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 Briefing.com. 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.

SEC enforcement co-chief Canellos to leave

Bloomberg News

George S. Canellos, who led several of the Securities and Exchange Commission's recent cases, will step down as co-director of the agency's Division of Enforcement, according to an agency statement Friday.

Mr. Canellos headed insider-trading actions against former McKinsey & Co. executive Rajat Gupta, Galleon Group founder Raj Rajaratnam and several managers at S.A.C. Capital as well as the firm's founder, Steven A. Cohen.

He was instrumental in a $150 million SEC settlement with Bank of America over improper disclosure of employee bonuses and financial losses prior to its 2008 merger with Merrill Lynch and led actions against several large financial firms over the sales of mortgage-backed securities and collateralize debt obligations. He also brought fraud charges against JPMorgan traders for derivatives losses in the “London Whale” case.

He has led the division since April 22, along with the other co-director, Andrew Ceresney. Both Mr. Canellos and Mr. Ceresney worked as federal prosecutors with SEC Chairman Mary Jo White, when she served as the U.S. attorney for the Southern District of New York between 1993 and 2001.

Mr. Canellos will leave the SEC by the end of the month, while Mr. Ceresney will stay on as director of enforcement.

Mr. Canellos “has not yet made future career plans,” according to the SEC.

Under the duo, the division has cut a high profile since Ms. White took over the SEC in April and made enforcement a priority.

The SEC statement credited Mr. Canellos for helping to implement one of Ms. White's signature changes: modifying SEC settlement policy to require defendants in some actions to admit wrongdoing.

Previously, defendants typically settled without admitting or denying the charges.

Prior to being named co-director of enforcement, Mr. Canellos, 49, served as deputy director and acting director of the division in 2012 and last year. He joined the SEC in 2009 as director of the New York Regional Office, coming aboard after the multi-billion Bernard Madoff Ponzi scheme was revealed. In response, he implemented changes in investment advisory firm examinations and integrated the teams examining broker-dealers and investment managers, according to the SEC statement.

For the fiscal year ended in September, the SEC filed 686 enforcement actions and collected $3.4 billion in disgorgements and penalties. The number of cases declined from a record set in fiscal 2011, but the payment amount was 22% higher than that year.

Mr. Canellos “helped to improve coordination between the enforcement and exam programs, streamline procedures to expedite investigations and better integrate our investigative and trial functions,” Ms. White said in a statement.