Koil Energy Solutions Inc. (KLNG)

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Analyst Omar Nokta expects rates for deep-water rigs to average $600,000 a day over the next three years.

Most discussions of oil supply constraints tend to focus on the non-renewable nature of the resource and on refinery capacity.
But David Philips, also known as the 10Q Detective, thinks a significant and often overlooked aspect of this discussion - one which has a direct effect on oil company profits - is offshore rigs, giant structures that house both workers and machinery.
A supply shortage of offshore rigs capable of drilling up to 10,000 feet deep in seas has driven up the cost of renting and operating these structures. Mr Philips writes:
That means that the daily rate that operators pay to rent a high-end, deep-water drilling rig is now $500,000 to $550,000. That’s up from a day rate of $450,000 to $500,000 ayear ago - and more than double the price per day on the spot market just three years ago, according to ODS-Petrodata Consulting & Research.
Consequently, ExxonMobil, PetroChina, and other oil exploration companies should expect unabated cost increases along with declining margins.
While record oil prices have contributed to soaring profits at oil giants like Exxon and BP, shareholders should “expect full capacity - and competition for deep-water fleets - to hurt the backside of international oil companies through at least 2010,” he argues. “Expect $600,000 day rates to become more common.”
Moreover, attempts to increase the supply of oil by drilling in unconventional places - like India - and ultra-deep water explorations like the Tupi projects, off shore of Rio de Janeiro are themselves compounding rig supply shortages, according to Mr Philips.
Still, rising costs at the oil explorers point - ceteris paribus, etc - to increased revenues at the oil rig suppliers, like Transocean (ticker symbol: RIG) and Diamond Offshore Drilling, Noble, SeaDrill and Ensco International.
So if, as Mr Philips suggests, an era of $600,000 day rates is lurking just under the surface, offshore drilling contractors stand to benefit - even if oil prices ease.
Dahlman Rose, a boutique investment bank, said it expects this sector to benefit from a rise in drilling rates in the coming years.
Analyst Omar Nokta expects rates for deep-water rigs to average $600,000 a day over the next three years.
Mr Nokta in a note to clients wrote that Transocean will reap the most benefits. US-based Noble, Pride International and Atwood Oceanics should also outperform.
http://ftalphaville.ft.com/blog/2008/05/12/12968/oils-offshore-supply-constraint/