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Transocean (NYSE:RIG) +1.2% in Monday's trading as Susquehanna upgrades shares to Buy from Neutral with a $9 price target, raised from $5.50, saying the offshore ultra-deepwater drilling industry is in a demand recovery cycle, supported by supply constraints and pricing momentum.
Limited available sixth- and seventh-generation drillship supply, capital constraints and long lead times on newbuilds likely will keep the ultra-deepwater supply tight and support rising dayrates, Susquehanna's Charles Minervino says, adding that of the 13 cold-stacked sixth- and seventh-generation ultra-deepwater rigs in the market, Transocean (RIG) owns eight of them, providing additional EBITDA opportunities if the market supports unstacking rigs.
Harsh-environment and ultra-deepwater contract durations are increasing and revisiting the levels of 2013-14, while lead times on contract awards have expanded as well, and with ~$9B of backlog, Transocean (RIG) has high EBITDA visibility through 2025 and opportunities to re-contract rigs at higher dayrates, according to Minervino.
Susquehanna also has Buy ratings on oilfield services companies SLB (SLB), Halliburton (HAL), Baker Hughes (BKR), TechnipFMC (FTI), NOV (NOV), Patterson-UTI Energy (PTEN), Helmerich & Payne (HP) and MRC Global (MRC).