National-Oilwell Varco, Inc. (NOV), Transocean LTD (RIG): One Stock to Play the End of Easy Oil

Page 1 of 2

One of the most prominent developments in the oil industry over the past several years has been the large-scale shift toward unconventional sources of supply. After several decades of intensive drilling, fields of so-called “easy oil” have largely been depleted.

That means that oil companies have to venture into much harder-to-reach places, such as U.S. shale fields, Canada’s oil sands, and deepwater locations, in search of black gold. Just look at what the world’s largest oil companies have been up to.

Not only have they ventured into U.S. tight oil and gas plays, but they’ve also embarked upon endeavors that have landed them in the deep waters off the coasts of Brazil and even in the harsh waters of the Arctic. Royal Dutch Shell plc (ADR) (NYSE:RDS.A) has announced plans to drill for oil off the coast of Alaska, while Exxon Mobil Corporation (NYSE:XOM) and Statoil ASA(ADR) (NYSE:STO) have discussed plans to explore for oil in the frigid Arctic waters near Russia.

National-Oilwell Varco, Inc. (NYSE:NOV)

As oil and gas companies continue to venture into these harder-to-reach oil and gas frontiers, the complexity of the drilling process will continue to rise. National-Oilwell Varco, Inc. (NYSE:NOV), as the single biggest supplier of rig equipment with a whopping 60% market share, is aptly positioned to capitalize on this trend.

Through decades of consolidation, the company has grown to become one of the most sought-after providers of rig equipment for the world’s largest drillers. It enjoys a low-cost position as the world’s dominant rig equipment supplier, with its equipment featured on 90% of rigs around the world.

Not only do oil and gas companies turn to National-Oilwell Varco, Inc. (NYSE:NOV) for new rigs, but many of them also desperately need to upgrade their older rigs to drill more technically complex wells. This means a steady revenue stream for the company as customers keep coming back with requests for repair and maintenance.

Risks to consider
Still, as with any investment, National-Oilwell Varco, Inc. (NYSE:NOV) isn’t without its risks. One of the biggest is a sustained collapse in the price of oil. Since many of the company’s customers operate in deepwater locations that have relatively high costs of production, they’re more vulnerable to having their operations become unprofitable if the price of oil plunges. If oil falls below their costs of production, they’ll have no incentive to keep drilling, and rig orders could collapse.

Another major risk is equipment failure, which could lead to major fines, as well as jeopardize the company’s reputation. For instance, rig provider Transocean LTD (NYSE:RIG) came under attack for its involvement in the 2010 Deepwater Horizon incident, in which a BP plc (ADR) (NYSE:BP) well blew out, leading to a fire and subsequent explosion aboard the Deepwater Horizon rig that discharged nearly 5 million barrels of oil into the Gulf of Mexico.

Page 1 of 2

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!