Koil Energy Solutions Inc. (KLNG)

[frankermel]

drillers like Transocean (RIG), Diamond Offshore Drilling (DO) and Noble (NE)? Not in the near term, say the folks at Jefferies, who “remain cautious on the group with preference still for Atwood Oceanics (ATW) and Rowan (RDC).” Analyst Brad Handler and team explain why.
As the next chance for a broad market refresh approaches (earnings season), we see continued negative Offshore Drilling trends…In the GoM, September showed progress with respect to demand creation from softer rates as 3 new short-term ultra-deep-water jobs were awarded, including 2 from small Independents (LLOG and DGE). Such opportunities help stabilize utilization and additional similar work may exist; however, we wonder how far into ’15 this can carry the market after current small-scale exploration programs conclude. West Africa feels worse, as the contract roll-off schedule is picking up and we see a relative lack of small oil & gas co’s. As such, we look for a ramp in idle rigs with Transocean suffering most—it has already suggested that 5th Generation UDW ship GSF Jack Ryan may not work in ’15, and we see similar risk for near-term rolloffs Deepwater Discovery and Sedco Express (both also due for multi-month yard visits in ’15, which imposes an R&M cost that needs to be overcome to make for a profitable contract).