Goldman Sachs: Oil Services Face Pressure

Diamond Offshore DO: Goldman remains Sell rated on Diamond (18% downside), given its high leverage to the midwater market, which it expects to remain under pressure through at least mid-2011 as newbuild deepwater rigs enter the market. It also sees the potential for Diamond to acquire or build rigs without contracts, which could serve as an additional overhang. Noble Corporation NE: Goldman remains Neutral and sees the potential for a relative “catch-up” trade should NE prove that recent downtime, partly operational but mostly due to market weakness, is not symptomatic of larger operational issues. NE has historically delivered best-in-class execution so Goldman is willing to give it the benefit of the doubt but would like to gain greater confidence in the offshore rig market before becoming more positive on the shares. Ensco ESV: Goldman maintains Neutral and likes its growing leverage to Ultra-DW and premium jackups. However, is concerned that its exposure to standard jackups, despite being just 20-25% of our DCF, will weigh on the stock. And, while ESV has historically made good investment decisions, we see near-term risk that it could acquire assets at a premium, which could signal that management is worried about the earnings power of its conventional fleet. DO closed Thursday at $68.63 NE closed Thursday at $34.44 ESV closed Thursday at $46.50