Offshore Drillers: How Much Stacking is Enough Stacking?

There’s good news and bad news in a today’s Credit Suisse report on the offshore drillers. The good news is that the number of rigs needing to be taken off the market to rebalance supply and demand is probably lower than many expect. The bad news: There’s still a lot of rigs that need to be “stacked” before he job is done.

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Credit Suisse analysts Gregory Lewis and Neesha Khanna explain:

While some industry vets put the number of required floater retirements to balance the market at 50 (makes sense as ~50 UDW floaters are scheduled for delivery from 2014-2016 at established yards) we are thinking the number is closer to 30. The 20 rig difference is based on an assumption of 3-4% rig demand growth over the next two years. Bottom line: more rigs need to be stacked to balance the market and this only happens if the market continues to languish – no one will stack a rig in a rising market…

Noble (NE), Transocean (RIG), Ensco (ESV), and Diamond Offshore (DO) are asking themselves that question. While Transocean has 8 floaters stacked, they have not stacked a rig in over a year (sort of) – that may soon change. More recently both Diamond Offshore (Q3) and Ensco (Q2) have taken write downs and starting the stacking/scrapping process.

So who’s been stacking rigs? Lewis and Khanna point to Ensco and Diamond Offshore:

Last quarter Ensco announced plans to stack 5 floaters and hold them for sale (we expect buyers to be limited) and also announced plans to stack the DS-2 for a total of 6 stacked rigs since last October. Not to be out done last week, Diamond Offshore announced plans to scrap 6 floaters; this included 3 long term stacked rigs and 3 rigs that have worked in the last 12 months (1 is still working). Additionally, Diamond Offshore recently stacked 2 other floaters (1976 built). A bit dazed and confused but that is 5 stackings from Diamond Offshore in the last year for a total of 11 stacked rigs between Diamond Offshore and Ensco. Who's next?

Shares of Diamond Offshore have ticked up 0.1% to $38.90 at 1:03 p.m., while Ensco is unchanged at $38.91, Transocean has gained 0.4% to $40 $30 and Noble has dropped 0.8% to $20.77.