarter last year—a decline of 6.1%.