VAL - Oil drilling stocks rally as Barron's says could be gushers

2023-06-26 19:45:00 ET

Drilling names including Noble Corp. ( NYSE: NE ) and Transocean ( NYSE: RIG ) rose across the board Monday, apparently in reaction to a favorable report in Barron's , which said the companies are in strong financial shape and poised to thrive as major energy companies ramp up their offshore spending.

"There's a realization that the oil age will last longer than many prognosticators have suggested," Evercore ISI analyst James West told Barron's . "The major energy companies recognize they need baseload oil production, and they need offshore for that."

Oil service industry leader SLB ( SLB ) recently highlighted the offshore opportunity, forecasting major oil companies would commit up to $500B in new projects during 2022-25, and noted 85% of offshore fields are profitable even if oil prices drop to $50/bbl.

Rates on deepwater rigs bottomed at ~$125K globally at the height of the COVID-19 crisis in May 2020 but are now approaching $500K/day, and current contracts are highly profitable with rig operating costs generally below $150K/day, according to Barron's .

"We are in the second year of what we view as a minimum of a five-year...investment growth cycle," according to Barclays analyst David Anderson, who views the offshore drillers as the most attractive area of the energy service sector.

Noble Corp. ( NE ) is a favorite of Anderson, who said it has an "enormous recontracting opportunity" in the next two years, a clean balance sheet, and a buyback program under way; the company recently signed a contract with Petrobras for a floating rig at $490K/day, a new high for the current cycle.

Diamond Offshore Drilling ( NYSE: DO ) is another Anderson pick, in part because its small size could make it a consolidation target.

In Monday's trading: Noble ( NE ) +4.9% , Transocean ( RIG ) +4.8% , Diamond Offshore ( DO ) +4.5% , Seadrill ( SDRL ) +4.3% , Valaris ( VAL ) +2.7% .

More on Noble Corp.:

• Financial and valuation comparison to sector peers
• Analysis: Noble Corp.: Company Starts 2023 On A High Note - Buy
• Stock price return: Up 6% YTD, up 29.5% in the past 12 months

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