Seeking Alpha

It's still not time to buy offshore drillers, Raymond James says

  • While some analysts are beginning to see value in shares of battered offshore drillers, the team at Raymond James thinks conditions will get worse before they get better.
  • After a strong decade, the deepwater drilling rig market is facing a multi-year down-cycle, RJ says; most previous offshore drilling cycles have been short-lived thanks to sudden demand shocks that have self-corrected relatively quickly, but this downturn is more of a new rig supply problem compounded by a moderation in offshore spending from the suddenly “return driven” multinational major oil companies - meaning this down-cycle should be more drawn out than usual.
  • While everyone loses in such an environment, the firm is more comfortable in owning companies with higher-quality assets that also carry higher floater contract coverage to provide some safety during the downturn, specifically Ocean Rig UDW (ORIG +0.4%), Pacific Drilling (PACD -0.1%) and Rowan (RDC +0.1%), given their high-specification exposure.
  • Also: SDRL +0.7%, RIG +0.5%, ESV +0.2%, DO -0.5%, ATW -0.9%, HERO -1.3%.
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Comments (32)
  • abujordan
    , contributor
    Comments (135) | Send Message
     
    Limit order is in to pick up a bit more $HERO if it gets to 3.90 again.
    21 Jul 2014, 02:53 PM Reply Like
  • Maryellendvm
    , contributor
    Comments (19) | Send Message
     
    I did the same thing.
    21 Jul 2014, 03:01 PM Reply Like
  • Victor The Great
    , contributor
    Comments (40) | Send Message
     
    Its trading at $3.96. This looks pretty ugly to me.
    21 Jul 2014, 04:57 PM Reply Like
  • Mad Stacks
    , contributor
    Comments (748) | Send Message
     
    HERO is one of the most shorted stocks right now and has seen a 108% increase in shorts in the past month. http://cnb.cx/1yRQG1x
    21 Jul 2014, 04:57 PM Reply Like
  • ComputerBlue
    , contributor
    Comments (934) | Send Message
     
    These analysts haven't been accurate on the drillers in quite some time.
    21 Jul 2014, 02:57 PM Reply Like
  • WhitneyB
    , contributor
    Comments (569) | Send Message
     
    RIG beats by $0.41 last Q and still gets no love. If it's an accidental high yielder at 7%, I'm happy with that accident.
    21 Jul 2014, 03:00 PM Reply Like
  • Energysystems
    , contributor
    Comments (1650) | Send Message
     
    Multi-year down cycle? That's as likely as oil selling for $75 a barrel for an extended period of time. Possible, but far from probable.
    21 Jul 2014, 03:03 PM Reply Like
  • Egad
    , contributor
    Comments (36) | Send Message
     
    The problem is that since BP screwed up royally, drilling in the Gulf has been down. Many companies decided that they could no longer afford the risk of drilling deepwater wells. Because of this rig companies are facing a demand crunch. There are fewer companies competing for their rigs and since they are bidding against themselves, they get lower day rates from HERO and RIG. Until this changes these stocks will perform worse than I'd like.

     

    I am long on Hero, btw.
    21 Jul 2014, 06:34 PM Reply Like
  • Energysystems
    , contributor
    Comments (1650) | Send Message
     
    I took advantage of the recent weakness to considerably increase my positions. The following is just part of my investment thesis.

     

    Recent lease auctions(2013/2014) have been very robust for the GOM. Bids were driven to record highs during the 2013 Bureau of Ocean Energy Management auctions. Mexico is opening up to drilling as well(recent deal between SDRL and Pemex). I also like the LNG terminals being built on the Gulf Coast, that should be a boost for local producers. GOM Rig count went from 41 in 2012, to 56 in late 2013. The Administration just approved seismic testing from Delaware Bay to mid-Florida and up to 400 miles offshore. This sets the stage for feds to begin issuing permits for surveying an area roughly the size of California.

     

    I believe we're at the beginning of a multi-year boom, not a multi-year down cycle.
    22 Jul 2014, 07:51 AM Reply Like
  • Egad
    , contributor
    Comments (36) | Send Message
     
    The multi-year boom may be coming, but nothing offshore happens quickly. I think we are still looking at a year or so more of the down cycle before things get back to where I'd like to see them. Rig counts are increasing, but we are still well below the activity levels before the recession and Deepwater Horizon. It's hard to significantly increase day-rates when you still have 10% of your rigs idle.

     

    The drilling companies are still a good long term investment and buying more isn't a bad idea. Just be sure you're comfortable with the time horizon for the payout.
    24 Jul 2014, 02:18 PM Reply Like
  • Dan Terry
    , contributor
    Comments (37) | Send Message
     
    Same old stuff, short sellers posting on SA, where are they getting this from? All the sudden no one will need oil? Truth is now is the time to stock up on Sea Drill - only driller to buy with ultradeep water capability.. With new EPA laws taking action soon on coal power plants and the disappointing actual production amounts from oil shale, this call/article is completely unrealistic.
    21 Jul 2014, 03:10 PM Reply Like
  • smurf
    , contributor
    Comments (4790) | Send Message
     
    Why is it that whenever there's negative piece on a sector or stock, dissenters jump in and start yelling about short sellers? We also see the same folks howling about pumping when there's a positive recommendation.

     

    Grow up, people! These are analyst opinions.

     

    Besides, I don't think an overly conservative outfit like Raymond James can be seriously accused of pump and dump tactics. They have too much to lose.
    22 Jul 2014, 03:39 PM Reply Like
  • sinedo
    , contributor
    Comments (419) | Send Message
     
    It is a fact that these anal-ysts place their bets (long and short) and then make their considered "recommendations". This reasoning is based on dumb, stretched assumptions and questionable history to the point that is laughable, IMO.
    I WILL BET THEY ARE WRONG, and almost every time, it is profitable to go against their recommendations.
    If you chart their recommendations, analysts seem to recommend buying near tops and selling near bottoms. Ever wonder why? Raymond James is not the worst of the lot, but it is still a good bet to do the opposite of analyst advice.
    Regards,
    21 Jul 2014, 03:10 PM Reply Like
  • ejspudich@yahoo.com
    , contributor
    Comments (2) | Send Message
     
    Your are so right. Jim Cramer is one of the worst when it comes to recommending a buy on selected stocks when there are at there all time high.
    21 Jul 2014, 04:57 PM Reply Like
  • Bauernschmidt
    , contributor
    Comments (15) | Send Message
     
    You're right. Sounds like manipulation. Years ago, when I worked in the securities industry, the top analyst at our outfit appeared Friday night on one of the stock programs on TV. He touted a stock claiming it would go up to $16 within a few months. The following Monday morning, they dumped their holdings @ about $12. A week later, it dropped to $9, This industry is full of manipulative propaganda.
    22 Jul 2014, 09:14 PM Reply Like
  • Paul L.
    , contributor
    Comments (24) | Send Message
     
    Multi-year down cycle....if true, seems like an opportunity to do a series of buys over time. Who wants to buy when stocks are at all time highs?
    21 Jul 2014, 03:18 PM Reply Like
  • jsteinm1
    , contributor
    Comments (161) | Send Message
     
    I'm sure RJ will start upgrading once these names near all time highs.
    21 Jul 2014, 03:21 PM Reply Like
  • ComputerBlue
    , contributor
    Comments (934) | Send Message
     
    Nothing new. Analysts want cheaper shares in case the US approves of Atlantic drilling..someone has to get the oil if it comes to fruition.
    21 Jul 2014, 03:30 PM Reply Like
  • sinedo
    , contributor
    Comments (419) | Send Message
     
    Coincidentally, the announcement that the Atlantic coast was approved for oil exploration by Obama on Friday, and this negative on off-shore drillers comes out immediately after. RJ didn't spend a lot of time getting their inept analysis out to the public that will be competing for those shares. Nice try, eh?
    Why not; it didn't cost them anything.
    Regards,
    22 Jul 2014, 09:49 AM Reply Like
  • giofls
    , contributor
    Comments (753) | Send Message
     
    I own ESV as a yield play. In at $52, sold Jan $55s for about $2. Add the div and doing covered calls 1.5 to 2x per year, and I'll get 8-10%. Think this div is safe and the downside if very limited for the next couple of years. If it runs up and I get called I'll have no complaints. If it backs up, the covered call income gives me some cushion to sell.
    21 Jul 2014, 03:30 PM Reply Like
  • gcmagone
    , contributor
    Comments (1027) | Send Message
     
    State-of-art rigs will be in demand. SDRL and NE are good picks.
    21 Jul 2014, 03:36 PM Reply Like
  • eapss
    , contributor
    Comments (56) | Send Message
     
    The soap opera continues. He said, she said. I'd enjoy some peace and quiet to stomach my risk and spend my generous dividends. If in the meantime, they half the payout, so be it. A fabulous buying opportunity!
    21 Jul 2014, 03:51 PM Reply Like
  • Jay S
    , contributor
    Comments (139) | Send Message
     
    Calling for a multi year downcycle is a joke, no one can predict that far out, especially with a commodity such as oil. Recent events demonstrate this.
    21 Jul 2014, 03:59 PM Reply Like
  • Debutant
    , contributor
    Comments (2573) | Send Message
     
    >>>>> Raymond James thinks conditions will get worse before they get better. ..............the firm is more comfortable in owning companies with higher-quality assets that also carry higher floater contract coverage to provide some safety during the downturn, specifically........ <<<

     

    I ran a quick Google Translation of the above mentioned statements first from English to my mother tongue and then back to English again .The outcome reads as follows:

     

    "Buy them while cheap. The price will go up again................ invest in the drilling companies with capable rigs, and you'll be fine"
    21 Jul 2014, 04:10 PM Reply Like
  • Victor The Great
    , contributor
    Comments (40) | Send Message
     
    This earnings season will shed some light if activity and day rates rebound. I'm patiently waiting to see the comments.
    21 Jul 2014, 04:57 PM Reply Like
  • charliefox1
    , contributor
    Comments (13) | Send Message
     
    If you believe the hype you will be selling. If you believe your gut and apply reality to the formula you will be a buyer (NASDAQ:HERO). Consolidation and low prices for assets in current market is what makes the rich much richer and common folks much more common. If you believe the price of oil is going down and the world political situation is going to a theme of love and peace and stability, then you would be a seller of those assets based companies whose production will be weather affected but not the whims of third world country events.
    21 Jul 2014, 04:57 PM Reply Like
  • chinkchink
    , contributor
    Comments (512) | Send Message
     
    Am I the only one upset about not getting any RIG $ this month?
    21 Jul 2014, 04:57 PM Reply Like
  • Pepper22
    , contributor
    Comments (33) | Send Message
     
    Guess RayJay wants some. Weak hands will dump.
    21 Jul 2014, 07:01 PM Reply Like
  • ValueFitz
    , contributor
    Comments (23) | Send Message
     
    Insiders bought about $1,000,000 worth of ($hero) stock last month. The stock took a big dive because it cancelled a contract in Africa because African officials wanted bribes to let the workers in the country.

     

    There is nothing wrong with the company and at $4.00 it should be a strong buy.

     

    I am long hero and will buy more if I can scrape together some more money before it goes back up.
    21 Jul 2014, 07:01 PM Reply Like
  • ArtfulDodger
    , contributor
    Comments (2390) | Send Message
     
    Fellow Investors:

     

    I love it when "analysts" knock an entire sector that I'm in. It always means there's running room because everyone is not in, yet. When all the analysts turn positive, it's not long until the entire herd is in — and it's a good chance it's time for me to pack my little tent and wander off into the night, seeking fresh prey.

     

    Long ESV from the twenties. Standing pat.
    21 Jul 2014, 07:47 PM Reply Like
  • Klimbim
    , contributor
    Comments (97) | Send Message
     
    Most of these articles and opinions are written by people wearing american spectacles. All over the world, S.E. Asia, Australia Africa Brazil and even Israel etc new oil and gas fields are being discovered, and most of it off shore. Unlike the US, these countries are willing to invest huge amounts of money to retrieve those resources and release themselves from opec dependancy. And that is why deep sea drilling is not going to go out of fashion, no matter what the US thinks or does. SDRL for example could probably still thrive without any US business.

     

    And btw, it was not BP who "royally screwed up", it was their contractor, but BP has to carry the can for it
    22 Jul 2014, 06:04 AM Reply Like
  • smurf
    , contributor
    Comments (4790) | Send Message
     
    Bought ESV a while back @49.20. Pretty happy with the price appreciation and dividend to date.
    22 Jul 2014, 03:41 PM Reply Like
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