Offshore drillers in for rough seas, Morgan Stanley says as it cuts Rowan


Things could get worse before they get better for offshore drillers, and even market favorite Rowan (RDC -3.6%) could get hit, Morgan Stanley says as it cuts its rating on the stock to Underweight.

RDC has fallen less than companies with exposure to the floater market thanks to its greater exposure to jackups, but Stanley sees a surge in jackup orders, driven largely by speculative drillers at Chinese shipyards; the jackup orderbook now stands at a record 140 units, of which only ~20 have been contracted.

In the sector, the firm recommends yield plays such as Seadrill (SDRL), Seadrill Partners (SDLP) and North Atlantic Drilling (NADL), and prefers premium asset exposure through Atwood Oceanics (ATW), Ensco (ESV) and Pacific Drilling (PACD) over lower-end fleets via Diamond Offshore (DO), Noble (NE) and Transocean (RIG).

Comments (10)
  • combatcorpsmanVN
    , contributor
    Comments (1284) | Send Message
     
    Time to buy Energy service shares are when WS doesn't like them. Usually a precursor to WS beginning to accumulate. It's an old tried and true formula on WS -- scare the weak longs out and begin accumulating at the bottom. Excellent opportunity for the small investor to get some real price appreciation along w/ a decent dividend.
    7 Apr 2014, 04:14 PM Reply Like
  • xsilence
    , contributor
    Comments (30) | Send Message
     
    I doubt the whole 140 jackups will be delivered. Read this: http://yhoo.it/1hxVxJO
    7 Apr 2014, 04:26 PM Reply Like
  • Jeff Cross
    , contributor
    Comments (17) | Send Message
     
    Those are low expertise shipping yards (build mostly bulk carriers). The vast majority of rigs are built in Korea, the few Chinese yards that have contracts are all high expertise and in no financial difficulties. It's likely that a few will slip, they always do from construction and material delivery vagaries, but no meaningful or unusual number.
    7 Apr 2014, 04:45 PM Reply Like
  • saratogahawk
    , contributor
    Comments (2533) | Send Message
     
    Most of the Chinese shipyards cannot build a high spec jackup. Many of these so-called contracts aren't ever going to be built out and I lay money that Morgan Stanley understands that very well. One would be far better off to look at the fleet of ready stacked and cold stacked units in each rig category. (check out the rig data on Rigzone). Ready (warm) stacked can be brought back to service in a reasonable and cost effective manner. Not so for cold stacked units. These require restaffing and generally expensive modifications to return to service. However, that work is generally less expensive than a newbuild so the driller may choose to reactivate a warm stacked or refurbish and restaff a cold stacked unit before committing to a multi-hundred million $ newbuild. Just throwing out a number shows me that MS didn't really do their homework.
    7 Apr 2014, 07:18 PM Reply Like
  • saratogahawk
    , contributor
    Comments (2533) | Send Message
     
    Something else ignored in all this industry bashing by the analysts is the availability of the many types of components needed for a newbuild rig. Those come from aftermarket manufacturers not the shipyards and in many cases such as blowout preventers and underwater control systems have very long lead times. So even if the Chinese shipyards could build a lot of steel rig hulks it doesn't mean that they could fit these hulks out with the right equipment necessary to make them over from a steel hull to a drilling rig.
    7 Apr 2014, 07:44 PM Reply Like
  • lau56806
    , contributor
    Comments (63) | Send Message
     
    Delivery of newbuild rigs is contingent upon delivery of long lead items. These are complex items and require engineering, a lot of subcontractors / vendors. I doubt Morgan Stanley analyst aware of how a complex project is executed. I doubt the Chinese shipyards can deliver the new rig that soon. Every one of these involve control, instrumentation and testing. Morgan Stanley probably wants his client to get into at a lower entry point.
    7 Apr 2014, 08:49 PM Reply Like
  • Withermania
    , contributor
    Comments (54) | Send Message
     
    Buy nadl. Great fleet harsh weather all in North Atlantic. Utilization rates constantly near 100%. One rig in mobilization and another delivery q1 2015. Key catalysts will include contract agreements for two rigs that expire mid 2015 and q4 2015. I expect negotiations are underway right now for those rigs. Great customers Exxon, BP, Total, statoil, and she'll. buy and hold for 11% yield and 20% capital gains in 2014
    7 Apr 2014, 10:04 PM Reply Like
  • Debutant
    , contributor
    Comments (2778) | Send Message
     
    Hmmmm!

     

    According to analyst and their Mini-Me's:

     

    - two months ago all offshore drillers were bad; SDRL was the baddest of them all;
    - today SDRL,SDLP, and NADL are RECOMMENDED; ATW, ESV, and PACD are PREFERRED over a third group, also by analysts.

     

    Dedicated to those who believe the investment bank analysts and their Mini-Me's. Suits them right!

     

    BTW, Morgan Stanley has $48 target price for SDRL.
    8 Apr 2014, 10:00 AM Reply Like
  • The Mayor
    , contributor
    Comments (75) | Send Message
     
    I bought some HERO today, real earnings and great business.
    MS analyst should be fired, where was that story a year ago?
    What a moron.
    Total joke, all these stocks are cheap.
    8 Apr 2014, 08:46 PM Reply Like
  • tennis44
    , contributor
    Comments (70) | Send Message
     
    Sdrl is a great buy and will break out very soon. R
    9 Apr 2014, 01:48 AM Reply Like
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