Schahin Hit By Petrobras Contract Cancellation; Is National Oilwell Varco Next?
Summary
Petrobras recently canceled contracts for 5 offshore drilling and production vessels with Schahin Petroleo.
The cancellations will allow Petrobras to forego rent on the drillships, or re-negotiate them at lower rates.
Petrobras is canceling certain vendor agreements and canceling E&P projects to stem cash burn.
Reports suggest it could reduce its drillships package with Sete Brasil from 29 to 13.
National Oilwell's backlog could be reduced by $3.3B (29% of total) by the Sete Brasil restructuring. I am short the stock.
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Conclusion
Avoid Petrobras until it can rightsize its operating structure. There will be more pain ahead for its vendors while it cancels E&P projects and attempts to re-negotiate vendor contracts at lower rates. I am short NOV due to its Petrobras exposure and expected free fall in its Rig Systems segment (52% of total revenue).
http://seekingalpha.com/article/3238026 ... varco-next