Vantage Drilling: Complete Fleet Analysis As Of August 2014 And Recent Q2 Results.

Aug.12.14 | About: Vantage Drilling (VTG)

Summary

Vantage Drilling is a mid-tier offshore drilling company which owns a young fleet of four jackups and four drillships, including one under-construction.

The company delivered a solid second-quarter results on August 5, 2014 and indicated that the third-quarter will be affected by the Tungsten Explorer mobilization.

Vantage drilling presents many positive going forward because of the nature and quality of its young fleet.

Source: Vantage website: The Platinum explorer.

Vantage Drilling Co. (NYSEMKT:VTG) is a mid-tier offshore drilling company which operates in the USA and internationally. The company owns a fleet of 8 drilling units, including four jack-ups and four ultra-deepwater drillships (one still under-construction.) Seven rigs were in service during the second-quarter 2014.

Vantage Drilling was founded in 2007 and is headquartered in Houston, Texas. The company has 781 full-time employees.

Paul A. Bragg, CEO said in the last conference call:

Now Q2 was another excellent operational quarter for Vantage. Our jackups once again worked at high revenue efficiency, exceeding 99% during the quarter. Our deepwater efficiency was about 83% in Q2. That's a little misleading on the negative side, I would say, so I'll explain. Platinum Explorer efficiency was 100%; Titanium Explorer was about 92%; and Tungsten Explorer was 57%. Now Tungsten actually achieved about 100% efficiency while drilling. However, we had out of service time related to transit time to West Africa.

Complete fleet analysis as of August 5, 2014

Fleet status July 2014.

# Name Year Delivered Type Contract End Day Rate $K
1 Emerald Driller 2008 Jack-up BMC375 Q3 2015 156
2 Sapphire Driller 2009 Jack-up BMC375 May 2015 183
3 Aquamarine Driller 2009 Jack-up BMC375 Nov 2014 155
4 Topaz Driller 2009 Jack-up BMC375

10/14

10/14-6/15

155

155 Option

5 Oro Negro Primus 2012 KFCLS ModV-B class Managed by VTG Pemex/Mexico
6 Oro Negro Laurus 2013 KFCLS ModV-B class Managed by VTG Pemex/Mexico
           
1 Platinum Explorer 2010 DSME-UDW

60 D 6/14

6/17

Mobilization

590

2 Titanium Explorer 2012 DSME-UDW Q1 2020 585
3 Tungsten Explorer 2013 DSME-UDW 6/16 641
4 Cobalt Explorer Q3-Q4 2015 DSME-UDW Dual Derrick 7th generation Available -
Click to enlarge

1 - VTG contracts coverage.

  2014 2015
Jackups 94% 34%
Drillships 100% 100%
Click to enlarge

2 - VTG Backlog. ($2.48 billion)

  2014 2015 Beyond Total
Jackups $ Million 111.3 80.4 - 191.7
Drillships $ Million 350.0 643.1 1,296.0 2,289.1
Total $ Million 461.3 720.5 1,296.0 2,480.8
Click to enlarge

Second-quarter resultssnapshot.

Important links:

Link: 10Q SEC filing August 6, 2014.

Link: Presentation March 4, 2014.

Link: Conference call second-quarter 2014.

    Q3 Est. Q2 2014 Q1 2014
Total revenue in $ Million (1) Basics (2) 219.72 232.47
Net Income in $ Million 0/10.0 10.18 24.82
Income from operations $ million X 81.7 91.0
Income from the jackups $ million Jackups N/A 61.8 61.6
Jackup operating cost in $ million 22.4 23.8
Jackup Rig utilization in % 99.2 100
Average jackup day rate $ 162,100 161,400
Income from the Drillships $ million Drillships N/A 145.3 159.2
Drillships operating cost in $ million 51.2 55.8
Drillships Rig utilization in % 83.1 96.5
Average Drillships day rate $ 615,701 600,827
Earnings per share in $   0/0.03 0.03 0.08
Shares Outstanding basic in Million   X 306.2  
Cash and Cash equivalent in $ Million   X 89.98
Long-term Debt $ Billion   X 2.782
Enterprise Value $ Billion   X 3.31
Quarter EBITDA $ Million   90/105 113
EV/EBITDA   X 7.3
Click to enlarge

(1) The decrease in revenue from Q1 to Q2 was the sequential decrease due to the timing of the mobilization of the Tungsten Explorer to West Africa, which VTG commenced on May 22. Additionally, VTG had about seven days of downtime on the Titanium Explorer to make repairs to the slip joint and other minor repairs.

(2) Douglas G. Smith, CFO said at the conference call:

The guidance for the third quarter, unfortunately, will be negatively impacted by the Titanium Explorer having downtime associated with an LMRP connector. This has currently anticipated a result of approximately 22 days off contract in the third quarter.

Additionally, the forecast is impacted by the timing and duration of rig mobilizations for the Tungsten Explorer and the Titanium Explorer.

For the third quarter, we are currently projecting EBITDA of $90 million to $105 million.

Taking all this into account results in a profit range of approximately breakeven to $10 million, or $0.00 to $0.03 per share.

Lawsuit Vantage Drilling Company vs. Hsin-Chi Su a/k/a Nobu Su:

On August 21, 2012, VTG filed a lawsuit against M, Hsu-Chin Su, owner of F3 Capital, which is the largest VTG shareholder. The lawsuit is currently pending the 270th Judicial District Court of Harris County, Texas. It is unclear what effect will have this lawsuit in the future of the company. Furthermore, F3 Capital still owes $3 million in fee to VTG that has not been paid. Investors will have to follow this situation carefully.

Commentary:

Vantage Drilling is a newly created international offshore drilling company with an impressive state-of-the-art fleet comprised of six jackups of the last generation and four drillships including one under-construction.

YTD chart:

VTG Chart

VTG data by YCharts

VTG is to be compared to Pacific Drilling (NYSE:PACD) and Ocean Rig UDW (NASDAQ:ORIG). The company owns a more versatile rig fleet which is comprised of 60% of jackups rigs and 40% of Ultra-deepwater rigs. I have recently covered both PACD and ORIG and I will be able to show a comparative table regarding their respective rig fleet, here.

Comparative table between PACD, ORIG and VTG.

All three companies have a similar modern fleet.

Name

Jackup Rigs Working UDW Rigs

Rigs

under-constr.

Backlog in $ billion

Long-term debt in $ billion

Q2 Revenue in $ million EBITDA in $ million

Day rate average in $ K

PACD 0 6 2 3.3 2.8 260.8 137.9 0/563
ORIG 0 9 4 4.8 4.40 441.4 231.8 0/574
VTG 4* 3 1 2.48 2.78 219.72 113 162.1/615.7
Click to enlarge

* 2 jackups are also managed by VTG.

YTD Chart:

PACD Chart

PACD data by YCharts

VTG will have some headwinds the next quarter due to the mobilization time of its Titanium explorer; however, the loss in EBITDA will not be drastic and the company is projecting a future Q3 EBITDA around $100 million and earning around 0.01 per share.

VTG is not currently serving any dividend, which is a negative about a long shareholders' perspective. It is one of the rarest offshore drillers that has not elected any dividend. ORIG has a dividend of 4.6% and PACD will initiate a 7+% starting Q1 2015.

Despite these negatives, I have upgraded VTG from HOLD to speculative BUY, and I believe the company may reach $2.75/3 during the second-half of 2015, assuming a positive ending of the Nobu Su lawsuit.

Disclosure: The author is long ORIG. 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.