Sector Snap: Caution on Driller Rally
Tuesday January 8, 1:28 pm ET
Few Offshore Drillers Benefit From Crude's Rise; Analyst Says Buy Cautiously
NEW YORK (AP) -- Resurgent crude prices and cautious optimism by Goldman Sachs failed to spark a broad-based rally among oil drilling contractors.
The Philadelphia Oil Service Sector index, which includes drillers as well as other oilfield service providers, rose 0.5 percent to 298.93 in midday trading. But shares of only two major drilling companies rose.
Broader indexes dipped slightly. The Dow Jones industrial average fell 0.3 percent to 12,781.15.
Crude prices reversed course after three days of declines. Light, sweet crude for February delivery rose $2.35 to $97.44 a barrel Tuesday on the New York Mercantile Exchange.
In a research note, Goldman Sachs analyst Daniel Boyd recommended investors buy companies with exposure to the lucrative deepwater drilling market -- but only once stock prices pull back.
"Deepwater fundamentals remain overwhelmingly positive but we would not chase the rally," he said in the note. "We believe that the group may have run too fast too soon and that a further correction is possible."
Shares of Transocean Inc., the largest drilling contractor, rose $1.19 to $141.29. Atwood Oceanics Inc., a relatively small driller that mainly operates deepwater vessels, rose 95 cents to $99.46.
Shares of one company Boyd says is among his "favorite names," Diamond Offshore Drilling Inc., declined $2.52 to $133.60.
Boyd recommended investors avoid companies primarily focused on drilling in relatively shallow water using platforms known as jackup rigs. He lowered his forecast for rates charged on those types of rigs 10 percent to 15 percent in 2008 and by 15 to 20 percent in 2009.
Lower rates could hurt Ensco International Inc. Nearly all of its drilling rigs are jackups -- platforms that are towed out to sea and then jacked up on legs resting on the seabed.
Ensco shares fell $1.28, or 2.2 percent, to $56.73.
Oilfield service companies were also mixed. Schlumberger Ltd. rose $2.23, or 2.3 percent, to $90.04, while Halliburton Co. fell 35 cents to $37.
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