Simmons On Oil Service: Upgrades Diamond Offshore, Downgrades Noble, Ocean Rig

Simmons & Co, energy specialists of Piper Jaffray, mentioned that stocks of offshore drillers have exhibited extreme volatility in recent weeks. Analyst Ian Macpherson commented that the recent rally in crude was among the few factors leading to the “short squeeze across beta energy and the outer limits of the risk complex system-wide.”

A move from ~$30/bbl to ~$40/bbl Brent crude means little to offshore rig fundamentals, which require substantially and sustainably higher prices to propel a multi-year recovery process, Macpherson said.

Diamond Offshore Drilling

Macpherson upgraded the rating for Diamond Offshore Drilling Inc DO from Underweight to Neutral, while raising the price target from $16.50 to $19.

The analyst believes that Diamond Offshore’s strength lies in its relatively better balance sheet and a more substantial backlog. He wrote, “DO's most obvious company-specific investment risks would include backlog cancellation/collection issues and above average fleet obsolescence risk.”

Noble Corporation

Macpherson downgraded the rating for Noble Corporation Ordinary Shares (UK) NE from Neutral to Underweight, while reducing the price target from $8.25 to $6.50.

Noble’s shares have gained 4 percent year-to-date, versus a 0.2 percent increase in the OSX. “Company-specific investment risks include backlog cancellation/collection issues, as well as moderate and possibly underappreciated balance sheet risk (4.5x-5.5x estimated peak leverage),” the analyst added.

Ocean Rig

Macpherson downgraded the rating for Ocean Rig UDW Inc ORIG from Neutral to Underweight, while reducing the price target from $1.00 to $0.65.

Investors are concerned about the company’s ability to meet its future debt maturities besides making progress payments on three spec drill ships under construction, the analyst mentioned.