Barclays on Global Oil & Gas: Move Toward Deepwater; Rig Upgrading Reflects Tightness (DO, RIG, ESV, SDRL, NBL)

August 21, 2012 3:16 PM EDT
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Barclays on Global Oil & Gas: Move Toward Deepwater; rig upgrading reflects tightness

Analyst, Rahim Karim, said, "Recent rig orders announced particularly from Brazil reinforce our view on the structural shift towards deepwater developments. With 50% of the new oil and gas discoveries made in the past decade offshore, primarily in deepwater, there is demand for oil service equipment suitable for these environments. Bullish commentary from the deepwater drillers on earnings conference calls depicted a sold-out 2012 and an increasingly supply-constrained 2013 with nearly all units spoken for, and as such we believe further newbuild orders will follow. Encouragingly, on the shallow-water side, the international jackup market is also strengthening, and hence newbuild awards appear likely in that segment as well."

"We also view market conditions as supportive of further strengthening demand for rig upgrade and refurbishment work, as highlighted by Diamond Offshore's (NYSE: DO) decision last week to upgrade the Ocean Bounty. This tightness in deepwater is a clear positive for the deepwater drillers Transocean (NYSE: RIG)(OW-rated, PT $77), Ensco (NYSE: ESV) (OW, PT $64), Seadrill (Nasdaq: SDRL) (OW, PT $47) and Noble (NYSE: NBL) (OW, PT $48) as these companies are enjoying continued dayrate improvements for almost all rig classes."

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