Clear Sailing at Atwood Oceanics

(MoneyWatch) 

• The Company: Atwood Oceanics, a Houston-based global offshore drilling company.
• The Filing: Form 8-K filed with the SEC on June 25, 2008.
• The Finding: Atwood announced a new contract for its moored semisubmersible rig "Atwood Hunter," which can operate at water depths up to 5,000 feet and drill down to approximately 28,000 feet, commencing in Sept. 2008, for a four-year term with Kosmos Energy and Noble Energy to pursue deepwater drilling opportunities offshore West Africa. Given record prices in the contract of $511,000 to $545,000, Atwood will likely exercise an option with Jurong Shipyard to begin construction on a $590 million floater before a looming June 30 deadline.

The Upshot: The sun has yet to set on the horizon for deepwater rig operators like Atwood. The new contract price represents a 64-75 percent increase over average dayrate prices of $312,000 generated by the Atwood Hunter during the first three months of FY 2008 ended March 31.

Higher oil prices will continue to drive offshore drilling rates higher over the five-year period to 2012, according to the latest (April 2008) edition of The World Offshore Drilling Spend Forecast: 2008 - 2012, published by Douglas-Westwood.

The real growth story lies in deep water drilling. In 2007, oil and gas exploration companies spent almost $18 billion on deep water drilling. By 2012, deepwater expenses are forecast to increase more than 40 percent to $25.2 billion per annum.

Shortages of skilled labor to man the rigs, too, has not stopped oil and gas customers --who are desperate for rigging -- from signing commitment letters for rigging operations five years out, with escalating contract price clauses.

The Question: With pressure mounting here at home for Congress to approve offshore drilling, where will the rigs come from to pursue exploration?