Jefferies Downgrades Shallow Drillers

Sector Snap: Offshore Drillers

NEW YORK (AP) -- Shares of Ensco International Inc., Noble Corp. and Rowan Companies Inc. fell Monday, after a Jefferies & Co. analyst cut his ratings and target prices on the offshore drillers, citing lower day rates amid rising rig supplies.

Noble shares sank $2.70, or 5.3 percent, to $47.80, while Rowan shares fell 94 cents to $35.62. Ensco shares declined $1.50, or 2.7 percent, to $53.70, in morning trading. GlobalSantaFe slipped $1.89, or 2.6 percent, to $71.05.

Judson E. Bailey, in a client note, cut his ratings on the three offshore drillers to "Hold" from "Buy." He said the global supply of jack-up rigs -- a type of offshore drilling platform often used in relatively shallow waters -- is set to increase about 15 percent in the next 24 months.

In the meantime, per-day-per-rig revenue rates -- or dayrates -- for these kinds of rigs is already showing signs of softness in some international markets, wrote Bailey, citing a GlobalSantaFe Corp. disclosure that a jack-up rig was contracted for $185,000 per day, down from its previous rate of $210,000.

Dayrates could decline through 2009, and the stocks are fairly priced for their earnings growth prospects in the meantime, he added.

The analyst cut his target price on Rowan to $40 from $47, on Noble to $55 from $59, and trimmed his target on Ensco to $60 from $76.

Companies with more exposure deepwater drilling, like Diamond Offshore Drilling Inc. and Transocean Inc., are better investment bets for now, added Bailey. He has a "Buy" rating on both stocks.