Sector Snap: Oil Service Shares Rally
Friday February 8, 12:22 pm ET
Offshore Drillers and Rising Crude Prices Drive Oilfield Service Sector Rally
NEW YORK (AP) -- Shares of oilfield service providers rose Friday, lifted by higher oil prices and a bright outlook for the offshore drilling market.
The Philadelphia Oil Service Sector Index rose 0.55 percent to 253.56 in morning trading. Broader indexes pulled back, with the Dow Jones industrial average sinking 0.6 percent to 12,171.32.
Higher crude prices, which advanced to add to the previous day's gains, buttressed the sector. Light, sweet crude for March delivery rose $1.12 to $89.23 a barrel on the New York Mercantile Exchange.
Offshore drillers -- especially those that operate movable platforms known as jackup rigs -- were the sector's big winners. The market for the rigs, which are towed into place and then raised on legs resting on the seabed, has been weak for months because of oversupply.
But early in the day, Friedman, Billings, Ramsey analyst Robert MacKenzie issued a report that suggested a near-term shortage of the rigs, meaning that operators should be able to maintain their pricing power well into the summer.
"We expect day rates to remain firm for contractors who hold bidding firm," he wrote.
Shares of Noble Drilling Corp., which operates a fleet composed almost entirely of jackup rigs, jumped $1.45, or 3.3 percent, to $45.37. Another major jackup operator, Ensco International Inc., saw its shares rise 79 cents to $52.15.
Shares of other drillers that offer a range of rig types, including jackups, also rose. Atwood Oceanics Inc. added 86 cents to $86.45. Transocean Inc., the world's largest drilling contractor, gained $2.22 to $124.35.
Shares of Diamond Offshore Drilling Inc. advanced a day after the company reported a sharp drop in fourth-quarter profit because of a big tax charge and idled rigs.
Jefferies & Co. analyst Judson Bailey cut his earnings estimates on the company because he said he expects a number of its rigs will continue to sit unused over the next two years. But he also said he believes the company's shares are undervalued, and stood by a "Buy" rating for the diversified driller.
"Despite more downtime and higher costs, Diamond Offshore's most attractive characteristic remains the company's leverage to the deepwater and intermediate (semisubmersible) market," which continue to attract more lucrative drilling rates than other types of rigs, he wrote.
MacKenzie also recommends the stock, noting that a "recent sell-off presents an attractive entry point." He rates Diamond "Outperform."
Diamond shares fell 68 cents to $106.23.
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