Pareto On The Cruel Offshore Drilling Summer Ahead
The best and most erudite investment bank in the offshore drilling space, Pareto, analyzes the impact of the 6 month offshore drilling ban. The firm observes: "With a 6 month drilling ban in the GoM and oil spewing into the sea at a rate of more than 12,000bpd, both sentiment and fundamentals for offshore drilling is challenged. The long term consequences are uncertain as it is still unclear how long the ban will eventually last and how many rigs will leave the region as a consequence. However, as long as the ban does not significantly exceed the current 6 months, we believe a large part of the US GoM fleet will remain in the area. Nevertheless, this unprecedented disaster will shape the future of the industry through a stricter regulatory climate and an increased environmental focus." Furthermore, as Pareto points out, with Ultra Deepwater day rates about to plunge to $50-75, EBITDA for most of the UDW exposed Gulf rigs will certainly be impaired. Nonetheless, with firms like NE, SONG, and SDRL all trading at sub 3x 2012 EBITDA, and with pretty decent asset coverage, there could be some good investment plays in either the stock or the first-lien space.