- The recent sharp rally in offshore drillers may be due to short covering, potentially in the midst of a “2 sigma short interest unwind" if oil prices continue to strengthen, according to Evercore ISI analyst James West.
- A portfolio of lower-risk offshore drillers - Atwood Oceanics (NYSE:ATW), Diamond Offshore (NYSE:DO), Ensco (NYSE:ESV), Noble Corp. (NYSE:NE), Rowan (NYSE:RDC) and Transocean (NYSE:RIG) - has been shorted 4.4x their historical average, and a total of 200M shares were short as of May 31 vs. a 50M monthly average during 2005-13, West calculates.
- Short interest as a percentage of the float as of yesterday, according to Markit: ATW 34.5%, DO 20%, RDC 17%, RIG 17%, NE 14%, ESV 3.5%.
- While the firm rates ESV, NE and RDC as relative Buys and believes Hold-rated Ocean Rig UDW (NASDAQ:ORIG) and DO deserve a degree of valuation differentiation, West urges caution on the overall group, seeing the industry as fundamentally oversupplied.