Stifel Nicolaus Lowering Price Target On Transocean (RIG)

Stifel Nicolaus is lowering its price target on shares of Transocean RIG to $96, and is reiterating its Buy rating on shares. In a note to investors, Stifel Nicolaus writes, "We previously characterized 2011 as something of a transition year for the offshore drillers, with the expectation of increased out of service time as assets experienced gaps between contracts, fluctuating dayrates and varied contract durations associated with capacity rationalization. In this context, we are not particularly concerned with near-term declines in utilization, although Transocean still struggles with suboptimal revenue utilization of its working rigs. Importantly, among higher specification assets, we are starting to observe dayrates somewhat better than those assumed in our forecast. Indeed, Transocean recently indicated that the available nearer-term supply of ultra deepwater rigs had declined to two, suggesting increasing potential for gradual upward movement in rates. Stifel Nicolaus goes on to say, "Our view of the offshore drilling market into 2012 remains very constructive, more now that Gulf of Mexico permits are being issued at a (seemingly) accelerating pace. As such, we expect gradual improvement in offshore drilling fundamentals over the next ~12 months. Although contract terms are always asset/market specific, we view standard jackups and midwater floaters as still the most susceptible to rate erosion, although the latter asset class should ultimately garner support with increasing scarcity of more capable rigs. We think that 2011 likely represents the cyclical low point in pricing as a bolus of rigs potentially become available: about 25% and 43% of marketed floaters and jackups, respectively, currently appear to be available for new contracts." Shares of RIG are down $1.57 to $74.01, a loss of 2.08%.