After a disastrous start to 2017, crude oil prices have been making an under-the-radar recovery in recent weeks, with WTI prices pushing meaningfully above $51/bbl on Monday for the first time since May. On Monday, UBS analyst Angie Sedita said she sees clear signs of a slow recovery in the global oil market and upgraded a handful of offshore oil drillers.
According to Sedita, offshore utilization for both jackups and floaters has finally bottomed and will drift slowly higher throughout 2018. Demand growth will likely start to accelerate in 2019 and 2020 as oil prices rise. In the meantime, battered offshore oil stocks offer investors a compelling long-term value opportunity.
“We expect 2018 to continue to show modest demand growth for development projects,” Sedita said (see Sedita‘s track record sedita“=””>”>here). “However, for the sector to truly tighten exploration (or greenfield) drilling would need to return which would only begin to occur with oil prices in the high-$50 to low-$60s.”
UBS forecasts floater utilization to increase from 53 percent to 75 percent and jackup utilization to increase from 59 percent to 79 percent by 2020.
Based in their new forecasts, UBS has upped its 2018 EBITDA estimates for offshore drillers by 25 percent.
The firm anticipates WTI crude prices will recover to roughly $67/bbl by 2020.
UBS has upgraded…
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