Oil Glut Hidden by Rig Dearth Makes Drillers Good Bet

The professionals most familiar with the so-called oil shortage know there’s an estimated 3 trillion barrels under land and sea. That’s why they’re making their biggest bets in drilling rigs where the scarcity is no illusion.

Oil drillers “are the most attractive way to go,” said Don Hodges, who holds about 160,000 shares of Transocean Inc. and about 120,000 shares of GlobalSantaFe Corp. among the $1.1 billion managed by Dallas-based Hodges Capital Management. “There is a shortage, it takes time to build one and it takes a lot of money. Their earnings are going to go up every year for the foreseeable future.”


Orders for offshore rigs have surged sixfold in the past five years, and rental rates are at the highest ever after oil prices tripled and industry profits soared. The wait for the most sophisticated rigs, which can drill in waters more than a mile deep, is a record three years, and the cost to lease one has quadrupled since 2004, climbing to more than $500,000 a day.

“It’s a big problem,” Ashley Heppenstall, chief executive officer of Stockholm-based oil producer Lundin Petroleum AB, said in an interview. “There has been a gross underinvestment in the industry for a number of years and we paid for that last year. We had delays in some of our drilling campaigns.” Lundin plans to sink wells this year in Norway, Russia and Sudan, and has permits to explore in Vietnam, Ethiopia and Congo.

Bloomberg