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TheStreet Open House

Transocean, Stock Can Find Success In Kenya Deepwater

Stocks in this article: RIG

NEW YORK ( Trefis) -- East Africa's growing importance in deepwater exploration and production could receive a further boost with oil exploration firms set to drill Kenya's first deepwater oil well in August.

Deepwater activity in the region has grown over the past few years with the discovery of massive gas fields in the Offshore area 1 of Mozambique.

However, with companies set to strike oil in offshore Kenya, exploration could pick up further as companies discover oil prospects.

This could result in a major upside for Transocean (RIG), the world's largest offshore drilling company.

We have a $59 price estimate for Transocean, which is at a 35% premium to its current market price. (Click here for our full analysis of Transocean.)

Oil Boost

Despite several major discoveries of natural gas in offshore East Africa, explorers are still cautious because of the lack of any major oil find. Producers prefer oil discoveries as crude oil can easily be processed and sold in the international markets.

Natural gas on the other hand requires costly facilities to convert it into LNG that can be later sold to international markets. If the attempt to drill a crude oil well in Kenya is a success, it could result in a significant increase in exploration activity in the region.

Industry experts also suggest that offshore oil fields could be found in other countries such as Mozambique and Madagascar. Exploration efforts are also on in Tanzania, Ghana and Uganda.

According to its April fleet status report, Transocean has 1 of its ultra deepwater rigs contracted to drill in Mozambique. The company also has other rigs operating in African countries such as Angola, Nigeria and Ghana.

Successful discovery of oil in Eastern Africa could result in companies boosting their efforts in the region, resulting in additional contracts for Transocean. This can boost Transocean's utilization rates as well as its daily revenue as high specification rigs required for deepwater drilling yield higher daily revenue.



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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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