Goldman On Oil: Upgrading Emerge Energy Services, Downgrading Atwood Oceanics

In a report published Monday, Goldman Sachs analysts mentioned that the GS Top 420 study projects that shale and OPEC alone "could meet global oil demand growth in the coming years." This would "sideline marginal offshore, heavy oil and high cost LNG projects." The analysts recommend key shale productivity enablers, with special focus on completion providers.

The analysts upgraded the rating on Emerge Energy Services LP EMES from Neutral to Buy, with a price target of $41.

The analysts express their optimism regarding US land recovery in 2016. "We project 37% frac sand demand growth in 2016, well above our 24% rig count growth, as the secular trend of rising per well sand usage continues," the report added.

The analysts expect the company's distribution to bottom in 2Q15 and then rise by 25 percent / 66 percent in the forthcoming 12- to 18-month period.

In the report Goldman Sachs analysts downgraded the rating on Atwood Oceanics, Inc. ATW from Buy to Neutral, while reducing the price target from $34 to $27, citing a shift in their "portfolio leverage further towards US onshore."

"GS Research expects the marginal growth in global oil demand to be met by US Shale and OPEC production, and forecasts offshore project sanctioning to be challenged for a few years driving weak demand for offshore rigs. Fundamentals in offshore drilling are already challenged owing to significant oversupply, and we expect them to remain very weak in the coming years as additional supply is under-construction," the analysts wrote.

While citing Atwood Oceanics as the "best-in-class" offshore driller, which has a contract backlog that cushions the company to some extent in 2016 and 2017 from the weak macro environment, the analysts explained that the company faces "significant re-contracting risk" in 2017.