Worries over BP‘s (BP) Gulf of Mexico debacleare unfairly punishing Ensco International (ESV), a contract drilling firm, writes Deustche Bank analyst Mike Urban in a note to clients today in which he reiterates his “Buy” rating and $65 price target.
Ensco shares today are down 47 cents, or 1.2%, $39.74.
Worries that the Gulf will be shut down by new rules on Gulf drilling are overblown, writes Urban. “While it is reasonable to expect greater regulation and perhaps some project delays,” he writes, “it is unlikely that the GOM will be shut down for any meaningful period of time given the potential impact on U.S. energy supply.”
Gulf drilling is 35% of Ensco’s revenue, he notes, with 80% of that in deep water, contracts that are “take or pay,” he writes, meaning that customers will still have to pay the company for services under contract, even without actual drilling activity. The rest, the shallow water stuff, is strong in terms of Ensco’s contracts, writes Urban.
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