A Host Of Upgrades For Offshore Oil Companies As RBC Sees A Recovery

RBC Capital Markets is the latest Wall Street firm to take a shot in the dark at the oil market, which has somehow managed to consistently perplex both bulls and bears in the past couple of years. On Friday, analyst Kurt Hallead upgraded the battered offshore oil group, stocks that have been among the hardest hit by the oil market slump.

According to Hallead, RBC is seeing “definitive signs” of a recovery in offshore oil rig activity, despite the fact that WTI crude oil prices remain below $50/bbl.

“We believe offshore stocks are now poised for a fundamental recovery, similar to '86-'90, '93-'98, and '03-'08 when these sectors produced annual average returns of 53% for 4-5 consecutive years,” Hallead wrote (see his track record here).

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As a result, RBC now has a bullish long-term outlook for offshore drillers and offshore services stocks and has upgraded a number of names:

• Franks International NV FI from Underperform to Outperform.
• Oceaneering International OII from Underperform to Outperform.
• Diamond Offshore Drilling Inc DO from Underperform to Sector Perform.
• Noble Corporation Ordinary Shares (UK) NE from Underperform to Sector Perform.
• Rowan Companies PLC RDC from Underperform to Sector Perform.
• Transocean LTD RIG from Underperform to Sector Perform.

RBC’s optimism is based on a number of offshore projects that will be coming online within the next two years, as well as offshore rig utilization on the rise and more positive commentary from management during Q2 earnings calls. Hallead also said there is potential for a consolidation wave in the fragmented space.

For now, at least, rig counts should continue to rise as long as Brent crude prices stay stable at around $50 per barrel, he concluded.