Jefferies Outlook On Oil Services & Equipment

Jefferies issued a note on Oil Services and Equipment Thursday and saw the near-term outlook worsening.

Analysts led by Eduardo Royes commented that with “Brent down 25 percent since early-Dec, we expect "patchwork" floater demand dries up in '15 and so we revise our floater rigcount/driller estimates down...jackups, the Middle East/ SE Asia look relatively better than W Africa/the GoM.”

Royes believed that “with the oil price slide continuing, smaller oil & gas co's that played a key role in keeping the 2014 floater rigcount flattish likely pull back materially.”

“We now model a peak-to-trough (mid-2014 to mid-2015) floater rigcount decline of 25 rigs/-9 percent. However, we believe that if there is a silver lining to commodity price weakness in what was an already increasingly oversupplied market, it is that stacking could accelerate— we believe ~25 rigs could be removed from competitive supply in 2015 and ~50 in the next two years,” according to the note.

Royes concluded that “until the commodity price finds a floor and the macro outlook stabilizes, we likely continue to chase fundamentals lower.”

The firm maintained Buy ratings on two companies:

Atwood Oceanics, Inc. (NYSE: ATW) with a $40 price target. ATW recently traded at $27.12, down 0.07 percent.

Rowan Companies PLC (NYSE: RDC) with a $28 price target. RDC recently traded at $23.76, down 0.5 percent.

Diamond Offshore Drilling Inc (NYSE: DO), ENSCO PLC (NYSE: ESV), Hercules Offshore, Inc. (NASDAQ: HERO), Noble Corp plc (NYSE: NE), Paragon Offshore PLC (NYSE: PGN) and Transocean LTD (NYSE: RIG) were all rated Hold.