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Did anyone see the news on why Reuters downgraded RIG? It seems as if they are downgrading the stock due to an expected decrease in dayrates on shallow to mid water units (jackups and mid semi's). They state that RIG's income is 50% off these units. The reason for the decrease is an expected oversupply in this equipment.

It is my anticipation (from research) that the future of ocean drilling is the ultra deepwater drilling done via drill ships and platforms. I especially think the drillships will come into favor with their ability to get to the site faster, more storage capacity, and the ability to drill deeper.

As of 1/09, I believe RIG owns 32% of all drillships and 62% of the deepest water drilling capacities (35K ft). I also understand that PBR just signed a contract with DRYS for building two new drillships for this type of exploration, thus supporting the demand theory.

That all said, what are people's thoughts about this downgrade? While I don't disagree with the shallow to mid water units becoming oversupplied, I guess my questions are two-fold:

* With RIG's dominance in the ultra deepwater market, will the demand for larger vessels play into their hands and overcome the decreasing dayrates in shallower water?


* Does the PBR/DRYS contract just add fuel to the fire of oversupply and support the theory of lowered dayrates and less earnings?
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