Rowan Companies: Strong EPS Growth Through 2015

Dec.31.13 | About: Rowan Companies (RDC)

Rowan Companies (NYSE:RDC) provides contract drilling services utilizing a fleet of 30 self-elevating mobile offshore drilling platforms (jack-up rigs). Rowan recently entered the ultra-deepwater - UDW market with the construction of 4 drillships being delivered over the next 2 years. Until now, Rowan has relied on high-specification, premium jack-up rigs which can drill up to 35,000 feet in 550 feet of water. With the addition of these UDW drillships; Rowan is projecting a 66% and 50% EPS increase in 2014 and 2015, respectively.

EPS Growth

Year Ending

Q1 EPS

Q2

Q3

Q4

Fiscal Year

2015

1.23

1.15

1.19

1.35

4.95

2014

0.48

0.67

0.97

1.16

3.31

2013

0.55

0.57

0.42

0.45

1.99

2012

0.47

0.51

0.39

0.44

1.81

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3 of the 4 UDW drillships have already been contracted out with impressive daily rates. Rowan Renaissance successfully completed its sea trials on November 17, 2013 and slated to commence operations with REPSOL in West Africa by April 2014. 2 more UDW drillships are expected to be delivered in 2014 and 1 in early 2015.

Ultra-Deepwater drillships

Location

Customer

Day Rate

Delivery

Commence drilling

Rowan Renaissance

West Africa

REPSOL

$ 619,000

Dec-13

Apr-14

Rowan Resolute

Gulf of Mexico

Anadarko

$ 608,000

Jun-14

Sep-14

Rowan Reliance

Gulf of Mexico

Cobalt

$ 602,000

Oct-14

Jan-15

Rowan Relentless

N/A

N/A

--

Mar-15

--

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Analysis

Rowan initiated an ambitious growth strategy in 2011 and it is now starting to see the potential of this expansion come to fruition. In June 2011, the company announced plans to build 4 new UDW drillships, and in December 2011 the company completed a $3 billion new build program that produced 11 high-spec jack-up rigs over a 5-year period. The result of this execution is a growing backlog that now stands at a company record $4.4 billion.

While Rowan lags behind other industry leaders such as Transocean (NYSE:RIG), Seadrill (NYSE:SDRL) and Noble (NYSE:NE) in total number of UDW drillships, it is the industry leader in high-spec jack-ups with 19.

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These high-spec jack-up rigs have also led to Rowan leading its peers in utilization rates and day rates. The current day rates show Rowan rigs are commanding a premium in almost every market they are in.

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Conclusion

Rowan has excellent growth potential during the next 2 years. Credit Suisse recently ranked Rowan as one of their top energy picks for 2014 and it was the only driller on the list. Credit Suisse cites a doubling of EBITDA in 2 years as the reason for their optimism. Not many companies can confidently predict a doubling of EBITDA in just a 2 year span. The past several years has seen very little return to long stock holders of the company, but management's growth strategy should finally start to payoff starting in 2014 and continuing over the next several years.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.