Offshore Drillers In 'Game Of Survival'

In a new report, Barclays analyst David Andersin discusses the bleak outlook for offshore drillers. According to Anderson, investors can't bank on a spike in oil prices to be the saving grace for drillers.

"It's a game of survival in Offshore Drilling and we can't see the downward trajectory of offshore upstream spending improving over the next two years, even if oil moves back above $50/bbl by year-end," Anderson explains.

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Between now and 2017, he sees liquidity as the primary focus for offshore drillers. Oil majors across the board have been adopting a strategy of delaying and cancelling any long-term projects, especially exploratory drilling.

Overall, Barclays is “extremely cautious” on offshore drilling stocks, but Anderson notes that the firm sees the most potential downside to Underweight-rated Transocean LTD (NYSE: RIG), Diamond Offshore Drilling Inc (NYSE: DO) and Noble Corporation Ordinary Shares (UK) (NYSE: NE).

For investors hoping that a buyout will save the day, Anderson believes that an M&A cycle is still too far down the road to be a factor for the companies that are currently experiencing the most financial difficulties. While the violent temporary short squeezes in many of these stocks represent excellent short-term trading opportunities, long-term investors should consider staying on the sidelines for now.

Disclosure: the author holds no position in the stocks mentioned.