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Deepwater drillers could plunge 35% on average, Barclays says

  • The past 12 months have been tough for deeepwater drillers, and the stocks don’t look likely to find a bottom soon, Barclays believes.
  • Barclays' base case assumes dayrates continue to slide with UDW dayrates dropping to $475K and total average rates dropping 16% from its bull case - the most likely outcome as the firm continues to believe the market still needs to work through excess capacity and that conditions will get worse before they get better; under this scenario, Barclays says all companies in its coverage universe (except Rowan) are subject to an average share price drop of 35%.
  • Under this scenario, the firm thinks Seadrill (SDRL -1.6%) could plunge 52%, Diamond Offshore (DO -1.5%) could sink 45%, Transocean (RIG -0.6%) 24% and Atwood Oceanics (ATW -0.7%) 15%; of the majors in the sector, Rowan (RDC -0.7%) would hold up best, gaining 2%.
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Comments (37)
  • Uncle Pie
    , contributor
    Comments (3017) | Send Message
     
    SDRL's valuation is about double that of its peers, as is its debt/capital. The valuation is boosted (some would say, inflated) by the company's aggressive dividend policy.

     

    No positions
    28 Jan, 04:00 PM Reply Like
  • TruffelPig
    , contributor
    Comments (4085) | Send Message
     
    Have you looked at rig age, type, bookings and P/E? I very much doubt that and since when does Barclay's have a clue? who comes up with these numbers?
    28 Jan, 04:19 PM Reply Like
  • DividendInvestorLA
    , contributor
    Comments (3549) | Send Message
     
    I concur. To me it looks like yet another skin-deep "analysis" by someone who wanted to see his name in the press by predicting the apocalypse.

     

    Since there is no consequences for analysts when they make bold false predictions, it's always easy to make those...
    29 Jan, 02:49 AM Reply Like
  • Mattster
    , contributor
    Comments (162) | Send Message
     
    This article makes a good point, who needs deepwater headaches when you got shale and horizontal plays
    28 Jan, 04:01 PM Reply Like
  • ungawah
    , contributor
    Comments (916) | Send Message
     
    Yeah, "shale and horizontal plays" works great for us in the US, but the
    rest of the world isn't so lucky regarding mineral rights, fears about fracking and just being years behind in the technology. Lots of deep water drilling will continue.
    28 Jan, 04:43 PM Reply Like
  • DividendInvestorLA
    , contributor
    Comments (3549) | Send Message
     
    I'll also reminds everyone that the Federal government is doing all it can to slow fracking and unconventional oil down...

     

    For oil prices to sink to a level where it will not make sense to do deep drilling, you'll need a fairly big downturn in the world economy and while I don't see huge growth (except in a few countries like the UK, perhaps Ireland etc...) I also don't see a slowdown coming.

     

    I guess it all depends on your macro view.
    29 Jan, 02:52 AM Reply Like
  • Arthur Fisher
    , contributor
    Comments (243) | Send Message
     
    What do "under contract" and "backlog" mean in this scenario?
    28 Jan, 04:16 PM Reply Like
  • WACG
    , contributor
    Comments (377) | Send Message
     
    Apparently Barclay's has unloaded its SDRL position and wants to get back in. Standard manipulation of the sheeple.
    28 Jan, 04:18 PM Reply Like
  • DividendInvestorLA
    , contributor
    Comments (3549) | Send Message
     
    Oh, how I wish I could say you are wrong...
    29 Jan, 02:52 AM Reply Like
  • jmjjmj1
    , contributor
    Comments (161) | Send Message
     
    Not sure what happens when they prove fracking is poisoning water supply...
    28 Jan, 04:19 PM Reply Like
  • DividendInvestorLA
    , contributor
    Comments (3549) | Send Message
     
    It would be extremely bullish for SDRL.

     

    However, I personally don't see that happening. Thousands of militants have been trying to prove this for years and have failed to do so. While past history does not preclude surprises, I don't see it as a likely scenario.
    29 Jan, 02:54 AM Reply Like
  • James_B
    , contributor
    Comments (131) | Send Message
     
    If SDRL drops 52%, I will be first in line to buy. On shore oil remains too accessible to justify the high day rates that are currently being charged. The long term prospects for SDRL are good for a number of factors, imo, but I can wait for the drop. The modern fleet, high dividend and JF leading the way make for a solid long term holding, when the price is right of course.
    28 Jan, 04:28 PM Reply Like
  • TruffelPig
    , contributor
    Comments (4085) | Send Message
     
    Fracking isn't that cheap. There will be big bills coming eventually because of environmental impacts. also well life is very limited.
    28 Jan, 04:37 PM Reply Like
  • anarchist
    , contributor
    Comments (1359) | Send Message
     
    TP, agreed, maybe sooner than later.
    http://bit.ly/1dLPKym
    http://seekingalpha.co...
    28 Jan, 05:17 PM Reply Like
  • 7707431
    , contributor
    Comments (20) | Send Message
     
    Have these guys noticed that all of DO's rigs that are being renewed are at HIGHER rates? I always hate when facts don't fit the truth I like the best.
    28 Jan, 04:40 PM Reply Like
  • Jack Hutchison
    , contributor
    Comments (341) | Send Message
     
    You have to wonder what that Barclay's anal-ist had been smoking . . .

     

    The facts: http://bit.ly/1fwiMFr
    29 Jan, 08:26 AM Reply Like
  • DividendInvestorLA
    , contributor
    Comments (3549) | Send Message
     
    It's so easy for those guys to capture headlines and not suffer any consequences when they're wrong...
    29 Jan, 05:44 PM Reply Like
  • mds5375
    , contributor
    Comments (158) | Send Message
     
    Current price is cheap. SDRL has the newest rigs, a solid dividend, and revenues are locked in by contracts for years. I've been hearing the same wailings for a long time while the dividends have rolled in and the price creeps up.
    28 Jan, 05:03 PM Reply Like
  • Bill L
    , contributor
    Comments (12) | Send Message
     
    Looks like Barclay's got out the bottle of whiskey and the dart board. They are all over the place! Just look at RDC possibilities = ??????? = they don't know :-)
    28 Jan, 06:17 PM Reply Like
  • Ilioula
    , contributor
    Comments (34) | Send Message
     
    Knowing bankers as I do, my first thought was "market manipulation." Most readers of this column know the virtues and vices of SDRL and have made their call. But...there was something funky/uninformed/lazy about this Barclay call. TP bulls eye.
    28 Jan, 06:45 PM Reply Like
  • FlaYankee
    , contributor
    Comments (120) | Send Message
     
    What I couldn't understand as to how this article could have impacted the drillers to the extent that it did. The better drillers meaning those with the most state of the art modern rigs have been achieving the highest day rates and with no problems getting contracts or contract extensions, those companies with the oldest rig fleets (Diamond Offshore, Transocean) are going to have to either scrap or retire their oldest rigs as work will be hard to come by. The drillers will most likely divide between those that can make this market work for them and those that can't. I have to admit at current prices shares have come down substantially already so this article is much late to the party and could be taken as a contrary indicator that the worse is probably already behind us. Seadrill reports next month so we will see how accurate all the doomsayers are about its prospects and if the market ahead will result in a Seadrill "plunge" of 52%. Long Seadrill and NATDF.
    28 Jan, 06:49 PM Reply Like
  • DividendInvestorLA
    , contributor
    Comments (3549) | Send Message
     
    There are enough people who see headlines and react to them with no research (such as reading the article) that any analyst can have an impact.

     

    I agree with you as I don't understand why people pay any attention to them. They are highly paid to be mostly wrong, which I think is a big Wall Street scandal that nobody ever talks about because without analysts, then how would be get those estimates to beat..?
    29 Jan, 02:57 AM Reply Like
  • ComputerBlue
    , contributor
    Comments (779) | Send Message
     
    Clearly an agenda behind this call. Thus far, I give them the award for most ridiculous call of 2014.
    28 Jan, 07:24 PM Reply Like
  • ComputerBlue
    , contributor
    Comments (779) | Send Message
     
    Oh wow, Barclays was bullish ATW, SDRL and others in their 2014 EP report issued in Dec 2013. SDRL even had a $53 target.
    http://bit.ly/1e5EMdp
    28 Jan, 08:46 PM Reply Like
  • TruffelPig
    , contributor
    Comments (4085) | Send Message
     
    That is more than one month in the past! You can not possibly cram out such super old predictions! Not fair!

     

    ;P
    28 Jan, 10:00 PM Reply Like
  • mitrado
    , contributor
    Comments (1972) | Send Message
     
    Following this report, I'm almost willing to bet the worst performer in 2014 will be $RDC and the best will be $SDRL
    29 Jan, 04:20 AM Reply Like
  • DividendInvestorLA
    , contributor
    Comments (3549) | Send Message
     
    Funny! :)
    29 Jan, 05:44 PM Reply Like
  • Not_Quite_Pheidippides
    , contributor
    Comments (162) | Send Message
     
    Ha! No kidding. Why in the world they would be bullish on Rowan and bearish on Seadrill makes zero rational sense, especially when the oldest rigs are likely the worst off. Check this out -- yet another reason why old rigs (and Rowan) are in trouble:
    http://bit.ly/1cOrm3E
    3 Feb, 04:55 PM Reply Like
  • Debutant
    , contributor
    Comments (2242) | Send Message
     
    Some numbers:

     

    -SDLP declares today $0.445 quarterly dividend with 4.1% increase over the previous one.
    -SDRL owns 78.8% in SDLP.
    -For every SDRL investor (I am one) there seems to be one drama queen who doesn't own the stock, won't own the stock, but will tell us under every SDRL-related article that he/she doesn't like the stock.
    29 Jan, 07:05 AM Reply Like
  • mitrado
    , contributor
    Comments (1972) | Send Message
     
    Can anyone please explain me where are those constant drops in Day Rates Barclay's talks about? http://bit.ly/T9X1zn
    29 Jan, 10:16 AM Reply Like
  • frank paxman
    , contributor
    Comments (612) | Send Message
     
    Powerful stats. Thanks, mitrado.
    29 Jan, 10:34 AM Reply Like
  • James Hanshaw
    , contributor
    Comments (1614) | Send Message
     
    The Barclay's report makes no sense at all. There is no surplus of deep water rigs at present nor on the near horizon. SDRL's rigs are contracted out for up to 3 years at high fixed daily rates - virtually guaranteed income unless one of its big oil customers defaults which is unlikely. Big oil's reserves are depleting faster than replacement and so far the most likely sources for big new finds are in deep water - shale resources have so far not been big enough and the cost of extraction is high for that too. Oil prices are fairly stable and unlikely to tumble.

     

    Barclays has a track record of this kind of negative, superficial comment hiding behind the respected description of analysis.
    29 Jan, 11:53 AM Reply Like
  • msh305
    , contributor
    Comments (5) | Send Message
     
    Quick, can anyone name the last time Barclay's got a stock call right? Like all money managers, they flip a coin. You'll never see any follow-up from them on this one-time call, right or wrong.
    29 Jan, 01:34 PM Reply Like
  • DividendInvestorLA
    , contributor
    Comments (3549) | Send Message
     
    That's my big problem with analysts. There are no consequences to them for their bad calls. They don't even have to come out and acknowledge them.

     

    To my way of thinking, they have no credibility because they have no accountability. When they're wrong, they keep pocketing their big, fat checks and keep lecturing us like nothing happened...
    29 Jan, 05:46 PM Reply Like
  • James Hanshaw
    , contributor
    Comments (1614) | Send Message
     
    And when did we ever see anyone at a big bank, of which rotten breed Barclays is one, get charged with criminal offences for behaviour that would have execs in other industries behind bars. Banks get away with fines paid for out of massive, unearned profits. The big boss of Barclays got the boot but left the slime behind still playing games like this one.
    30 Jan, 11:39 AM Reply Like
  • DividendInvestorLA
    , contributor
    Comments (3549) | Send Message
     
    I agree in part with your comment in that it's a scandal that the executives and others doing the misdeeds get away essentially unpunished which shareholders pay the fines...

     

    "Massive fine levied" looks good on a newspaper headline but is anything but justice.
    1 Feb, 04:59 PM Reply Like
  • James Hanshaw
    , contributor
    Comments (1614) | Send Message
     
    And those fines are treated as just another business expense by management and may well be tax deductible.

     

    As a CEO of international engineering companies for many years I would have faced criminal charges and possible imprisonment plus lifetime disbarment from being a company director had any company, or part of it, under my management engaged in the equivalent activities that banks consider perfectly normal.
    2 Feb, 09:41 AM Reply Like
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