Deep-sea oil drillers are once again riding the wave of investor enthusiasm that next year will be better for profits. But this time there seems to be a bigger chance it will actually happen, according to analysts at Credit Suisse Group AG and Morgan Stanley.
Some of the world’s biggest owners of rigs that drill oil wells in more than two miles of water, including Transocean Ltd., Ensco Plc and Diamond Offshore Drilling Inc., saw rallies in their shares near the end of 2016 and 2017, only to see their stocks tumble by the start of the following year as reality set in.
“So here we are in mid-September and the trade beckons again,” James Wicklund, analyst at Credit Suisse, wrote Monday in a note to investors. “This time, however, we are one year closer to a recovery after 4 1/2 years of decline, with the drilling contractors sounding more optimistic than in years, with small, light green shoots being seen.”
Offshore drillers have been among the most beaten-up names from the worst crude-market crash in a generation, due to an oversupply of their vessels and high operating costs. This year marks the lowest in projected offshore spending since oil prices first fell in 2014, according Morgan Stanley. Explorers are expected to boost spending 45 percent to $188 billion by 2022, the bank wrote in a note to investors.
Major oil trading houses are predicting the return of $100 crude for the first time since 2014.
The rise of offshore drilling is also coming as shale work back on land is hitting a speed bump, according to Rystad Energy.
The renewed interest in offshore is driven by a “steep reduction” in offshore costs that’s allowing explorers to turn a profit at lower oil prices, Audun Martinsen, head of oilfield research at Rystad, said.
Shale spending is expected to reach $120 billion this year, short of Rystad’s $160 billion estimated spending globally offshore.