Jul 172014
 

By Power Hedge By Power Hedge:

A few weeks ago, I published an article on this site suggesting that China and Russia may be jointly working to reduce or remove the dominance of the U.S. dollar in the international energy trade. Since that time, both countries have taken a number of steps to achieve that goal. In addition, a number of other countries, including ones which are commonly considered to be friendly to U.S. interests, have also expressed a desire to move away from using the U.S. dollar as the primary currency in the energy trade. These nations appear to be not only opposed to the petrodollar standard but, in fact, want to replace or at least reduce the dollar’s dominance in all forms of trade. Should they succeed, this would represent a significant blow to spending habits in the United States as well as to the country’s standard of living.

On April 24, Russia’s

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Jul 022014
 

By Power Hedge By Power Hedge:

On March 11, 2014, Seadrill Partners (SDLP) announced the acquisition of the West Auriga ultra-deepwater drillship from Seadrill (SDRL). Seadrill Partners is a publicly-traded LLC that was set up as a partially-owned subsidiary of Seadrill in late 2012 as a vehicle to both increase the parent company’s liquidity and provide a growing source of income to both Seadrill and the partnership’s unitholders backed by long-term contracts. To this end, Seadrill Partners has the right, but not the obligation, to purchase any rig in Seadrill’s fleet that obtains a contract of at least five years in length. Seadrill owned 53.2% of the outstanding units of Seadrill Partners as of the end of the first quarter 2014. The purchase of this rig is likely to result in an increase in Seadrill Partners’ revenues and cash flow in the second quarter of 2014 compared to the first quarter. However, the company

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Jul 022014
 

By Power Hedge By Power Hedge:

In its most recent quarterly report, offshore drilling contractor Seadrill (SDRL) gave a rather sobering description of the current situation in the offshore drilling industry, particularly in the ultra-deepwater market. This description has been backed up by numerous Wall Street reports in which the authoring analysts are quite negative on the sector. This has seemingly been dragging on the stock prices of the sector, which have overall not been reflecting the overall performance of the underlying companies (because many companies have long-term contracts that would not be affected by short-term weakness). However, the future of the industry is much brighter than what the current lull in business would indicate and this may present an opportunity for investors.

First, we will take a few moments to discuss the observations that Seadrill made in its first quarter report. Seadrill notes that there are currently very few exploration projects taking place in

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Jun 302014
 

By Power Hedge By Power Hedge:

One of the most significant sources of strength for the U.S. dollar since the end of the gold standard in the early 1970s has been the petrodollar standard. This standard came into being following the close of the gold window in 1971 when President Richard Nixon agreed to provide arms and protection to Saudi Arabia in exchange for the Kingdom denominating all sales of oil in U.S. dollars. As Saudi Arabia was and still is the largest producer of oil in OPEC and the largest exporter of oil in the world, other nations quickly followed suit and thus the petrodollar standard was born.

The petrodollar standard ensures a strong demand for U.S. dollars by countries all over the world as well as a strong demand for U.S. Treasury securities. This is because countries that import oil require large quantities of U.S. dollars to purchase all the oil

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Jun 262014
 

By Power Hedge By Power Hedge:

On Monday, June 2, 2014, offshore drilling giant Seadrill (SDRL) announced that it had secured a contract for the West Jupiter drilling rig. I briefly discussed this in an earlier article but believe that this development deserves a much more in depth analysis. I apologize for the delay in getting this analysis published but will hopefully be able to make this worth the wait.

The West Jupiter is an ultra-deepwater drillship using the Samsung SHI S12000 design which is currently under construction at the Samsung Heavy Industries Shipyard in South Korea. This rig will, when completed, be one of the most capable rigs in Seadrill’s fleet or in the world as a whole as it is capable of drilling wells up to 37,500 feet deep in up to 12,000 feet of water. Only the most capable ultra-deepwater drillships, such as those operated by Pacific Drilling (PACD),

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