Sector Snap: Oil services sector stocks rise

Shares of offshore drilling services providers rose Friday as a Citi analyst said the sharp sell-off in the sector in the last two months could open up a buying opportunity for investors _ especially in deepwater players like Diamond Offshore, Noble Corp. and Transocean Inc.

Citi Investment Research analyst Robin Shoemaker initiated coverage on seven drillers, with the three firms with the most deepwater exposure garnering "Buy" ratings based on their trading at a discount to peers. Ensco International Inc., Hercules Offshore Inc., Pride International Inc. and Rowan Companies Inc. were rated "Hold."

The analyst said that while a surge in new offshore rig construction will sharply boost fleets in the next four years, possibly pressuring day rates, he actually expects deepwater market conditions to tighten further and deepwater day rates to rise.

Shoemaker singled out Transocean as a "top pick" because of its dominant position in deep water and exposure to constrained supply markets. Contract rollovers and new-build deliveries should boost revenue and unfilled orders in the future, he said.

He also noted that the sharp drop in shares this summer could lead to more consolidation in the sector.

"The upturn in global demand for offshore drilling services, which began five years ago, is abundantly and powerfully evident today," Shoemaker wrote in a research note. "The pace of mergers and acquisitions in offshore drilling has not slowed in response to global credit tightening."

Meantime, oil prices bounced back above $102 a barrel Friday as Hurricane Ike swept through Gulf of Mexico, prompting companies along the Texas coast to shut down refining and drilling operations. Ike is forecast to land early Saturday as a Category 3 hurricane near Galveston.

Light, sweet crude for October delivery rose $1.43 to $102.30 a barrel in morning trading on the New York Mercantile Exchange. The contract fell $1.71 overnight to settle at $100.87 after dropping as low as $100.10 per barrel. The last time Nymex crude traded below the $100 mark was April 2.

In early Friday trading, shares of Transocean rose $3.88, or 3.2 percent, to $123.80; shares of Diamond Offshore rose $4.66, or 4.5 percent, to $107.56; and shares of Noble Corp. rose $2.31, or 5.2 percent, to $46.85.

In addition, shares of Ensco rose $2.13, or 3.6 percent, to $61.62; shares of Hercules Offshore rose $1.04, or 6.2 percent, to $17.76; shares of Pride International rose $1.39, or 4.1 percent, to $35.25; and shares of Rowan Companies rose $1.23, or 3.9 percent, to $33.07.