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

|By:, SA News Editor

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%.