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Oil Drillers: Energy Winners

NEW YORK ( TheStreet) -- President Obama keeps racking up energy friends than have been long-time villains in the rhetoric of his party. In February, it was an embrace that Obama gave to nuclear energy . On Wednesday, Obama brought oil drillers into his big-energy-love tent, with a plan to allow extensive offshore drilling as part of a comprehensive energy policy.

Does that make oil drilling stocks an immediate smart play for investors? The biggest stock market winners on Wednesday as a result of the news from Washington were the oil drillers, and not the big multi-nationals like Exxon-Mobil (XOM) or Chevron (CVX), with diversified global business less-levered to a specific offshore energy play.

It was no surprise that offshore oil driller stocks would rise on the news that President Obama was throwing out a majority of the offshore drilling stops that have typified for decades the political positions of Democrats and the environmental lobby in opposition to Big Oil and the Republicans. Yet there remains a gap as deep and wide as an underwater canyon between the political news of the moment and reasons to invest in oil drilling stocks.

The oil driller stocks were up by anywhere from 2% to 4%. Among the biggest gainers was the most highly levered and volatile stock in the sector, under-$5 stock Hercules Offshore (HERO). Hercules was up 3.5% on Wednesday afternoon, or a gain of 15 cents to $4.36. Trading in Hercules shares had eclipsed its average daily volume of 2.3 million by the mid-afternoon.

Still, at under $5 a share, Hercules can move up or down 5% on any given day, energy analysts say. Also, as the most leveraged oil drilling stock, analysts say it is by no stretch of the imagination the bellwether stock in the oil drilling universe or the smartest play.

"Hercules is more of an option than an equity, with enormous amounts of debt making it a high beta play. The big battle for Hercules is to not run out of cash in the next few years," said Matthew Conlon, analyst at MKM Partners.

Diamond Offshore Drilling (DO - Get Report) was leading the oil drilling rally with a gain just short of 4%. Rowan Companies (RDC - Get Report), was right behind Diamond Offshore, with a gain of 3.6%. Transocean (RIG - Get Report) was up 3.5%. Transocean, the largest of the deep-water drillers, had the most elevated trading level among the drilling stocks on Wednesday, with 8.5 million shares traded, versus an average daily volume of 6 million shares. Most of the other drilling stocks were trading at typical volumes.
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HERO $1.05 0.00%
NE $7.36 0.00%
DO $16.92 0.00%
ESV $8.38 0.00%
RDC $11.65 0.00%


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