Energy Morning - 18 November 2024

Shelf Drilling North Sea (No_rec, TP: NOK) - Discontinuing coverage

We have discontinued coverage of Shelf Drilling North Sea, following its acquisition by Shelf Drilling. Our last published recommendation, target price and estimates should no longer be relied upon.

Shelf Drilling (Buy, TP: NOK35.00) - Building visibility in a volatile...

Given uncertain times in the jackup market, we welcome the acknowledgement of compliance (AoC) in Norway and contract wins in Thailand and Nigeria, helping de-risk 2025–2026e earnings. We see the next key steps as visibility on its Aramco exposure and building 2026 backlog for its standard rigs in India, supporting cash-flow generation for deleveraging. We reiterate our BUY, but have cut our target price to NOK35 (40).

Valuation and market update

In this note, we show updated valuation and market statistics for the Offshore Drilling sector.

Valaris (Buy, TP: USD70.00) - Patience remains key

With deepwater uncertainty and idle time extending well into 2026, consensus looks (far) too optimistic to us (we are 21% below on both 2025–2026e EBITDA). Jackup market headwinds have also made us lower our dayrate expectations, and we see a risk of fewer of its rigs working in Saudi Arabia in 2025–2026. With the cash-flow story still on the horizon, we believe focus should be on 2026 and beyond, helping to close the NAV gap and intrinsic value to crystallise. We reiterate our BUY but have cut ...

Noble (Buy, TP: USD46.00) - Increased risk of idle time

While investors should be well aware of the risk of downtime for Noble’s tier-2 rigs, we are now more concerned about idle time for some of its 7G drillships. We are now 11–16% below consensus after cutting our 2025–2026e EBITDA estimates. Nonetheless, among the large-cap contractors, Noble has the highest 2025–2026e dividend yield potential, at a modest 7–8%, while we now see more meaningful cash flow in the outer years. We reiterate our BUY, but have trimmed our target price to USD46 (48).

Borr Drilling (Buy, TP: NOK65.00) - Volatile times set to remain

Uncertainty in the jackup market has intensified, resulting in greater volatility and more idle time for jackups. While benefiting from good contract coverage, exposure to remote regions, and commercial discipline, it is set to eventually be affected by the market challenges. Thus, we have cut our EBITDA estimates and are 6–12% below consensus for 2025–2026e. We reiterate our BUY, but have lowered our target price to NOK65 (95).

Odfjell Drilling (Buy, TP: NOK100.00) - Set to deliver on dividend sto...

With its intensive 5-year survey schedule on track and within budget (two completed and two remaining), the company intends to increase its quarterly dividend with its Q4 results. The current dividend yield is 5%, while we estimate 7–16% for 2025–2026. We see further upside to this in a potential refinancing scenario that could allow all cash to be distributed to shareholders, suggesting potential for aggregated dividends equal to its entire market cap to be paid by end-2028. We expect Odfjell D...

Unmatched performance

EBITDA above and outlook remains strong

Valuation and market update

In this note, we show updated valuation and market statistics for the Offshore Drilling sector.

Energy Morning - 1 November 2024

Energy Morning - 31 October 2024

Dividend increase approaching

Transocean (Buy, TP: USD5.50) - Better positioned than peers

Despite increased uncertainty in the deepwater market, Transocean remains better positioned than peers for the coming years due to its high-quality fleet and service offering, backlog coverage and solid commercial capabilities. Due to these factors, and less downside to consensus than peers, we believe it deserves a premium valuation. We reiterate our BUY and USD5.5 target price.

Valuation and market update

In this note, we show updated valuation and market statistics for the Offshore Drilling sector.

Pemex effect looks to be limited for now

Following uncertainty yesterday related to Pemex’s 2024 budget cuts and potential reduction in rig count, we understand that the initial effect looks to be limited to a handful of rigs (potentially four) for a short period only. Affected rigs look to be locally owned units, which suggest that international contractors (Borr Drilling and Paratus Energy) are not affected. Hence, we now see a scenario with less-direct effect for international contractors than feared by the capital market yesterday....

Jackup uncertainty building

With reports of Pemex budget cuts and potential rig suspensions, additional uncertainty is added to the jackup market. The overhang from two rounds of Saudi Aramco suspensions (totalling 28 rigs, c6% of global supply) have been slow to absorb, and are likely to persist through 2025. With looming risk of even more Aramco suspensions, and rigs possibly being released in Mexico, we see a continued high competitive environment on new tenders. Dayrates for most premium jobs are cUSD120k–130k (a tad b...