Many analysts in the oil industry can’t believe nor explain the inevitable rebalancing of the global oil market. According to many, the price curve of the oil market will remain flat up to next year or even the year to follow. Even the IEA and OPEC are conservatively projecting $60 by the end of 2017.
In searching for investment opportunities in the oil industry, many investors tend to shy away from certain sector especially offshore drillers. However, offshore players are always the biggest winners as a result of price hikes which make the stocks to go up.
Offshore works have for many years ran above demand and needs to be cut out. The need to develop offshore assets has been overshadowed by onshore assets as well as the short and flexible commitments required to bring those in the market. Offshore assets on the contrary, need long term capital and crews commitments.
Leading offshore players like Transocean LTD (NYSE:RIG), Noble Corporation Ordinary Shares (UK) (NYSE:NE), Seadrill Ltd (NYSE:SDRL), Diamond Offshore Drilling Inc (NYSE:DO) and ENSCO PLC (NYSE:ESV) need to restructure themselves so as to make investment in the subsector viable failure to which may make one of them run bankrupt.
Transocean’s move to sell of its jack-up rig fleet at a cost of $1.35 billion is seen as a way of laying of its idle assets having been one of the worst performers in the industry despite being one of the biggest. The company has some of the oldest rigs and for the last four years, the company has been struggling to upgrade them. The company has also been struggling with growing liabilities and is currently servicing some of the most expensive debts. Despite the company’s struggles, its expertise and experience in deep water drilling is unbeatable. Transocean and its inventors are counting on this expertise to beat the industry waves.
Out of Transocean’s 30 ultra-deepwater rigs, 19 are either stacked or idled. The company seems to be making a tough decision by selling of its complete shallower rig fleet of 15 jackups. The company aims to concentrate its resources into developing its deepwater business going forward.
Yet, the sale of its complete shallower rig fleet of 15 jackups, including five that are yet to be completed, indicates that it is making the very tough choices going forward — concentrating on becoming specialists with its deepwater expertise going forward
Looking at the chart doesn’t inspire a ton of confidence either, but there are one or two good signs here. Despite the general downtrend the stock has been carrying since it’s mini-breakout in November last year, its 50-day moving average, which once was strong resistance, now looks like it could be a support line for the stock’s next trend — upwards.
In playing a very tough waiting game for oil to rebalance and finding stocks to invest in for the long haul, offshore has been one of my least favorite sub-sectors to play. But it has to be admitted that finding the right offshore player could be one of the better opportunities once oil begins to trend solidly higher — and Transocean could be that player.