Tue, Apr. 21, 11:48 AM
- Raymond James doubles down on its negative outlook for offshore drilling contractors, as the firm cites the lack of new contracts and the need for a much more significant move in oil prices to materially change the sector's landscape.
- The firm says the current contracting rate trends well below its expected pace and even below 2009 levels as the desire to pursue further activity skids to a halt, and believes that 2016 consensus estimates have substantial room for downward earnings revisions; including contract cancellations, the sector actually experienced negative incremental demand during the Q1.
- Raymond James sees the average offshore rig count declining by 13% in 2016 and a further 4% in 2017; even with cost-cutting efforts, it expects the average uncontracted rig to lose money as leading edge dayrates will flirt with risked breakeven levels with only minimal recovery in the next two years given the levels of excess supply.
- Offshore drillers are lower today: ORIG -5.8%, RIG -4.5%, SDRL -4.1%, NE -2.8%, ESV -2.8%, DO -2.1%, ATW -2.1%, PACD -2%, RDC -1.9%.
Fri, Apr. 17, 11:46 AM
- Transocean's (RIG -2.3%) rigs are "dropping like flies," Credit Suisse says as it reiterates its Underperform rating and $12 stock price target after RIG's latest fleet status report revealed it had a contract terminated early and had decided to scrap yet another rig.
- RIG's scrapping of the GSF Explorer, which last worked in November 2014 at $412K/day, boosts the number of floaters the company intends to scrap to 19, up from 11 at the end of 2014; early termination of the Sedco Energy raises RIG’s idle floater count to six.
- RIG expects scrapping the GSF Explorer will result in a Q2 non-cash charge of $100M-$120M.
- Offshore drilling contractors are broadly lower, particularly Atwood Oceanics (ATW -4.1%) after Chevron shortened its contract term for one of its drilling units; also DO -2.2%, PACD -2.1%, NE -1.5%, ESV -0.6%, RDC -0.2%, SDRL +0.3%.
Thu, Apr. 16, 10:58 AM
- Ensco (ESV -4.8%) reveals in its April fleet status report that it agreed to lower dayrates on seven of its jackups working for Saudi Aramco in the Middle East, with reductions ranging 10%-20% and an average decline of 15% across the seven rigs.
- Cowen analysts believe further rate negotiations are ongoing and could affect other operators with units contracted to Saudi Aramco, noting that Rowan (RDC -4.2%) may be the most exposed since it has nine rigs currently working with Aramco; RDC secured three-year contract extensions in Sept. 2014 on four of the jackups, which could see reductions, as well as four units currently under negotiation extensions.
- Other contractors with units working for Aramco are Noble Corp. (NE -4.9%) with four units, Hercules Offshore (HERO -3.9%) with two (after the termination of the Hercules 261), and Seadrill (SDRL -3.9%) with three.
- Other offshore drilling contractors also are lower: RIG -3%, ATW -2.3%, DO -4.1%, HP -2.7%, ORIG -2.5%, PACD -4.2%.
Thu, Apr. 9, 5:19 PM
- Cobalt Energy (NYSE:CIE) says it will plug and abandon its North Platte #2 appraisal well in the deepwater Gulf of Mexico due to a seal failure in the riser connection system.
- The well, which was being drilled with Rowan's (NYSE:RDC) Reliance drillship, was at a depth of 20.7K ft. when the riser problem was detected; the well was permanently abandoned prior to reaching any geological targets.
- CIE is operator and holds a 60% working interest in North Platte, while Total (NYSE:TOT) holds the remaining interest.
Tue, Mar. 24, 11:31 AM
- FBR cut its stock price targets on oilfield services firms Rowan (RDC -1.2%), Ensco (ESV -0.6%), Diamond Offshore (DO -4.4%) and Vantage Drilling (VTG +0.6%), as utilization rates look "deceptively healthy" and on par with 2014 year-end levels, but the average jack-up contract length signed this year is for an average of only 199 days per rig vs. an average 438 in 2014 and 467 in 2013.
- In floaters, the firm says current utilization of 89% vs. 90% at the end of 2014, with ultra-deepwater rigs holding at 89%, but numbers could fall sharply in the next few months, as up to 24 new floaters could enter the market in 2015 and existing contracts for active rigs continue to be exposed to early terminations.
- FBR believes RDC offers an attractive risk/reward profile to patient investors, given the driller's portfolio dominated by the world's largest high-spec jackup fleet and four state-of-the-art ultra-deepwater drillships, as well as the highest probability takeout in the space; nevertheless, the firm cuts its price target to $30 from $36.
- On the other end, the risk of contract re-negotiations and older rig withdrawals keeps FBR more skeptical about the short- and medium-term prospects of drillers like ESV and DO, and they believe that highly leveraged, pure-play names like VTG remain the most exposed to further macro deterioration.
Thu, Mar. 19, 2:26 PM
- It's a rough day for offshore drilling contractors following Transocean's (RIG -7.1%) announcement last night that it will scrap four rigs and stack four more it previously had idled, taking a $300M-$325M charge.
- Most notably, the Deepwater Expedition, which was working for $650K/day in 2014, will be scrapped; overall, the number of rigs the company plans to scrap is now 16, with possibly more to come.
- RIG was awarded a $300K/day contract for one rig for work off the coast of Nigeria, and idles another rig.
- In cutting its stock price target to $16 from $17, RBC expects just 10%-20% of available rig days will be contracted eventually given current market conditions vs. Wall Street expectations for ~35%.
- Also: ESV -4.3%, NE -5.3%, RDC -0.6%, DO -3.1%, SDRL -2.4%, ATW -5.7%, PACD -4.5%, HP -1.8%.
Thu, Mar. 12, 5:48 PM
- While energy E&Ps are out aggressively raising equity, major drillers have little choice but to strengthen their balance sheets; on the heels of Ensco’s (NYSE:ESV) successful bond issuance last week, this week Noble Corp. (NYSE:NE) is looking to strengthen its balance sheet.
- Transocean (NYSE:RIG) has $900M due later this year followed by $1B in 2016, $750M in 2017, and $1.2B in 2018, but Credit Suisse notes that while RIG’s 2018 paper is yielding ~7%, the 2020 and beyond paper is yielding 9%-10% less than ideal; RIG has a $3B revolver which provides flexibility and could keep it on the sidelines.
- Seadrill (NYSE:SDRL) has $350M due later this year and "while it has a lot of work ahead of it... the majority of [its] debt is bank debt"; SDRL medium term debt is yielding 10%-plus.
- Drillers that have attractive pricing from a management perspective - Rowan (NYSE:RDC), Atwood Oceanics (NYSE:ATW) and Diamond Offshore (NYSE:DO) - do not have near-term maturities, Credit Suisse says.
Wed, Mar. 11, 3:48 PM
- Paragon Offshore (NYSE:PGN) and Diamond Offshore (NYSE:DO) are at risk from Pemex contract cancellations but Seadrill (NYSE:SDRL) is probably safe, according to analyst Lenny Zephirin.
- The analyst says Pemex is committed to reduce the age of its jack-up fleet by replacing old equipment; with this in mind, PGN and DO - each with two rigs up for contract renewal, averaging a respective 38.2 and 40 years in age - appear especially vulnerable for rigs be terminated or renewed at lower dayrates.
- However, SDRL looks safe in Mexico, currently averaging five years for 5 jack-ups and four years for one semis, Zephirin says.
- The analyst also sees Saudi Aramco continuing to cause problems for drillers, particularly Rowan (NYSE:RDC), whose exposure to Saudi Aramco is 34.4% of its ~$5.1B backlog, and a potential discount could negatively impact RDC’s gross EPS by $0.45-$0.55/year; EPS could be impacted at Ensco (NYSE:ESV) by $0.35-$0.45, Hercules Offshore (NASDAQ:HERO) by $0.10-$0.20, Noble Corp. (NYSE:NE) by $0.12-$0.24 and SDRL by $0.05-$0.10.
Thu, Mar. 5, 11:59 AM
- Expect tough times to continue in the offshore drilling sector, RBC analyst Robert Pinkard says but adds that M&A activity in such a fragmented market could make him more positive.
- Pinkard expects any deals to be almost entirely with equity given already stretched balance sheets, and he doubts premiums paid would be big enough to re-rate the entire group; he views Rowan (RDC -1.6%) as the most attractive M&A target due to the combination of a strong balance sheet and quality of rigs, with Diamond Offshore (DO +1%), Ensco (ESV -0.4%) and Noble Energy (NE -1.8%) as the most likely potential acquirers.
- Otherwise, the analyst prefers “companies with better contract coverage/visibility" such as ESV, NE and RDC to those with more exposure, such as DO and Transocean (RIG -0.7%).
Fri, Feb. 27, 5:11 PM
- Rowan (NYSE:RDC) rallied 4.4% after saying during today's earnings conference call that Saudi Aramco likely would continue employing about a third of the company's 28 contracted rigs.
- RDC said it is in talks with Aramco to extend contracts for four of its drillships and is looking to win contracts for three jack-up rigs.
- Rival Hercules Offshore said yesterday that the Saudi company had terminated a drilling contract for one of its rigs.
- RDC wrote down the value of 12 of its oldest jack-up rigs by $438M during Q4, leading it to report an unadjusted loss compared with a profit in the year-earlier quarter; RDC's fleet utilization rate rose slightly to 86% in Q4.
Fri, Feb. 27, 12:45 PM
- Hercules Offshore (HERO -28.2%) shares are crushed after this morning's downgrade to zero by Deutsche Bank analyst Mike Urban, who had maintained a Buy rating on the oil drilling services company for more than two years.
- Urban says he had remained positive on HERO relative to his negative view on the offshore driller sector because he did not foresee a lot of new competition to enter the shallow Gulf of Mexico area where the company had a commanding market position; that dominant position is no longer enough, he says, because "the collapse in oil prices has eviscerated demand.”
- Other stocks in the sector are rising today: RDC +3.6%, ATW +2.5%, RIG +2.4%, DO +2%, PKD +1.6%, HP +1.3%, ESV +1%.
Fri, Feb. 27, 8:06 AM
Thu, Feb. 26, 5:30 PM
Thu, Feb. 26, 2:32 PM
- Offshore drillers are warning that the number of deepwater rigs stacked or scrapped is set to hit a two-decade high, and predicting that the industry slump caused by lower crude oil prices could last another two years.
- Seadrill (SDRL -2.2%) said today that the severity of the downturn and extent of oversupply was such that ~25% of the rigs would come available for hire this year, and that industry decisions regarding the cold stacking and scrapping of older units likely would accelerate to levels not been seen in two decades (Q4 earnings).
- Transocean's (RIG -1%) Q4 results were not as bad as expected, but Senior VP Terry Bonno warned today that the company “continue(s) to expect challenging conditions... [with] extended periods of inter-contract idle time and significant competition for the limited tendering opportunities available."
- Dayrates for advanced, deepwater rigs have tumbled from a peak of ~$650K two years ago to $350K-$400K, with contractors slashing prices in the face of dwindling exploration.
- Also: ESV -7.3%, RDC -3.4%, DO -4.3%, ATW -5.1%, PACD -9.1%, HERO -13.6%.
Tue, Feb. 24, 2:22 PM
- Offshore drillers are sinking again after Diamond Offshore (DO -8.3%) disclosed that it probably would lose some contracts; also, Transocean Partners (RIGP -7.5%), the MLP created by Transocean (RIG -1.9%), was downgraded to Underweight with a $16 price target, cut from $26, at Barclays.
- RIGP, which is set to release Q4 results tomorrow after the close, is not at risk of cutting its dividend but faces uncertainty in light of lowered demand for offshore drilling rigs, Barclays says, but that RIGP likely would not be able to increase its distribution if the semi-submersible DDIII were to begin operating at recently observed market rates.
- DO is reiterated at a Sell rating with a $23 price target at Deutsche Bank.
- Also: SDRL -2.7%, SDLP -2.8%, ESV -6.5%, RDC -4.3%, NE -4.7%, ATW -5.8%, PACD -5.2%.
Mon, Feb. 23, 11:48 AM
- Transocean (RIG -2.3%) is slumping as Susquehanna downgrades the stock to Negative from Neutral with a $12 price target, cut from $15; RIG also is caught up in today's falling crude oil prices on concerns over the global supply glut.
- The firm is concerned over the competitive positioning of RIG’s assets to receive tenders, which will be compounded by the industry's weak macro environment; it says the "day of reckoning" for RIG’s old offshore drilling rigs has arrived, with the average age of the company’s floaters at 20.7 years vs. the industry average of 17.6 years.
- Given the challenges, the firm sees EBITDA declining 47% in 2016 and risking further downside in 2017 if the large number of contracts set to roll off are not renewed.
- Offshore drillers are broadly lower: ESV -3.2%, RDC -2.4%, SDRL -2.7%, NE -2.1%, ATW -1.3%, DO -0.5%.
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