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FGII is in a unique position in that deep water drills are in short supply and take a very long time to build. Drillers are reluctant to commit hundreds of millions of dollars to these projects unless oil companies will guaranty work for these rigs far in advance. And because of world wide consumption increases, that is exactly what the oils are doing. The FGII backlog keeps growing.

One analyst actually downgraded this stock because of a perceived labor shortage in Mississippi. The company has denied it is having problems hiring and training people to keep up with the backlog. Additionally the company was given a ship yard in Newfoundland by the Canadian government for one dollar in exchange for a guaranty of 500 jobs for some number of years. FGII was happy to oblige. The Canadian yard is building parts for rigs being assembled in Mississippi. FGII is also constructing an offshore gulf facility.

Most of the worldwide rig fleet was built in early 80's or before. Today, rig building is about 7% or enough to cover attrition but not enough to grow the worldwide fleet by any reasonable amount. Of 45 deep water rigs under construction, 32 are already under contract by the majors at prices that will pay them off in 4 - 5 years. 37 of the new rigs are for use in water over 4000' deep. For shallow water there are only 8 jackups under construction. Not enough to cover attrition. The point is, even though the FGII backlog is big and growing, it is likely to get far bigger.

It's may be hard to convince people there is an oil shortage about to happen given the current prices. But we are headed for large oil price increases within a few years provided there is no worldwide depression and consumption increases by 2% annually or more. For the past 15 years the majors could rest assured a rig would be available when they needed one. For the next 15 years they are going to have to stand in line and wait their turn.

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