Dallas, Texas 03/14/2014 (FINANCIALSTRENDS) – Transocean LTD (NYSE:RIG) was downgraded and price target brought down to $45 by rating agencies as the analysts at Forbes felt that in the current global oil and gas supply and price scenario, the deep water and its associated ultra deep water drilling services providers would face a stiff challenge from their shale gas counterparts.
The analysts at Forbes, have also pointed out that there is an oversupply of service providers who are into drilling of rigs, in addition to a slowdown at the rate at which rentals for rigs are increasing over the past few quarters. The sector is also believed to be going through a cyclical slow down, which is expected to revive only when the global economy is chugging at full speed.
The analysts have also highlighted that Transocean LTD (NYSE:RIG) has an extremely huge asset base in the deep sea drilling sector and is dependent on the likely improvement in the sector as it has no other alternate revenue streams. The firm also suffers from the lack of sophisticated equipment which still commands a decent rental price in this subdued environment. These are some of the key reasons which has promoted the analyst community to downgrade the stock’s PT from previous $53 to current $45 per share.
The prospects of Transocean LTD (NYSE:RIG) are likely to improve only when the macro economic situation in the global order resumes to drive the price of oil beyond a low price bench mark. At those heightened price points, upstream oil and gas production firms would find it a cost effective business to venture into deep sea drilling. At current global price points, Transocean LTD (NYSE:RIG) services are found to be cost inhibitive for prospective oil and gas extraction companies to hire and still make profits out of the exercise.