Oil Service Stocks Slammed As Two Firms Throw In the Towel (DO, ATW, RIG, NE)

Oil Service stocks are getting crushed today as two brokerage firm cut ratings and slashed price targets across the sector today, citing the impact from the Gulf oil spill and drilling moratorium.

Goldman Sachs downgraded the Oil Service from Attractive to Neutral, saying the oil spill will likely have a lasting impact on the industry and most negatively impact the deep water drillers. The firm thinks the six month moratorium on deepwater drilling in the US could be extended to at least 12 months. They also see deepwater day rates being pressured and pricing power in the group delayed until 2011.

Goldman lowered estimates and targets by 20%-30% for offshore drillers, 15%-20% for the rest of coverage.

On specific stocks, Goldman Sachs downgraded Diamond Offshore (NYSE: DO) and Atwood Oceanics, Inc. (NYSE: ATW) from Neutral to Sell and downgraded Transocean (NYSE: RIG) and Noble Corp. (NYSE: NE) were downgraded from Buy to Neutral.

Goldman was more positive on Halliburton (NYSE: HAL), Ensco plc (NYSE: ESV) and Nabors Industries Ltd. (NYSE: NBR). The not-rated designation on Ensco was removed and it is now rated a Buy and Nabors Industries was upgraded to Buy.

FBR Capital Markets also downgraded a host of stocks in the sector and cut price targets across the board. The firm downgraded Baker Hughes Incorporated (NYSE: BHI), and Noble Corp. (NYSE: NE) from Outperform to Market Perform, and Diamond Offshore Drilling Inc. (NYSE: DO) from Market Perform to Underperform.

FBR said they are working with a baseline assumption is that the deepwater drilling moratorium lasts through November and start-up delays cause drilling to resume in January.

Shares of Diamond Offshore are down 6%, Atwood Oceanics is down 7%, Transocean Ltd. is down 9%, Noble is down 4%, and Baker Hughes is down 4%.

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