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Summary

  • Provides land-based contract drilling services for oil and natural gas producers targeting unconventional resource plays in the United States.
  • 2013 revenue +183%, Q1 '14 revenue +64%.
  • Q1 barely profitable on an adjusted basis.

Based in Houston, TX, Independence Contract Drilling (NYSE:ICD) scheduled a $150 million IPO on the NYSE with a market capitalization of $341 million at a price range midpoint of $15 for Friday, August 8, 2014. Price range reduced to $10-$11.

The full IPO calendar is available at IPOpremium

SEC Documents

Manager, Co-Managers: Morgan Stanley, Barclays, Tudor, Pickering, Holt

Joint Managers: Canaccord Genuity, Capital One Securities, Cowen and Company, FBR, IBERIA Capital Partners, Johnson Rice & Company

End of lockup (180 days): Tuesday, February 3, 2015

End of 25-day quiet period: Tuesday, Sept. 2, 2014

Summary

ICD provides land-based contract drilling services for oil and natural gas producers targeting unconventional resource plays in the United States.

Valuation

Glossary

Accumulated deficit ($mm)

-$11

Per share dilution

-$4.16

Valuation Ratios

Mrkt Cap ($mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

annualizing Q1,adj pre-tax earnings

Independence Contract Drilling

$341

6.3

94.6

1.2

1.4

44%

Conclusion

  • 2013 rev +183%,
  • Q1 '14 rev +64%,
  • Q1 barely profitable on an adj basis

The rating is neutral.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

ICD provides land-based contract drilling services for oil and natural gas producers targeting unconventional resource plays in the United States.

ICD constructs, owns and operates a premium fleet comprised entirely of newly constructed, technologically advanced, custom designed ShaleDriller™ rigs that are specifically engineered and designed to optimize the development of ICD's customers' most technically demanding oil and gas properties.

All of ICD's operating rigs are currently drilling in the Permian Basin, but its rigs have previously operated in the Mid-Continent region and Eagle Ford Shale.

ICD is focused on creating stockholder and customer value through its commitment to operational excellence and its focus on safety.

ICD believes there is a shortage

ICD believes that it is strategically positioned to take advantage of the ongoing land-rig replacement cycle as the industry upgrades legacy fleets with premium rigs. ICD believes it will be able to expand its fleet and grow its business due to the shortage of the type of premium rigs and drilling services that ICD provides.

ICD's standardized fleet currently consists of eleven premium rigs. Of these eleven rigs, two are currently under construction and scheduled for completion in August and November of 2014, and one is being upgraded with an integrated multi-directional walking system scheduled for completion in October 2014.

After this upgrade, nine of its eleven rigs will contain ICD's integrated multi-directional walking system that is specifically designed to optimize pad drilling for its customers. ICD also has the option to upgrade its two non-walking rigs after completion of their existing contracts in 2015.

Every ShaleDriller™ rig in ICD's fleet is a 1500-hp, AC programmable rig ("AC rig") designed to be fast-moving between drilling sites and is equipped with top drives, automated tubular handling systems and blowout preventer ("BOP") handling systems.

Nine of ICD's eleven rigs are equipped with bi-fuel capabilities (they operate on either diesel or a natural gas-diesel blend).

Rig growth

ICD currently intends to use a portion of the net proceeds from this offering and available borrowing capacity under its revolving credit facility to fund the construction of up to seven additional rigs for completion in 2015.

History

ICD's first rig began drilling in May 2012 and since that time, ICD has averaged 96% utilization.

All of ICD's operating rigs have been contracted prior to the completion of construction, and every rig has been constructed and commenced drilling operations in accordance with its customers' delivery requirements.

All of ICD's eleven premium rigs are currently under contract with customers, and seven of its operating rigs are currently working under contracts that represent repeat business in which its customer has either renewed the contract or contracted a second rig.

Although ICD's ShaleDriller™ rig is capable of drilling in virtually any onshore area in the U.S., ICD currently focuses its operations on unconventional resource plays located in geographic regions that ICD can efficiently support from its Houston, Texas facilities in order to maximize economies of scale.

Dividend Policy

No dividends are planned.

Competition

ICD's largest competitors for high-end AC land drilling contract services are Helmerich & Payne, Precision Drilling, Nabors Industries and Patterson-UTI based on public filings by these competitors.

ICD believes the AC rigs as a percentage of the total drilling rig fleets of Helmerich & Payne, Precision Drilling and Nabors Industries as of March 2014 were 80.2%, 63.1% and 45.5%, respectively, and the AC rigs as a percentage of Patterson-UTI's total drilling fleet as of December 2013 was 44.4%.

All of these large competitors are in the process of expanding their rig fleets by manufacturing or purchasing new state-of-the-art land drilling rigs.

ICD also competes against smaller private and publicly-traded companies who offer contract drilling services on a regional basis in the U.S.

5% stockholders

  • Sprott Resource Corp. 17.3%
  • 4D Global Energy Advisors SAS 8.6%
  • Lime Rock Partners III, L.P. 19.0%
  • Global Energy Services Operating, LLC 16.6%
  • Carey Trustees Limited as Trustee for the Alumbrera Trust 6.9%

Use of proceeds

ICD intends to use the $137 million in proceeds from its IPO as follows:

  • to repay outstanding amounts under its existing revolving credit facility. The remaining net proceeds of $69.0 million will be used to finance the construction of additional drilling rigs (including an estimated $25.6 million for rigs under construction or being upgraded in 2014 as of June 30, 2014) and for working capital and general corporate purposes. Affiliates of Morgan Stanley & Co. LLC and Capital One Securities, Inc. are lenders under its revolving credit facility and will receive 5% or more of the net proceeds of this offering.

Disclaimer: This ICD IPO report is based on a reading and analysis of ICD's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

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. The author has no business relationship with any company whose stock is mentioned in this article.

Source: IPO Preview: Independence Contract Drilling