Contract Backlog Of DO, NE, RIG At Risk: Citigroup

The Minerals Management Service has announced a six-month moratorium on deepwater drilling in the Gulf of Mexico on May 30, “an action that appears to have created a force majeure situation with respect to deepwater rig contracts.” Citigroup has “estimated ‘at risk’ contract backlog for Diamond Offshore DO, Noble Corp NE, and Transocean RIG.” According to the analysts, “While the legalities of drilling rig contracts for the deepwater Gulf of Mexico are important, the offshore drilling contractors and their oil company customers already are having discussions aimed at finding creative solutions that will allow both sides to cope with the unexpected moratorium on deepwater drilling that has been imposed by the federal government.” “We believe that the stock market may have overestimated the disruptive impact of the federal government’s decision to halt drilling in the Gulf of Mexico for the next six months. We have seen major selloffs in the stocks of deepwater drilling contractors. The battered stock list also includes companies exposed to the shallow water market even though the MMS excluded shallow Gulf of Mexico waters from the drilling ban,” Citigroup adds. The analysts mention, “Our top picks in the fire sale in offshore drilling stocks are Transocean, Diamond Offshore, and Noble Corp.” More Analyst Ratings here