With the planets growing population, many nations are in the process of upgrading their infrastructure. These vital road ways, telecommunications networks and transmission girds form the backbones of a competitive modern economy. However, most investors focus on the emerging market build-up. Funds like the EGShares Brazil Infrastructure (Nasdaq:BRXX) have launched to take advantage of this trend. Equally as important is improving the aging infrastructure in the developed world.
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The Maturing Gulf
Hurricane Katrina, Rita and the BP (NYSE:BP) oil spill have helped highlight the problems with Gulf of Mexico's oil and gas infrastructure. The Gulf is host to the world's largest network of subsea infrastructure. More than 3600 drilling platforms and nearly 56,000 kilometers of pipelines dot the sea floor. However, much of that network of pipes and wells is decades old. Half of the regions production platforms are 20 years old or more, and almost third were built in the 1970s or earlier. More than 100 platforms that were constructed in the 1940s and 1950s are still in operation.
This maturing network has seen its share of problems lately. Federal accident records show that platforms older than 20 years accounted for more than 60% of fires and serious injuries aboard platforms in 2009. Over the past three years, an investigation of 81 accidents at oil-and-gas facilities in the Gulf found that equipment failure was the most common cause. According to government statistics, through 2009 in the Gulf there were 133 fires aboard rigs, 10 oil spills of more than 50 barrels and 17 discharges of natural gas. The corrosive nature of the sea and age of these platforms requires massive improvements in the Gulf's infrastructure to improve safety and efficiency.
In addition, new deeper water drilling platforms will necessitate additional pipeline and infrastructure assets. Chevron's (NYSE:CVX) planned deepwater 300 kilometer gas export pipeline represents the only the second major pipeline investment in the Gulf's deepwater. With increased drilling activity, more and more infrastructure will need to be built in the deep.
Building That Need
The expansion of drilling activity and the much needed repairs of older rigs in the Gulf of Mexico will result in major spending by federal and private enterprise. Investors looking to profit from this repair work and growth do have several ways to add the sector to a portfolio. The SPDR S&P Oil & Gas Equipment & Services ETF (NYSE:XES) follows a basket of 27 different firms related to repairing, constructing and servicing the oil and gas industry. The fund is up about 20% through 2010 as the world's economy has resulted in increased drilling activity. Similarly, the iShares Dow Jones US Oil Equipment Index (NYSE:IEZ) can be used as broad play on the theme.
The trend toward ultra deepwater drilling in depths of more than 6,562 ft will benefit firms that specialize in deep sea services. Operating 252 remotely operated vehicles (ROVs) and specializing in umbilicals and blowout preventer control systems, Oceaneering International (NYSE:OII) will continue to prosper as we dive deeper to find oil deposits.
Concentrating in undersea pipeline and pipe burial construction, Cal Dive International (NYSE:DVR) could be a winner as the Gulf's infrastructure is repaired and expanded. However, for investors wanting more of a leader in the space might want to bypass smaller companies like Cal Dive or Global Industries (Nasdaq:GLBL) in favor of giant McDermott International (NYSE:MDR). The company trades at a forward P/E of 16 and provides a global reach in its services.
With its thousands of aging drilling platforms and miles of corroding undersea pipelines, the energy infrastructure in the Gulf of Mexico is in need of a major repair. As we continue to require more energy to run the planet, more money will be needed to be spent on upgrading and improving this vital network. Investors might want to consider allocating some capital to this sector through individual companies like Acergy SA (Nasdaq:ACGY) or one of the ETFs. (Investors looking into this industry are faced with a confusing amount of information. We explain the important concepts and terms. Check out Natural Gas Industry: An Investment Guide.)
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