Dahlman downs four
Dahlman Rose has reduced its ratings on Seadrill, Diamond Offshore, Atwood Oceanics and Ensco from “buy” to “hold” as drilling contractors race to place speculative newbuilding orders.
Analyst Omar Nokta says he is concerned that the flood of shipbuilding activity may “keep a lid” on dayrates for units operating in the ultra-deepwater market, with levels set to fluctuate between an estimated $400,000 and $450,000 per day.
In a note to clients, he wrote: "Drilling contractors have placed orders for 10 speculative UDW [ultra-deepwater] rigs since November and have secured options for eight more, the most rapid ordering pace since dayrates were skyrocketing in early 2006.
“These orders seem driven by a weaker earnings outlook due to aging company fleets as opposed to a tightening market. Attractive shipyard prices and payment terms have also played a role in encouraging orders.”
While Nokta believes the long-term outlook for the ultra-deepwater demand remains strong, he says there is more than enough capacity available in the near term.
“The pace of orders suggests the UDW market has tightened considerably, yet there are three rigs currently available for contract. Another 17-18 rigs will either roll off contract or complete construction before the end of 2011, along with 15 more in 2012.
“This dynamic varies from the 2005-2007 ordering cycle when the nearest rig available for contract was at least 12 months away and only five to six more would free up within 24 months. We note that these latest orders have come following some stability in dayrates, as opposed to the last cycle when dayrates were surging.”
Dahlman Rose held onto its “hold” ratings for shares of Noble, Pride, Rowan and Transocean.
By Aaron Kelley in Stamford