Offshore drilling companies are benefiting from increasing demand as well as the tighter availability of high-specification, ultra-deepwater rigs, according to Wells Fargo Securities.
Due to the rising demand, tighter supply and the daily costs of renting a drilling rig, the market value of UDW rigs is increasing, Bailey said in the Wednesday upgrade note. (See his track record here.)
UDW dayrates are likely to increase faster than originally projected by Wells Fargo, potentially peaking in the $250,000 to $300,000 range at some point in 2020, the analyst said.
Wells Fargo substantially increased its EBITDA and NAV estimates across the offshore drilling universe.
Bailey attributes the revised top-notch rating for Transocean to the company's deepwater leverage.
The sell-side firm's 2019-2020 EBITDA estimates for the company were moved higher by 10-20 percent due to increased jack-up and dayrate assumptions, Bailey said.
Wells Fargo's expectations for a multiyear recovery for drilling companies remain intact for both the jack-up and floater segments, with greater upside to dayrates likely in both markets, the analyst said.
The Price Action
Transocean shares have gained about 12 percent year-to-date. The stock was up 3.9 percent at $12.40 at the time of publication Wednesday.
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Latest Ratings for RIG
|Sep 2018||RBC Capital||Upgrades||Sector Perform||Outperform|
|Sep 2018||Morgan Stanley||Initiates Coverage On||Overweight|
|Sep 2018||Wells Fargo||Upgrades||Market Perform||Outperform|
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