KepCorp

KepCorp: Deutsche note that recent contract win from Maersk Drilling for a Gusto MSC CJ70 jackup worth US$560m is positive, as not only is the rig price up 12% vs previous signing of same unit in Feb 11, it also demonstrates that industry spending continues despite the recent oil price volatility. Recent share price movement is largely due to high correlation with oil price (R-sqr: 0.84), which has been weak. However, fundamentals within industry remain firm with capex continuing due to (1) global reserve depletion, (2) increased focus on safety, (3) the need for enhanced drilling capabilities, and (4) a rapidly ageing rig fleet. Current Brent price is at a comfortable level for industry spending to continue. Apart from Brazil, Angola appears promising with drilling successes there leading to hope that the region could potentially rival Brazil's Santos Basin. If Angola proves to be as prolific as Brazil, believe this could result in extended long-term demand for deepwater/ultra-deepwater rigs and FPSOs. In Gulf of Mexico, the continued recovery in drilling activities is encouraging and may lead to greater demand for high-spec assets. Other promising regions include the North Sea, Mexico, French Guiana, Liberia Sierra Leone, Cote d'Ivoire Ghana, Gabon, Mozambique/Tanzania, Israel, Black Sea/Turkey, India, China, the Philippines, Indonesia, and Australia. Prospects for shallowwater rigs also remain healthy with active customer enquiries for high-spec jackup rigs as drilling conditions become more challenging and safety requirements rise.