Offshore Drillers Sinking…Again

After sinking yesterday, offshore drilling stocks are sliding once again after fleet-status reports from Diamond Offshore (DO) and Ensco (ESV) confirmed that the rig market is still a mess.

Associated Press

Shares of Diamond Offshore have dropped 2.8% to $38.15 at 11:51 a.m., while Ensco has dipped 0.7% to $45.66, Noble (NE) has fallen 1.4% to $25.08, Seadrill (SDRL) has declined 0.4% to $30.39 and Transocean (RIG) is off 0.7% at $35.13.

RBC’s Robert Pinkard explains why Ensco’s report could have been worse:

We are reducing our EPS estimates based on Ensco’s September Fleet Status Update. The report featured several negative datapoints (stacked floater, newbuild delay, idle jackups), but the company was able to keep two of its 8500 series rigs working for the rest of the year, which we view as positive given the risk for these rigs to have meaningful idle time between contracts.

Susquehanna’s Charles Minervino and Kai Wang try to find the good news in Diamond Offshore’s update:

Diamond Offshore did not report any new notable contracts in its latest fleet status report. The lack of new tenders is consistent with our conversations with management since the last FSR. We are not expecting any new tenders for at least the rest of 2014, and possibly 1Q15. Estimates for 2014-2015 were lowered due to the Ocean General (3,000′ Aus SS) being actively marketed after it rolled off its contract and retender assumptions were removed for the rest of the year, as well as the removal of retender assumptions for the Ocean Saratoga (2,200′ GoM SS) after its LLOG option was not picked up in September.

What to watch for: Rigs rolling off contract in late September and October include the Ocean King (300′ GoM JU), Ocean Star (5,500′ Brazil SS) and Ocean Yatzy (3,300′ Brazil SS DP). DO indicated that rigs that are scheduled to roll off between now and 2014 are not expected to be retendered. We remain keen that if rigs begin to win a significant number of contracts, it could represent a inflection point in the industry and is incremental to our estimates.

Shares of Diamond Offshore have fallen 33% so far this year, while Ensco has dropped 20%, Noble has declined 23%, Seadrill has slipped 26% and Transocean is off 29%.