One of the founding precepts of this publication’s investment strategy hinges on the end of easy oil, or the reality that the massive fields that have supplied much of the world’s crude oil have reached maturity and are in decline. These trends have forced independent producers, the majors and national oil companies to invest heavily in complex, unconventional fields such as North America’s shale oil and gas plays and the deepwater reserves offshore Brazil and West Africa.

This massive industrial transition–which will unfold over the next few decades–promises to be a boon for well-positioned services and equipment firms.

Exploration and production in deepwater and harsh environment–the final frontier for major oil finds–has continued apace. In 2008-10, operators announced an annual average of 23 discoveries in water depths of at least 4,500 feet, compared to 16 in 2002-04 and four in 1996-98. We expect this trend to accelerate dramatically in coming decades, as producers push into ultra-deepwater and Arctic regions in search of output growth. All of this adds up to a long-term bull market for well-positioned services firms and equipment suppliers.

In the Feb 2, 2012, issue of The Energy Strategist, we noted that the major oil-field services firms’ fourth-quarter results and related conference calls revealed that the boom in deepwater drilling has accelerated much more rapidly than most industry observers had expected three to six months ago. This issue highlight some of the equipment providers and offshore-rig contractors that stand to benefit from this secular growth trend.

In This Issue

The Stories

1. Despite the stock market’s ongoing rally, our outlook for the US economy remains unchanged. We continue to expect US gross domestic product to grow at a subpar rate as the economy recovers from the excesses of the credit bubble and financial crisis. See Macro Outlook and Strategy Update.

2. Our deep dive into the contract drilling industry digs up a new Growth Portfolio holding. See License to Drill.

3. With exploration and production increasingly taking place in offshore fields, the oil and gas industry’s demand for support vessels will continue to increase. The typical deepwater worksite is 100 to 150 miles offshore, which presents logistical challenges related to transporting personnel and cargo to and from oil rigs and connecting these installations to onshore processing and distribution systems. See Extra Support.

4. The long-term trend toward rising exploration and production activity requires advanced equipment that can endure the rigors of working in harsh environments. These winners are well-positioned to benefit from the coming wave of investment in offshore drilling and production rigs. See Equipped for Growth.


The Stocks

Ensco (NYSE: ESV)–Buy < 60 in Growth Portfolio
Bristow Group (NYSE: BRS)–Buy < 42 in Energy Watch List
Teekay Offshore Partners LP (NYSE: TOO)–Buy < 27 in Energy Watch List
Cameron International Corp (NYSE: CAM)–Buy < 62 in Growth Portfolio
National-Oilwell Varco (NYSE: NOV)–Buy < 84 in Energy Watch List