Citi Maintains Ratings on Offshore Drillers RDC and RIG, Lowers Price Targets

January 7, 2009 8:16 AM EST

Citi maintains a 'Hold' on Rowan Companies Inc (NYSE: RDC), lowers price target from $28 to $20.

Citi analyst says, "Day rates for Rowan's US Gulf of Mexico jack-ups, which began to weaken in late 2006, have rebounded recently which began to weaken in late 2006, have rebounded recently. However, the recent credit crunch and decline in US natural gas prices is expected to lead to lower activity levels in 2009. Dayrates for US Gulf of Mexico (GOM) jack-ups are expected to deteriorate in the face of these challenges. Due to the relatively short cycle nature of the shallow water GOM market activity is more heavily affected by the short-term direction of commodity prices. A significant improvement in commodity prices and tight credit markets will be necessary before GOM rates can rebound, in our opinion."

Rowan Companies, Inc. provides a range of onshore and offshore contract drilling services in the United States and internationally.


Citi maintains a 'Buy' on Transocean Inc (NYSE: RIG), lowers price target from $137 to $107.

Citi analyst says, "Several positive trends in the offshore drilling business warrant a Buy rating, in our view, including capacity constraints in the floating rig markets on a worldwide basis that are driving increases in day rates. The prospects for the floating rig market are bright, in our view, because the market still appears undersupplied even after taking into account new rig construction and the recent deterioration in the global economic and credit situation. However, significant growth in the worldwide jack-up fleet over the next few years may result in pressure on day rates in the shallow water market. On balance we believe RIG shares represent a compelling opportunity because valuation on forward earnings and EBITDA is near multiyear lows. In addition, significant cash flow generation presents the possibility of value-creating transactions, such as share buybacks and new rig construction against long-term contracts."

Transocean LTD. (Transocean), formerly Transocean Inc., is an international provider of offshore contract drilling services for oil and gas wells.

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