Thursday, January 29, 2015

Atwood Oceanics: Waiting for 2015

There’s been a lot of bearish talk about offshore drillers recently–and Atwood Oceanics (ATW) earnings results aren’t likely to dispel those concerns, despite an earnings beat.

Associated Press

Sure, Atwood Oceanics reported a profit of $1.28 a share, well above forecasts for $1.16, according to But really that’s the past, and while the future looks OK, the present looks tough thanks to a weak drilling market. Morgan Stanley’s Ole Slorer explains:

[Atwood] remains positioned to deliver steady earnings growth, in our view, with an execution-and-growth focused management at the helm. We highlight limited contracting risk vs. peers as the floater market enters a soft patch while [Atwood] still appears open to exploring capital return strategies, although this will likely come into greater focus as FCF becomes positive into 2015.

We are expecting more positive market commentary given [Atwood's] more modern fleet mix [(vs. Noble (NE)/Transocean (RIG))]. Beyond well-documented near-term floater market choppiness, we still forecast marketed utilization to pick up in 2015, and we look especially to [Atwood's] outlook for its uncontracted newbuild drillships (Atwood Admiral and Atwood Archer) scheduled for 2015 delivery. We nevertheless believe that [Atwood] could now be less inclined towards exercising its 5th newbuild drillship option at DSME by Mar 31st 2014. [During the conference call, Atwood's CEO said no decision had been made yet. Ed.]

Attention is now on Atwood Hunter (5,000 ft. 3G semi), ATW's next rig to rollover in Equatorial Guinea in Aug 2014 (Ex.2). We are now modeling a rollover at $400kpd, down noticeably vs. the rig's current dayrate of $516kpd (fixed in Jul 2013), as we expect increased competition in securing new work while we note that the rig could also see unpaid time between short-term contracts in West Africa.

Shares of Atwood have dropped 1.9% to $45.45 at 3:38 p.m. and pulled down other offshore players. Noble has fallen 1.4% to $48.68, Transocean has declined 1.9% to $41.60, Rowan (RDC) is off 0.8% at $31.41 and Seadrill (SDRL) has dropped 1.8% to $35.53.

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