Atwood Oceanics Inc.: Fleet Analysis And Third-Quarter Results On July 30 And Commentary

| About: Atwood Oceanics (ATW)

Summary

Atwood Oceanics released its third-quarter results last week. Revenues were good despite a challenging environment.

The company is a mid-tier offshore driller that has successfully enhanced its fleet to the UDW drillships market with its Atwood advantage and soon Atwood Achiever.

I believe it is the right time to accumulate this stock, for the rebound in 2015, and despite some headwinds ahead, particularly with the jackup sector.

"UDW Atwood Achiever" from Atwood Oceanics website.

Atwood Oceanics (NYSE:ATW) was founded 45 years ago and provides offshore oil contract drilling services and has expanded worldwide. The company is based in Houston, Texas. It has 1,830 full-time employees.

ATW has a total fleet of 14 rigs, consisting of six UDW ultra-deepwater drillships including three drillships under construction; three deepwater semi-submersible rigs; and five jackups. One semi-submersible (Southern cross) is cold stacked in Malta and another one (Seahawk) was sold on April 2014.

Robert J. Saltiel, CEO, said at the recent conference call on July 31:

One of the notable highlights from our third quarter was our record quarterly revenue of $293 million. Our company's top line and our asset base continues to expand as we deliver on our extensive newbuild program.

Complete fleet analysis and status as of July 31, 2014.

Fleet status report July 1, 2014.

More information has been added after the conference call on July 31, 2014

1 - UDW Ultra-Deep Water drillships.

# Name

Year

Built

Specification

K feet

Contract

End

Current

Day rate

K$

Location
1 Atwood Achiever 8/2014 12*40

Shipyard late 8/14

11/17

-

595

Morocco

2 Atwood Archer 3/2015 12*40 Available - -
3 Atwood Admiral 12/2015 12*40 Available - -
4 Atwood Advantage 2013 12*40 4/17 584 US Gulf of Mexico
5 Atwood Condor 2012 10*40 11/16 555 US Gulf of Mexico
6 Atwood Osprey 2011 8.2*32 5/17 470 Australia
Click to enlarge

2 - Deep Water Semi-submersibles.

# Name

Year

Built

Specification

K feet

Contract

End

Current

Day rate

Location
1 Atwood Eagle 1982 5*25

8/16

460

Australia
2 Atwood Falcon 1983 5*25

2/15

4/15

3/16

460

385

499.5

Australia
3 Atwood Hunter 1981 5*28

11/14

*N/A

337

515.5

Africa
Click to enlarge

* To be determined later.

3 - Jack-ups and other.

# Name

Year

Built

Specification

Contract

End

Current

Day rate

Location
1 Atwood Aurora 2008 350'*30k

8/14

8/16

182

158-185

Africa
2 Atwood Beacon 2003 400'*36k 1/16 185 Mediterranean
3 Atwood Mako 2012 400'*30k

11/14

165

Thailand
4 Atwood Manta 2012 400'*30k 12/15

159.5

Malaysia
5 Atwood Orca 2013 400'*30k 2/16 165 Thailand
             
1 Atwood Southern Cross

1976

Upgraded 1997

2000'*20k Cold Stacked - Malta
Click to enlarge

* The Atwood Seahawk was sold on April 2014.

Some important statistics:

Rigs nature Ultra-Deep Water Semi-sub. Jackups Total
Rigs number 6 3 5 14
Average age (year) 1 32.4 4.8 -
Available/idle/shipyard 2 1 0 3
Average day rate K$ 445 350 165 -
Backlog $ Billion to 2018 2.268 0.637 0.429 3.334
Capex to 2016 - - - 1.34
Drilling costs $K       160
Click to enlarge

From the 10Q:

The average drilling cost per calendar day decreased from approximately $180,000 for the three months ended June 30, 2013 as compared to approximately $160,000 for the three months ended June 30, 2014

Q3 2014 results on July 31, 2014, snapshot and commentary.

Atwood released the results on July 30.

10Q third-quarter on August 1, 2014.

  Q3 Q2
Revenue in $ Million 297.8 273.1
Net Income $ Million 71.9 73.3
Earnings per share in $ 1.12 1.13
Shares Outstanding basic in Million 64.309 64.286
Cash and Cash equivalent in $ Million 119.161 59.635
Long-term Debt $ Billion 1.47 1.513
Stock price August 1, 2014 in $ 48.45 -
Enterprise Value $ Billion 4.47 -
EBITDA $ Million 532.37 -
EV/EBITDA 8.4 -
Click to enlarge

Commentary:

Atwood Oceanics is a solid mid-tier offshore driller with a good balance sheet and low P/E ratio. The company has an excellent backlog at $3.334 billion until 2018. Most importantly ATW is well contracted for 2014 and 2015:

Year 2014 2015
% days Contracted 92 80
Click to enlarge

The revenues 2014 guidance is between $515 million to $530 million, and capital expenditure is between $175 million to $185 million. Again, good numbers.

The company has tried to enter the ultra-deepwater sector with its Atwood Advantage, and I believe it is a good choice for the long term, despite a difficult environment of over-supply and fierce competition until 2015. This transition was not without unforeseen hiccups. During the second-quarter, ATW suffered some loss with its new UDW drillship Atwood Advantage. Here is what Robert Saltiel, CEO, said in the last conference call:

However, the strong performance of our active fleet was somewhat offset by startup issues on the Atwood Advantage. On last quarter's call, I mentioned that equipment installation and troubleshooting had impacted our operations in April. In June, we identified a separate issue relating to the allocation of electric power on the rig. Multiple equipment suppliers were involved in the diagnosis and resolution, which led us to incur approximately 25 zero rate days. With this issue behind us, we fully expect that we've turned the corner on our operations' reliability for the Atwood Advantage. For the month of July, we have been operating the Advantage at approximately 90% revenue efficiency.

I just hope that the next rig to be delivered soon, the UDW Drillship Atwood Achiever, will be operational without any serious technical issues that ATW experienced unfortunately with its predecessor.

The company is warning about the jack-up market, and it may be a brief setback in earnings for the near future, due to a temporary over-capacity. Here is what it said in the last conference call:

Shifting now to jack-ups. This is the third call in a row that I will express caution on the jack-up segment. There is still pockets of regional strength, but the oncoming delivery of uncontracted newbuilds presents a real challenge to the market supply and demand balance. This is why we see downside risk. Although our concerns have not manifested themselves yet in many fixtures, we believe the competition for future work is likely to increase as the new rigs continue to enter the market.

Here is the YTD-chart:

ATW Chart

ATW data by YCharts

I am upgrading ATW from HOLD to BUY.

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