Ahead Of The Bell: Offshore Drillers Upgraded

NEW YORK (AP) — After a long dry spell of global oil production under-investment, drilling and service activity has risen, signaling a path of recovery for offshore drilling companies, said an analyst as he upgraded a number of oil services stocks.

Deutsche Bank analyst Mike Urban said that among companies in the sector, he expects those focused on oil drilling, as opposed to gas drilling, will lead the sector. Urban also prefers offshore drillers, particularly shallow water drillers, to land drillers.

Urban upgraded Ensco International Inc., Rowan Companies Inc. and Noble Corp. to "Buy" from "Hold," but downgraded Diamond Offshore Drilling to "Hold."

Improving oil market conditions and the rise in drilling intensity for oil should cause demand to return, boosting Ensco and Rowan stocks, Urban said. He raised his price target for Ensco to $57 from $32 and increased Rowan's to $27 from $21. He noted that Rowan's high-end fleet will particularly benefit from demand recovery. Shares of Ensco closed at $33.32 on Thursday. Rowan shares closed at $18.32.

A number of years ago Noble moved all of its shallow water rigs out of the U.S. Gulf of Mexico, a move that now positions the company to gain the most from oil market returns, Urban said, adding that it also has a high quality and balanced fleet. He raised his price target for Noble to $47 from $36. Noble shares closed at $29.25 on Thursday.