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Offshore Drillers In 'Game Of Survival'

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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.

Latest Ratings for RIG

DateFirmActionFromTo
Jun 2019DowngradesBuyNeutral
Jun 2019ReinstatesNeutral
Mar 2019Initiates Coverage OnBuy

View More Analyst Ratings for RIG
View the Latest Analyst Ratings

Posted-In: Barclays David AndersinAnalyst Color Short Ideas Commodities Markets Analyst Ratings Trading Ideas

 

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