Analysts say all bad news isn't priced in for Atwood, other offshore drillers

While Goldman Sachs offers a bright outlook for land drillers such as Baker Hughes and Patterson-UTI (I, II), the firm thinks things may get worse before they get better at offshore drillers such as Atwood Oceanics (ATW -0.5%).

Goldman removes ATW from its Conviction Buy List, citing the recent sharp drop in the industry's offshore rig utilization and dayrates; however, it continues to like ATW's high quality rig fleet, track record of superior operating performance and high contract coverage, and believes investors eventually will be rewarded for ATW's ability to generate EPS growth in a difficult macro environment.

Meanwhile, Credit Suisse thinks Transocean (RIG -0.2%), Ensco (ESV -0.7%) and Diamond Offshore (DO -0.9%) could be forced to take some of their rigs out of service.

Average daily rates for deepwater rigs have slipped back to ~$500K after peaking near $600K toward the end of 2012, and ISI Group sees rates on even the most modern ultradeep-water rigs slipping to $440K within a year, down from north of $500K, as weakening demand meets increasing supply.

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