Credit Suisse Predicts 3 Earnings Beats And 6 Misses From Offshore Drillers

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In a recent report, Credit Suisse gave their updated outlook for battered offshore drilling stocks. Last year was a nightmare for offshore drillers, as collapsing crude oil prices suffocated demand for drilling. But will things get better for drillers in 2015?
Bleak outlook
Analysts believe that Q4 earnings numberS in the space will be relatively unimportant compared to the companies’ updated guidance for 2015. A large portion of all the drillers’ 2014 revenue came from rigs that will be rolling off contract in 2015 and 2016. It’s unclear what (if anything) the drillers will be able to do to replace that revenue in this environment.

The issue is most pressing for Hercules Offshore Inc HERO and Rowan Companies PLC RDC, the drillers with the highest percentage of revenue rolling off contract in the first half of 2015.
Cash is critical
Analysts believe that drillers will be conserving cash in any way possible in 2015. The most obvious way to do so is by reducing/suspending dividend payments and share buyback programs. In other words, it’s unlikely that Transocean Ltd. RIG shareholders will see an 18 percent dividend yield in 2015.
Stocks remain heavily shorted
Even though offshore drilling stocks are down about 50 percent in 2014, the companies remain heavily shorted. The heavy short interest is a sign that many traders believe the pain is not yet over for the drillers, even though the groundwork is now in place for major short covering should the oil market stabilize and/or recover sooner than expected.

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