Rig builders

Rig builders: may see near term weakness, on increasing evidence that Petrobras’ rig orders are at risk of being delayed/ cancelled.
Petrobras itself has said it is considering a lower capex budget as it revises a US$224b 5-yr business investment plan. The co invested US$9.7b in 1Q11, -11% yoy as exploration and production invmts dropped...

Separately, SembMarine said that the tender price submitted in late 2010 to Petrobras will be valid only until end-May, leaving just two weeks before the deadline. Meanwhile Noble Corp mentioned in its 10Q filing this month that Petrobras has notified them very recently that the 21-rig tender has been cancelled...

BNP notes local content requirements remain one of the key sticking points for the 21-rig tender, due to the Brazilian govt’s insistence on the rule. Petrobras was previously fined in Apr 2011 for failing to buy sufficient locally produced eqpt. While Petrobras is currently in talks with the govt regarding the issue, BNP believes that until a more equitable solution is found, the risk of further delays, or even a cancellation, will likely persist...

Together with the recent sharp depreciation of the USD imposing a negative technical indication to oil price outlook, BNP adds that near-term uncertainty could well intensify in the next two weeks.
Still, house expects order momentum for SMM to play catch-up from non-Petrobras orders and KEP’s orders to fast approach the 2007 peak-cycle level, when P/E held up at 17-22x. Favors KEP, SMM then SCI in descending order.