TRADER EXTRA Hope Floats for Offshore Drillers For a sector that specializes in things that float, offshore drillers sure are sinking fast. Is it time to think about buying? By BEN LEVISOHN June 5, 2017 Agence France-Presse/Getty Images For a sector that specializes in things that float, offshore drillers sure are sinking fast. Is it time to think about buying? That might seem ridiculous, given the state of the oil patch. Oil dropped 4.3% to $47.66 a barrel last week, spurred in part by fears that the U.S. withdrawal from the Paris climate agreement would lead to more oil production. That caused the energy sector to fall 2.2%, making it the worst performer in an S&P 500 that closed the week at a new high. Offshore drillers were among the hardest hit, asDiamond Offshore Drilling(DO),Ensco(ESV), andTransocean (RIG),tumbled 5% or more. But we’re here to say it’s time to wade into the beaten-down group. Why the optimism? It stems from an acquisition that could signal offshore drillers might be finding a bottom. The deal in question is Ensco’s purchase ofAtwood Oceanics(ATW). Ensco agreed to swap 1.6 of its own shares for each Atwood share, which puts the purchase price at about $1.7 billion, including Atwood’s hefty debt load. In the process, Ensco acquires six floating rigs and five jackups, which will make it the largest offshore driller by number of rigs operated, while also upgrading its fleet. The deal wasn’t celebrated by the market, however. Shares of Ensco fell 5% on May 30, the day the deal was announced, despite the fact that as far back as 2015 analysts were looking for mergers and acquisitions, viewing deals as a sign that the sector was finally bottoming. There can be little doubt that Ensco is betting on an offshore revival. Atwood needed to make a deal, if for no other reason than its high level of debt was going to make things difficult. Ensco, however, could have stood pat. It has one of the better balance sheets in the business, with a ratio of net debt to earnings before interest, taxes, depreciation, and amortization of 1.9. In fact, Raymond James analyst Praveen Narra called Ensco one of the “most defensible” offshore drillers due to its strong balance sheet. Yet Ensco decided the time was right to buy Atwood. “We see this transaction as a bet on an improving market,” Narra wrote in a client note last week, though it’s an optimism he claims not to share. Others are more hopeful. Evercore ISI analyst James West has argued that two things must happen before offshore drillers can rally: Rigs need to continue being taken out of service, and companies need to merge. There are now about 150 floating rigs contracted, down from more than 280 in 2014—a 47% decline. And now we finally have that elusive M&A. West calls the announcement of the deal a “a major step forward for a sector that is just beginning to see stabilization in terms of contracting and day rates.” West adds, “More rigs in fewer hands should help the industry get past this bottom.” There are other signs that business might finally be starting to improve.Husky Energy(HSE.Canada), for instance, announced on Monday that it would go ahead with a long-delayed offshore project in Canada, whileEni(E) decided to go ahead with an offshore project in Mozambique. “We believe more offshore [final investment decisions] are likely in the coming months, which should further support asset prices and encourage further M&A/consolidation in the beleaguered offshore-drilling subsector,” West says. The one caveat: oil prices. Offshore drillers are particularly sensitive to fluctuations in oil prices, which have proven to be nothing if not volatile. Don’t be surprised if that continues. But as long as oil prices continue trading around $50 a barrel, offshore drillers may finally find their moorings. from Barron's
Well, couple that article with this, no it may not be a good bet to go long-term long. Let the speculation run wild! https://www.bloomberg.com/news/arti...-opec-as-once-costly-deep-sea-oil-turns-cheap