Barclays cuts targets for offshore drillers, sees potential 40% downside


Offshore drillers Atwood Oceanics (ATW +0.5%), Diamond Offshore (DO +2.4%), Rowan (RDC +0.9%), Ensco (ESV +0.8%) and Transocean (RIG +1.5%) are higher today even as Barclays cuts its price targets on the stocks.

The firm thinks near-term risk is skewed to the downside following a series of negative fleet status reports from the offshore drillers recently and concern for dayrate pressure in most offshore markets; if conditions deteriorate further, the firm would expect underlying asset values to decline further (NAVs declined 16%-plus following the financial crisis and 8% after Macondo), suggesting potential 40% downside before ultimate NAV support takes hold.

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Comments (30)
  • saratogahawk
    , contributor
    Comments (2535) | Send Message
     
    Ok this is a small industry. Someone tell me how so many analysts have chosen to offer "opinions" in such a short period of time? As I have said many times before the pile-on sure smells like rotten fish to me. Not one word from them about the many offshore auctions in 2013/14 and the drilling opportunities from them nor anything at all about the increase drilling by national oil companies NOCs while some of the IOCs have cut back some. So suggesting a 40% more downside essentially means this industry won't contract any rigs at any price this year. That is absurd. So not a word about backlog but only about day rate pressure. Well day rate pressure is only for new contracts and not for backlog contracts. Several players are not showing significant day rate pressures. In fact, SDRL showed recent day rate strength for the new jackup contracts.
    8 Apr 2014, 02:49 PM Reply Like
  • Maobama
    , contributor
    Comments (487) | Send Message
     
    This "analysis" by Barclays is old news, as well as sour grapes. It seems to be a re-hash of the same "rigorous" analysis from about 2 months ago.

     

    I have been following the industry for several years. I read every fleet status report, read the research from several of the major Wall St firms, listen to conference calls and parse earnings reports. I just don't see where these guys keep coming up with this 40% downside number.

     

    How many reiterations of the same garbage does Wall St give a guy before he is called out on it?
    8 Apr 2014, 02:51 PM Reply Like
  • saratogahawk
    , contributor
    Comments (2535) | Send Message
     
    Hey numbers you are so right. I do the same thing and just don't see the evidence that they seem to see.
    8 Apr 2014, 03:03 PM Reply Like
  • grox01
    , contributor
    Comments (1133) | Send Message
     
    The answer is when they are finish accumulating their shares.
    8 Apr 2014, 03:13 PM Reply Like
  • saratogahawk
    , contributor
    Comments (2535) | Send Message
     
    grox01 yes I think we know that is correct. Clearly they have no ethics.
    8 Apr 2014, 03:16 PM Reply Like
  • Investing Doc
    , contributor
    Comments (1038) | Send Message
     
    I hope they continue to downgrade the industry; I will continue to add more shares.

     

    "My centre is giving way, my right is retreating, situation excellent, I am attacking." ~ Ferdinand Foch
    8 Apr 2014, 08:08 PM Reply Like
  • LMinAppleton
    , contributor
    Comments (129) | Send Message
     
    grox01: Before I read any of the comments, I was thinking exactly the same thing. I don't trust any of these analysts. The best you can do is try and second guess their motives and play along.
    8 Apr 2014, 09:51 PM Reply Like
  • austrianoak
    , contributor
    Comments (16) | Send Message
     
    analyst downgrades seem to be helping my long positions in $O and $RIG today!
    8 Apr 2014, 03:27 PM Reply Like
  • spaldo
    , contributor
    Comments (15) | Send Message
     
    Another example of how Wall Street scares people into selling low. On the other hand Wall Street is busy pushing internet stocks with no earnings whose prices are up on unsustainable spikes.
    You have to be a real sucker to listen to these guys.
    8 Apr 2014, 03:45 PM Reply Like
  • 11146471
    , contributor
    Comments (1373) | Send Message
     
    These are the funny guys (in Barclays) that also gave a PT reduction for KORS, the most fast-grown fashion retailer globally?

     

    These are also the type of guys that led Barclays to an almost bankrupt state-owned and taxpayers salvaged institution by their choices on investing other peoples money (aka deposits) in subprime loans and overseas NPL.

     

    Can these guys explain to us poor individual investors how are all these new offshore fields in Norway, Brazil, Israel, Mozambique, Angola, China, Vietnam (to name a few) going to be developed and finally drilled without the drillers?

     

    Can these guys understand the simple fact that with oil prices staying high all the ultra deep offshore plays are economically viable for drilling, and no downtrend is expected without a structural price reduction in crude?
    8 Apr 2014, 03:54 PM Reply Like
  • petroglyph
    , contributor
    Comments (36) | Send Message
     
    Barclays has been waving this particular red flag for a while now, so hearing it for the 2nd time kinda loses it's impact.

     

    While I can see, and am concerned by, signs of over-supply and day rate weakness in the mid term, the sector has already had a painful 15% correction. It's earnings , assets and cash flow multiples are all well below the broad market and most of the sector's members pay generous dividends. Some pay very high dividends.

     

    So, while I can see how the sector might slip lower for a period of time, I consider a further 40% correction a laughably unlikely call. If you want good analytical work on the drillers, check Morgan Stanley, skip Barclays.
    8 Apr 2014, 04:03 PM Reply Like
  • combatcorpsmanVN
    , contributor
    Comments (1336) | Send Message
     
    I wonder what Barclays thinks of TSLA, TWTR, and some of the other "we won't' see earnings to the bottom line in your lifetime" stocks. My guess is Barclays has buy ratings on all of these momentum stocks.

     

    IMO this is the same old Wall Street analysts game -- tank stocks you want to accumulate a position in while honking stocks that the firms own.

     

    Wall Street analysts have one simple mission with the firm's accounts: "Do whatever it takes to buy for the Firm at the Bottom and whatever it takes to sell shares owned by the Firm at a Top." When you read about analysts re-stating earlier calls to get out, you can almost bet they're buying the shares.
    8 Apr 2014, 04:55 PM Reply Like
  • 66037
    , contributor
    Comments (2) | Send Message
     
    The news feed from Fidelity says Barclay's reiterated their "Overweight" rating on RIG.
    8 Apr 2014, 05:19 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (11222) | Send Message
     
    Shares in (ATW) will not, repeat, will NOT fall 40%.

     

    That is all.
    8 Apr 2014, 05:40 PM Reply Like
  • Debutant
    , contributor
    Comments (2851) | Send Message
     
    The 12 posts above reflect my sentiment.

     

    In fact we are fortunate that the game that is being played by the analysts is so clear, obvious, evident. Otherwise, with a less obvious effort the same analysts could have frightened and convinced not 5 but 10 drama queens here on SA.

     

    I am buying low, collecting the dividends, and looking forward to share price appreciation once "the negative publicity campaign" will be over.
    8 Apr 2014, 06:03 PM Reply Like
  • Dr Joseph Haluska
    , contributor
    Comments (499) | Send Message
     
    Well said, by everyone, and I agree.
    On the one hand, there is analysis....
    On the other hand, there is "pile-on" mentality, kick him when he's down, so you can later claim you said so, and pick up a few percentage points for "accuracy" in the miserable ratings game.
    I'm glad you guys spoke up, and I'm glad I'm long the whole sector.
    8 Apr 2014, 06:48 PM Reply Like
  • Maobama
    , contributor
    Comments (487) | Send Message
     
    Barclays, also known as "The Boys Who Cried Wolf"
    8 Apr 2014, 07:24 PM Reply Like
  • The Mayor
    , contributor
    Comments (75) | Send Message
     
    Last time I checked oil was still $100 a barrel and natgas was at multi-year highs.
    All these stocks are dirt cheap.
    Just buy some and ignore these so called "analysts".
    8 Apr 2014, 08:50 PM Reply Like
  • dancing duke
    , contributor
    Comments (181) | Send Message
     
    How many times do analyists have to be wrong before you don t believe any of them.
    MY answer is once.
    They have no credibility and this absurdity shows it
    I would love to buy RIG at 40% off today price.
    If it happens there will be even better buys.
    8 Apr 2014, 10:55 PM Reply Like
  • saratogahawk
    , contributor
    Comments (2535) | Send Message
     
    So Barclay's sees RIG at $26 per share or a net market valuation of $9.36 billion.
    So basically Barclays says that RIG is only worth the value of its equipment and that the $27 billion in backlog is worthless.

     

    So sounds to me like they think that RIG is a bankruptcy candidate along with the rest of the industry.
    8 Apr 2014, 11:01 PM Reply Like
  • saratogahawk
    , contributor
    Comments (2535) | Send Message
     
    By the way for those that may want to check it out. The day rate tracking done by Rigzone, IHS, etc don't show any appreciable dropoff in day rates for any category of equipment in any geographic markets. Slight fluctuations but no fall off the cliff. Even a crappy day rate of say $480,000 per day for a drillship is still well above the opex for that rig at say $210,000. Margin even at this low rate example is 56%. While everyone would like to do better the fact is the rig is still highly profitable at 56% margin.
    8 Apr 2014, 11:09 PM Reply Like
  • JNBNPY561
    , contributor
    Comment (1) | Send Message
     
    As a retired Wall Street energy analyst, I do sense some negative piling on. Of course its hard to disagree that there is not room for day rates to come down some. But that doesn't necessarily deal a fatal blow to average investment returns on rig fleets. Operating EBITDA margins on revenue are currently rather generous. A less exuberant day rate could work to slow down the new rig build rate and leave a tightening market as more and more older rigs leave the fleet.

     

    Financially, many of these offshore drillers have been in a negative cash flow mode as they upgrade their fleets, but could well gravitate toward becoming cash flow positive over the next couple of years, putting some wind at the backs of their equity price momentum instead of in their face.

     

    As for demand, offshore oil/gas fields tend to hit a production peak early in their life creating demand for new replacement supply; new production is not continuously additive.
    9 Apr 2014, 12:31 AM Reply Like
  • tennis44
    , contributor
    Comments (70) | Send Message
     
    Another example of false predictions to enrich these frauds
    9 Apr 2014, 01:42 AM Reply Like
  • Thewaltzy
    , contributor
    Comments (1323) | Send Message
     
    Would be interested in reading the actual report, but can't find it. Could someone post a link, please?
    Regards
    9 Apr 2014, 03:36 AM Reply Like
  • saratogahawk
    , contributor
    Comments (2535) | Send Message
     
    So here's a new business relationship between Shell and the China National Oil Company for shale and deepwater projects. Yup. No one is going to invest anymore in offshore drilling. Not the fact given the new partnering agreements and aggressive auctions of offshore blocks.

     

    http://bit.ly/PRf0iZ
    9 Apr 2014, 09:33 AM Reply Like
  • Debutant
    , contributor
    Comments (2851) | Send Message
     
    "The two companies will strengthen long-term worldwide co-operation in unconventional resources, deep water, LNG, and upstream and downstream businesses," CNPC said.

     

    Obviously the top guys in China and at Shell are not aware that offshore drilling has been declared dead and buried in commentary by a couple of drama queens here on SA.

     

    Oh, God, it keeps getting funnier (and more rewarding) by the day!
    9 Apr 2014, 10:41 AM Reply Like
  • User 21363251
    , contributor
    Comments (2) | Send Message
     
    In my book, "analysts" are at the same level as car salesmen and realtors. The games that have been played in and around Wall Street will never end.
    9 Apr 2014, 10:10 AM Reply Like
  • dancing duke
    , contributor
    Comments (181) | Send Message
     
    you are being too kind
    10 Apr 2014, 10:37 AM Reply Like
  • User 21363251
    , contributor
    Comments (2) | Send Message
     
    Just read Paul Farrell on MarketWatch today (WSJ) and say no more!
    9 Apr 2014, 10:26 AM Reply Like
  • saratogahawk
    , contributor
    Comments (2535) | Send Message
     
    Jeez I just hope that the last driller out of the water turns off the lights. We can't afford a big electric bill after they are gone.
    9 Apr 2014, 10:44 AM Reply Like
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