This from Today’s Financial News:

This cannot be good for the oil industry. There is a very left-leaning Democrat packing his bags and heading to Washington. The high-profit, we’ve-got-them-bent-over-a-table oil industry must be pinching itself hoping this is nothing more than a bad dream.

Unfortunately, it is real. Democrats now control the White House, the Senate, the House, the courts, our schools, and a large chunk of our nation’s banks. All that is left for us pro-business voters to do is pray they do not infiltrate the rest of Wall Street.

Over the next few years, the nation’s thriving businesses will face a strong headwind. Higher taxes, less incentives, and employees that feel their over-paying job is their god-given right will make profits even harder to come by.

No industry is more worried about an Obama administration than the oil industry. The nation’s new “supreme leader” has already promised to impose heavy windfall taxes on the nation’s energy producers. Companies like Exxon Mobil (NYSE:XOM) and BP (NYSE:BP) are huge political targets. You can bet Obama has his eye on their record-smashing profits.

Dig deep for profits

But what about companies like Transocean (NYSE:RIG) that are working to tap the world’s offshore oil resources? We already know the chances of increased drilling off the American coast went out the window last night. But what about the rest of the world?

A glimpse into Transocean’s earnings report released earlier today will give us some clues. The company earned $1.1 billion last quarter, up from $973 million this time last year. It was an increase of 13%. Per share earnings were lower, $3.49 from $4.63, but that was caused by the dilution created when the company purchased GlobalSantaFe. On a top-line basis, Transocean recorded $3.19 billion in revenues, up 2.9% over the year.

Overall, investors have to be happy with these figures. While the actual earnings per share figure was five cents lower than expectations, revenues exceeded prior estimates. The company’s large acquisition made accurate estimates difficult at best.

Looking forward, it would be easy to say Transocean’s best days are behind it. With a new left-leaning administration that is not fond of offshore drilling, Transocean’s business growth will slow. Or so we think.

There are flaws in that logic.

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To find the truth, we have to look much deeper. First, oil production across the globe is getting tougher. The easy reserves have long been tapped. Now, it takes more research, more technology, and much more money to find oil, especially on land. That is good news for Transocean, as it has the capability to produce oil where others cannot, deep beneath the ocean’s surface.

Offshore drilling may not be on the agenda in the United States, but it is quickly gaining momentum in places like the North Sea and South America. Oil addiction is far from a solely American dilemma.

Looking at today’s share price, Transocean is a real bargain for long-term investors. If you are willing to buy shares today and hold them for ten years or more (long enough to take advantage of the next oil cycle), you have a great shot at success.

If you are a short-term trader, I would hold off. There are better investments that will pay sizeable, low-risk profits over the next few months.

We have a new administration on its way to Washington. It means we need to adjust our investment strategies a bit, but it certainly does not mean our days of making big profits are over.

Sometimes, change can be good.

Source: Democrats and the oil industry

But if you must know, global demand is outpacing supply – though not by much. Only a couple of million barrels a day prevents supply from keeping up with demand, but that’s enough to push the price of crude to record prices.

Ah, life must be good in the oil patch. Companies are making record or near-record profits. Don’t look now but the good times may be coming to an end for the miners of black gold.

We’ve already addressed in an earlier article the number one problem of oil companies: raising production. It’s a losing battle. The best fields are past their prime. Once they’re gone, they’re replaced with smaller fields with harder-to-get oil.

It’s like the Boomer generation looking for the fountain of youth. Boomers can slow down the decline here and there. But the fall from grace is inevitable. Oil producers face the same predicament. They can only see maximum rates of oil production in the rear view mirror.

So, what does the other side of oil production look like? It could be worse. So far, falling production plus soaring prices have brought oil companies huge profits.

The oil companies know they’re thriving on borrowed time. And they’re trying to do something about it. Ideally, they’d like to raise production. But at the very least they’d like to find a way to slow the fall of crude output.

To do so, they’re going after oil that a decade ago was beyond their reach. It lies thousands of feet underneath the oceans of the world.

This is new territory for the oil companies. It’s much too early for the oil companies to have a firm idea of what their costs will be. And while they’re pretty sure they have the technology to get to this oil, they’re still not sure how these technologies will work together.

Here’s a snippet of an earnings call by an offshore drilling contractor I caught last week on this very subject.

Analyst
“… the issue associated with the debate out there of drill ships versus semis, is the 8500 series equipment capable of something like offshore Brazil, would there be modifications required? Is there deck load issues? Just expand on the pros and cons and how much more opportunity when people debate this drill ship versus semi?”

Jeff Saile - SVP Operations
“Why don’t you ask a hard question, Pierre. Certainly we can work offshore Brazil. I don’t know if — I think there’s, a lot of that’s to be understood in the future. I certainly think the 8500 can get in there and compete. I don’t think it’s going to compete with a drill ship. It’s going to come in behind these ships when they do some of this. Some of these ships are going to do advanced exploration … the 8500 is certainly equipped to drill. It can drill in 10,000 feet of water. We’re going to have to do minor modifications to it. We’re reviewing that now. It can certainly drill in deeper water. And we can get out there with the equipment on them and drill these ultra deep wells, as well.”

The semi’s they refer to are semisubmersible rigs. They’re floating offshore drilling units with pontoons and columns. They can be anchored to the sea bottom with mooring chains or dynamically positioned by computer-controlled propellers or “thrusters.”

It’s not just the desperate oil majors who are willing to wade into these tricky deep waters. State-controlled oil companies see these basins as their next big money maker.

Deep-sea drilling is the next frontier. And these semis will help make it happen.

They have plenty of drilling to do … in the 30 billion barrel (from early estimates) Tupi basin off of Brazil … to Chevron’s estimated 15 billion barrel discovery in the Gulf of Mexico … to China’s recently discovered offshore field containing perhaps 2.2 billion barrels .. plus others.

These are major reservoirs. If the preliminarily estimated numbers hold up, Brazil’s Tupi would be the third largest underwater oil find ever.

But there’s a fly in the ointment in all of this … costs.

As I said, it’s too early to get a firm handle on costs. But I’ll tell you this much right now. It won’t be cheap.

And it’s getting more expensive all the time.

Petrobras (from Brazil) is hogging the word’s deepwater rigs and singlehandedly causing a shortage of these sought-after rigs. There are only 21 of them in the world. Petrobras is negotiating to lease 17 on top of what it already has to help explore its Tupi basin and nearby fields.

As a result, these rigs are going way up in price. BP leased one for $480,000 per day at the beginning of the year. Now, they’re going for as much as $600,000.

Shallow offshore drilling is also becoming much more expensive. For example, the company in the excerpt above said its jackup rates (jackup rigs operate in waters of 400 feet or less) in Asia went up 5 percent in the first quarter this year (compared to the fourth quarter of 2007).