Deep-Water Winners in the Gulf of Mexico

Which firms will benefit the most from higher levels of deep-water activity?

Stephen Ellis 15 March, 2010 | 2:30PM

The Gulf of Mexico deep-water market offers an attractive combination of relatively stable regulatory and political markets, combined with substantial reservoirs. For the services firms, the market promises to be a gold mine, as using recent projects as a benchmark, we expect $30 billion to $40 billion in services spending during the next five years. Offshore drillers such as Transocean have the opportunity to share about $15 billion to $20 billion in revenue, while subsea specialists such as FMC Technologies and Cameron can target about 300 trees and associated subsea systems, which is an estimated $5 billion to $6 billion market. We think Technip is particularly attractively positioned, as it has worked on a number of projects in the region, such as Constitution, Greater Chinook, and Na Kika. The firm's deep experience in the region means it should be first in line to secure a substantial amount of work for BP's Kaskida and Tibor discoveries.

Gulf of Mexico Winners
In the short run, we think there are several key considerations to securing deep-water work in the Gulf of Mexico. The attributes are experience, financial stability, and asset availability. We think price is a secondary consideration in a region where the wells being drilled are pushing up against the very limits of today's technology. In our view, Transocean, Technip, and FMC Technologies are poised to secure a substantial portion of the development work on the early-stage discoveries in the Gulf of Mexico during the next few years.

Transocean has more deep-water rigs than anyone else in the Gulf of Mexico. The company's 17 rigs combined with more than 300 rig-years of deep-water experience mean that when a rig is available, Transocean has an edge over its peers. The firm has set several world records in the region, including drilling the deepest gas well ever for BP at more than 35,000 feet, and operating in more than 10,000 feet of water while working for Chevron. The company has a blue-chip roster of Gulf of Mexico clients, which in addition to BP and Chevron, also includes ENI and Anadarko. The customer base sets up Transocean for future work as it provides drilling services to the owners of 11 of the 16 major early-stage discoveries that we track.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
BP PLC300.35 GBX-0.69

About Author

Stephen Ellis  Stephen Ellis is a senior stock analyst on the Energy Team.

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