Overhaul of drilling rigs leads to record profits for equipment makers

Energy industry equipment makers are in the midst of a boom thanks to the first major overhaul of drilling rigs in a generation, reported the Wall Street Journal on Monday.

Rig-equipment makers Cameron, Aker Solutions, and National Oilwell Varco are experiencing an uptick in demand for oil rig parts and systems as aging fleets and new safety requirements push energy producers to upgrade rigs used in offshore drilling and in the hydraulic fracturing of onshore unconventional resources.

Houston-based National Oilwell Varco reported 2Q12 revenue of $4.7 billion, up 35%, while during the same period, Cameron reported its highest quarterly sales ever with revenue over $2 billion, the Wall Street Journal (WSJ) reported.

Following the last rig-building boom in the 1970s and 1980s, rigs were being built at a rate of less than one per month, Wells Fargo Securities senior analyst Tom Curran told WSJ. The start of the global financial crisis slowed the momentum that started to pick up in 2004, WSJ reported, but today, rigs are being built at an average of eight per month.

The age of the existing rig fleet—nearly 30 years in most cases—makes it unsuitable for use in today’s technically challenging drilling environments; thus, the boost to the equipment makers is likely to continue.

Related article
Rigs are the primary assets of drilling contractors and their newbuild and replacement costs are frequently required in corporate planning and financial valuation. Read analysis of newbuild vs. replacement costs in Part I of a two-part series by Mark Kaiser and Brian Snyder.

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