The Zacks Analyst Blog Highlights: CNOOC, Baker Hughes, Transocean, Diamond Offshore and Noble

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Jan 24, 2013, 09:30 ET

CHICAGO, Jan. 24, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include CNOOC Ltd. (NYSE:CEO), Baker Hughes Inc. (NYSE:BHI), Transocean Inc. (NYSE:RIG), Diamond Offshore (NYSE:DO), Noble Corp. (NYSE:NE).

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Here are highlights from Wednesday's Analyst Blog:

CNOOC Upped to Outperform

On Jan 14, 2013, we upgraded the Chinese energy giant CNOOC Ltd. (NYSE:CEO) to Outperform. The company's premium assets portfolio, excellent execution strategy, unique position as a pure oil player and potential transactions in the merger and acquisition space are the key drivers of its growth.

Why the Upgrade?

The Chinese company believes that it will be able to maintain a 6–10% compound annual production growth rate over the next five years backed by various organic and inorganic measures.

CNOOC has made significant progress in its scheduled project agenda. The recent successful oil fields commissioned include the Panyu 4-2/5-1 oilfield adjustment project, the Panyu 4-2/5-1 oilfield project, Weizhou 11-2 and Weizhou 6-9/6-10 − in two different plays in China. These projects bear evidence to its constant efforts to upgrade its portfolio and enhance shareholder value.

During the third quarter of 2012, the company made 8 successful appraisals. The company confirmed Kenli 9-1 as a mid-sized (with 30-50 million tons of oil in place) and Dongfang 13-2 as a large-sized gas discovery (holding about 30–80 billion cubic meters of gas in place) in west South China Sea. Both fields will take 3–5 years to come online.

U.S. Rig Count Falls by 12

In its weekly release, Houston-based oilfield services company Baker Hughes Inc. (NYSE:BHI) reported a dip in the U.S. rig count (number of rigs searching for oil and gas in the country). This fall can be attributed to a decrease in the tally of both oil and natural gas-directed rigs.

The Baker Hughes rig count, issued since 1944, acts as an important yardstick for drilling contractors like Transocean Inc. (NYSE:RIG), Diamond Offshore (NYSE:DO), Noble Corp. (NYSE:NE), etc. in gauging the overall business environment of the oil and gas industry.

Analysis of the Data

Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 1,749 for the week ended Jan 18, 2013. This was down by 12 from the previous week's rig count and indicates the eighth decrease in as many weeks.

Despite this, the current nationwide rig count is almost double than that of the lowest level reached in recent years (876 in the week ended June 12, 2009), though it is way below the prior-year level of 2,008. It rose to a 22-year high in 2008, peaking at 2,031 in the weeks ending Aug 29 and Sep 12.

Rigs engaged in land operations descended by 12 to 1,679, offshore drilling was down by 2 to 51 rigs, while inland waters activity increased by 2 to 19 units.

Natural Gas Rig Count: The natural gas rig count – which slumped to a 13-year low in early November 2012 – decreased for the second successive week to 429 (a drop of 5 rigs from the previous week). As per the most recent report, the number of gas-directed rigs is down 47% from its 2012 peak of 811. The current natural gas rig count remains 73% below its all-time high of 1,606 reached in late summer 2008.

Oil Rig Count: The oil rig count – which was at a 25-year high of 1,432 in August last year – fell by 7 to 1,316. Nevertheless, the current tally is way above the previous year's rig count of 1,223. It has recovered strongly from a low of 179 in June 2009, rising 7.4 times.

Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 4 remained unchanged from the previous week.

Rig Count by Type: The number of vertical drilling rigs fell by 18 to 442 while the horizontal/directional rig count (encompassing new drilling technology that has the ability to drill and extract gas from dense rock formations, also known as shale formations) was up by 6 to 1,307. In particular, horizontal rig units – that reached an all-time high of 1,193 in May 2012 – increased by 8 from the last week's level to 1,127.

Zacks Rank: As of now, Transocean, Diamond Offshore and Noble are all Zacks Rank #3 (Hold) stocks, implying that these are expected to perform in line with the broader U.S. equity market over the next one to three months.

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