UBS Bullish On Offshore Drillers

Transocean should do well today.

UBS bullish on US offshore drilling sector

May 15 (Reuters) - UBS started coverage of the U.S. offshore drilling sector with a positive stance based on a healthy longer-term macroeconomic outlook, strong commodity prices, and increasing demand for offshore rigs over the next several years.

The brokerage, which added the world's largest oil and gas drilling contractor Transocean Inc (RIG) to its strategic stock selections list, said high oil prices will drive increased exploration spending.

"We prefer offshore drillers with deepwater exposure and higher specification jackup rigs to take advantage of rising dayrates in these classes of rigs," analyst David Anderson said in a note to clients.

Investors should favor companies with fewer deepwater contracted rig days and more jackup contracted rig days as dayrates for deepwater rigs are likely to continue to rise through 2011, while average jackup dayrates are likely to fall in 2009, Anderson said.

The analyst said offshore drillers are highly correlated to oil prices, which he believes will remain at very high levels over the next several years.

UBS eyes oil's surge, Chevron, drillers.

Transocean (RIG) drew the distinction as top pick at UBS as it waded into several oil-services firms that specialize in drilling and other technologies for extracting precious fossil fuel [LOL].

After purchasing GlobalSanteFe in recent months, Transocean has emerged as "not only bigger but better," according to the bank.

With the largest fleet of deepwater rigs, Transocean ranks as the largest offshore driller in the world, UBS noted.

"As we are more bullish on deepwater-activity levels well into the next decade, we view Transocean as a core holding in the offshore-drilling sector," it said. "Although near-term integration issues are to be expected, Transocean is one of the best operators in the business and will be one of, if not the primary beneficiary of rising deepwater day rates."