The Case For Pacific Drilling Bonds
Artyom Zakaryan, CFA • 21 Comments
Artyom Zakaryan, CFA • 21 Comments
Pacific Drilling's Modern Fleet And Newbuilds To Contribute To Outperformance
Power Hedge • 45 Comments
Power Hedge • 45 Comments
Pacific Drilling: The Bear Case
Paulo Santos • 48 Comments
Paulo Santos • 48 Comments
Fri, Jul. 22, 2:23 PM
- Transocean (RIG -5.5%) falls more than 5% after its latest fleet status report showed it stacked an additional six rigs, taking its total number of currently stacked rigs to 28, with reduced dayrates for others.
- RIG says it won a two-year contract for one of its semi-submersibles to operate off India for ONGC at a $127K dayrate, and a newbuild ultra-deepwater rig started operations on a 10-year contract in the Gulf of Mexico at a $498K dayrate.
- Following the report, RBC's Kurt Hallead says RIG shares have limited upside until the market gains more confidence in the supply and demand outlook for floating rigs in 2017-18. Currently, fundamentals continue to weaken for floating rigs, and it remains unclear where dayrates and utilization may bottom.
- Offshore drillers are broadly lower: RIGP -1%, DO -1.5%, ESV -4.2%, RDC -5%, SDRL -1.6%, NE -4.8%, ATW -3.6%, PACD -3.8%.
Tue, Jun. 28, 3:28 PM
- Ensco (ESV +5.9%) surges after Susquehanna upgrades shares to Neutral from Negative, citing recovering crude oil prices and the stock's valuation and relative underperformance; of course, rising crude prices today also are helping.
- The firm says higher crude prices has not sparked improved demand for offshore rigs, and it could take through 2018 before any material demand potentially arises, but ESV has underperformed other offshore drillers by a wide margin and now trades below the average for offshore drillers.
- But Evercore ISI remains cautious on offshore drillers, arguing that "not a single stock screens 'cheap,'" although it prefers ESV, Noble Corp. (NE +1.2%) and Rowan (RDC +3.5%) as relative Buys for their superior fleet quality, low operating cost basis, low capex and solid backlog, while Hold-rated Ocean Rig UDW (ORIG +3.6%) and Diamond Offshore (DO +1.8%) deserve "a degree of valuation differentiation due to its highly contracted fleet in the near term."
- Also higher today: RIG +3.9%, ATW +7.1%, SDRL +2.2%, SDLP +12.3%, PACD +2.7%.
Tue, Jun. 7, 12:50 PM
Wed, Jun. 1, 12:45 PM
Wed, Apr. 20, 2:33 PM
- Schlumberger (SLB +2.4%) is on the move after being upgraded to Overweight from Equal Weight with a $93 price target, raised from $83, at Barclays, which believes that "no company has improved itself more during the downturn than SLB."
- Naming the company its top pick in the North America Oilfield Services & Equipment group, Barclays also expects SLB's international share to continue growing and its return on invested capital to expand the most among the group.
- But the firm also thinks a "scarcity premium" has evolved as investors have little to work with in the sector, as the offshore market is several years away from a recovery and liquidity issues are enveloping many of the small and mid caps.
- The firm views Halliburton (HAL +1.7%) as the "purest way to play the U.S. land recovery" but says "valuation looks a bit stretched post the BHI deal and is highly dependent on higher E&P spending."
- Barclays also upgrades Superior Energy (SPN +1.6%) to Overweight from Equal Weight and Dril-Quip (DRQ +0.3%) to Equal Weight from Underweight, and downgrades Hornbeck Offshore (HOS +3.6%) and National Oilwell Varco (NOV -1.2%) to Equal Weight from Overweight as well as Pacific Drilling (PACD -1.7%) to Underweight from Equal Weight.
- Now read Schlumberger shares soared by 20%, but with muted fundamentals
Thu, Mar. 3, 2:58 PM
- Offshore drillers are surging today, which RBC analysts at least partially attribute to Noble Corp.'s (NE +16.1%) news that it spent $200M to buy back bonds due in 2020 and 2021, greatly reducing its debt.
- RBC estimates that NE would be able to retire ~$300M of debt principal at face value for $200M with new borrowings on the revolver, which should generate annual interest savings of ~$10M or a ~$0.03 impact to EPS.
- Ben Levisohn of Barron's also notes that oil companies in general have been able to offer stock and pay down debt, which has reduced some of the fears that the entire sector could go bankrupt, and that short interest in offshore drillers has been high.
- Also: RIG +9.9%, SDRL +11.7%, ESV +13.2%, RDC +10.5%, DO +5.9%, ATW +20%, PACD +42.6%.
Dec. 4, 2015, 3:49 PM
- Barclays sees little reason for optimism among offshore drilling contractors despite recent outperformance, particularly in light of recent guidance from major oil companies for dramatically reduced offshore spending in 2016; the firm expects another leg down in stock performance as a lack of contracting activity and a massive oversupply of floaters looks daunting in light of the spending cuts.
- Nevertheless, Barclays upgrades Atwood Oceanics (ATW -5.8%) to Equal Weight from Underweight with an $18 price target, and now considers the stock fully valued after dropping ~23% over the past three months; the firm sees the most downside to Transocean (RIG -3.4%), Diamond Offshore (DO -3.5%) and Noble Corp. (NE -4.6%), while Pacific Drilling (PACD -5.6%) and Ocean Rig UDW (ORIG -4.1%) show the most upside but also come with the most risk with little equity remaining and looming liquidity issues.
Nov. 30, 2015, 2:23 PM
- The "lower for longer" consensus on crude oil prices is overly conservative, and prices will begin bouncing back next year, Guggenheim analysts say as they upgrade the oil services sector to Buy and see plenty of upside for the major players given current market conditions.
- Guggenheim is calling for oil prices to return to $100/bbl by 2018, and sees 10% upside across the board for oil services stocks in the next year resulting from the group's unique exposure to crude prices.
- Within the group, the firm prefers Rowan (RDC +1.8%) and Atwood Oceanics (ATW +1.6%), as their backlogs should help reduce near-term risk, RDC has no newbuild commitments and ATW is finalizing a contract in Brazil for one of its two uncontracted rigs, utilization in the Middle East (NYSE:RDC) and Australia (NYSE:ATW) should be resilient on a relative basis, and both have fleets that make them more interesting M&A candidates.
- Upgraded to Buy from Neutral: CAM, RIG, NE, OII, PACD, DO, ESV, CLB, OIS, HP, NBR, CRR, NOV, DRQ, FI, PTEN, SSE, FTI, CJES, FET, SPN.
Oct. 29, 2015, 3:44 PM
- Pacific Drilling (PACD +11.2%) is sharply higher after announcing it had terminated a construction contract with Samsung Heavy Industries for a newbuild deepwater drillship.
- PACD says Samsung failed to deliver the Pacific Zonda drillship on schedule and will seek a refund after already making ~$181M in advance payments to the South Korean shipbuilder.
- The cancellation comes in the same week that Statoil blamed the delay on the start of its Mariner project in the North Sea on delays on topside delivery at the Daewoo ship yard in South Korea.
Sep. 18, 2015, 12:45 PM
Sep. 16, 2015, 12:45 PM
Aug. 26, 2015, 10:46 AM
- Transocean (RIG -3.3%) opens down but off premarket lows following news of its plans to suspend dividend payouts and book 2B Swiss francs ($2.1B) in asset impairments; other offshore drilling contractors trade mixed.
- Raymond James says RIG's move is prudent given the difficulties facing the offshore drilling market: "All in on an annual basis, the cancellation of the dividend would result in $220M in retained liquidity... We view this as prudent as [RIG] can use the cash to improve its own liquidity or work to eventually high grade its fleet."
- Cowen notes the decision comes as somewhat of a surprise, since the dividend had been approved by shareholders last May, and adds the move could be seen as an indication that the market has grown incrementally worse in just the three weeks since RIG Aug. 6 earnings call.
- Offshore peers: DO +1.2%, SDRL +2.2%, ESV +0.3%, RIGP +0.3%, RDC -0.1%, ATW -0.2%, NE -2.2%, VTG -4.3%, ORIG -1.5%, PACD flat.
Aug. 13, 2015, 10:30 AM
- Offshore drilling stocks could see further downside despite already falling ~30% in two months, Barclays analysts say, expecting offshore spending to decline by double digits again in 2016 as operators wait for signs of oil price stability and lower development costs before committing resources.
- The firm says floater retirements have stalled, with 38 retirements since last October but only three since June, making little headway for the 60-70 additional floater retirements the industry needs to rebalance the market.
- The firm downgrades Atwood Oceanics (ATW -7.3%) to Underweight from Equal Weight with an $18 price target from a previous $27, and maintains Underweight ratings on Diamond Offshore (DO -3.7%), Noble Corp. (NE -6.7%) and Ocean Rig UDW (ORIG -6.2%); Ensco (ESV -5.2%), Pacific Drilling (PACD -5.2%) and Rowan (RDC -6.3%) are maintained with Equal Weight ratings.
Aug. 10, 2015, 3:48 PM
- Raymond James analysts sayOcean Rig’s (ORIG +5%) Q2 earnings announced last Friday were impressive due to its high revenue efficiency and strong cost controls, but keep the stock rated Market Perform because of continued market weakness.
- ORIG continues to reduce its daily operating costs for active rigs, but the firm agrees with management's cautious view that it does not see any short-term market improvement coming soon.
- The firm also continues to rate Pacific Drilling (PACD +9.1%) at Market Perform, even as the offshore drilling contractor continues to post solid operational performance, with revenue efficiency again coming in near the top of guidance and lower-than-expected operating costs.
- But the PACD's outlook remains a concern, the firm says, because of anemic demand and the company’s availability, with up to four rigs with availability to start 2016 and very limited demand on the horizon.
Jul. 23, 2015, 2:36 PM
- Pacific Drilling (PACD +10.6%) pushes to 10% gains after providing a business update that highlights significant cost improvements and reduced cost guidance across the board due to prudent project deferrals and overhead management.
- PACD increased its average revenue efficiency to 94%-96% from 92%-96%, cut 2015 capex to $425M-$450M from prior guidance of $500M-$525M and reduced Q2 G&A expenses to $55M-$58M from a prior outlook for $63M-$66M.
- PACD has been able to achieve $32M in cost savings and expects to deliver $100M in annual run rate savings for a 20% reduction.
- While Raymond James is impressed with the better than expected cost control guidance, the firm maintains its Market Perform rating on the stock amid caution because of the difficult environment facing offshore drilling demand.
Jul. 17, 2015, 11:32 AM
- Offshore drillers are significantly underperforming the broader market following cautious commentary from Schlumberger (SLB -0.1%) despite its Q2 earnings beat, a contract termination and an analyst downgrade.
- On its earnings call this morning, SLB said it expects little improvement in pricing levels in the near future and declines in activity for offshore drillers, while land rigs provide a more attractive opportunity and better margins.
- For its Q3, SLB foresees a further 5%-6% decline in Q/Q revenue as well as lower EPS, and says the $0.77 consensus is a realistic number.
- Yesterday, ConocoPhillips (COP -1.8%) said it plans to cut future deepwater exploration spending, particularly in its operated Gulf of Mexico program; in light of the decision, COP is terminating a contract for an Ensco (ESV -4.9%) deepwater drill ship.
- Also, UBS today downgraded National Oilwell Varco (NOV -1.5%) to Sell from Neutral.
- SDRL -6.4%, RIG -4.7%, RDC -6%, DO -3.3%, ATW -4.2%, HP -1.2%, PTEN -1.2%, PACD -5.7%.
Pacific Drilling SA operates as an offshore drilling company. It provides global ultra-deepwater drilling services to the oil and natural gas industry. The company also contracts ultra-deepwater rigs, related equipment and work crews on a dayrate basis to drill wells. Its products include fleet... More
Sector: Basic Materials
Industry: Oil & Gas Equipment & Services
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