- Rowan company Plc., is a strong offshore driller with 30 jackup rigs and 4 UDW new drillship rigs including one to be delivered in 2015.
- The company released its second-quarter results and it is time to look at the fundamental again, in light of this soft offshore drilling market.
- The company presents a compelling financial story and should weather any market downturn until 2016. I rate RDC as a speculative buy.
Rowan Company Plc. (NYSE:RDC)
Source: UDW Rowan Renaissance - Rowan website.
The company was founded in 1923 by Charles and Arch Rowan, and provides offshore oil contract drilling services and has expanded worldwide. Rowan Companies Plc. Is based in Houston, Texas.
Rowan has a fleet of 34 offshore drilling rigs, including three drillships under construction. Its fleet consists of four drillships, three of which are under construction, and 30 jackups, 19 of which are rated high-specification. The company has a very strong jackup fleet, and now is trying to enter the market of the ultra-deep drilling sector. The Rowan Renaissance drillship entered the market in April 2014.
Rowan released recently its Q2 2014 results, and I believe it is the right time to look at the company's fundamentals in-depth.
M. Thomas B. Burke is the new CEO, and presented the last conference call on August 6, 2014.
Although it seems like old news now, in the second quarter, we announced a contract with Freeport McMoRan for our fourth drillship, the Rowan Relentless, for 2 years of work in the U.S. Gulf of Mexico. Rowan has worked with Freeport-McMoRan for several years on their Shell ultradeep gas drilling program, and we are thrilled to work for them on their deepwater program. So we are pleased to report that all 4 of our drillships are now contracted into 2017.
2014 is a key year for our company with respect to our Norwegian operations. We acquired Skeie Drilling & Production ASA in 2010 to enable Rowan enter the Norwegian market in a substantial way. And I'm pleased that in the next few weeks, we will have the Rowan Gorilla VI, the Rowan Viking and the Rowan Norway all operating in Norwegian waters, giving Rowan a strong foothold in that market.
Complete fleet analysis as of August 2014.
Monthly fleet status report as of July 18, 2014.
More information has been added after the conference call on August 6, 2014
1 - Ultra-deepwater drillships.
|Gulf of Mexico|
|3||Rowan Reliance||Q4 2014|
|1/18||602||Gulf of Mexico|
|4||Rowan Relentless||Q2 2015|
|7/2017 (1)||582||Gulf of Mexico|
(1) , From the last conference call:
we announced a contract with Freeport McMoRan for our fourth drillship, the Rowan Relentless, for 2 years of work in the U.S. Gulf of Mexico.
So we are pleased to report that all 4 of our drillships are now contracted into 2017.
2 - Three categories for the jackups: Conventional (1), Premium (2) and High-Specification (3).
|1||Rowan EXL III||2011||3||12/14||180||Gulf of Mexico|
|2||Cecil Provine||1982||2||8/14||125||Gulf of Mexico|
|3||Rowan Juneau||1977||1||Available||-||Gulf of Mexico|
|4||Rowan Alaska||1975||1||Available||-||Gulf of Mexico|
|5||Rowan Louisiana||1975||1||9/14||108||Gulf of Mexico|
|6||Rowan Gorilla IV||1986||3|
|Gulf of Mexico|
|7||Joe Douglas||2012||3||8/14||165||Gulf of Mexico|
|12||Bob Palmer (3)||2003||3||8/14||273||Middle East|
|13||Arch Rowan (3)||1981||2||11/14||81||Middle East|
|14||Charles Rowan (3)||1981||2||11/14||81||Middle East|
|15||Gilbert Rowe||1981||2||12/15||122||Middle East|
|17||Rowan California||1983||2||9/16||144||Middle East|
|18||Rowan Middletown (3)||1980||2||11/14||80||Middle East|
|19||Rowan Norway (2)||2011||3||7/16||361||North Sea|
|21||Rowan Viking (2)||2011||3|
|22||Rowan Gorilla V||1998||3||6/15||274||North Sea|
|23||Rowan Gorilla VI (1), (2)||2000||3|
|24||Rowan Gorilla VII||2002||3|
|25||J.P. Bussell||2008||3||9/14||143||South East Asia|
|26||Rowan EXL I||2010||3||11/14||167||South East Asia|
|27||Rowan EXL IV||2011||3|
|South East Asia|
|28||Rowan Gorilla II||1984||2||11/14||146||South East Asia|
|29||Rowan EXL II||2011||3||3/17||180||Trinidad|
|30||Rowan Gorilla III||1984||2|
From the conference call:
(1), Our quarter was negatively impacted by additional shipyard time for the Rowan Gorilla VI as well as off-rate time following the start-up of our first ultra-deepwater drillship, the Rowan Renaissance.
(2), We acquired Skeie Drilling & Production ASA in 2010 to enable Rowan enter the Norwegian market in a substantial way. And I'm pleased that in the next few weeks, we will have the Rowan Gorilla VI, the Rowan Viking and the Rowan Norway all operating in Norwegian waters, giving Rowan a strong foothold in that market.
(3), We're actively working on new contracts extension for those rigs rolling off contract in the second half of 2014, including the 4 rigs working for Saudi Aramco.
Jackups per category and age:
|Number of rig||3||8||19||30|
As we can see, RDC will have problems with its conventional and premium jackups that are nearly obsolete. This represents 11 rigs that will have to be dealt with later, and could be seen as a negative.
Commentary regarding the RDC backlog at the last conference call:
As of the date of our last fleet status on July 18, our backlog of drilling commitments was near an all-time high of approximately $5.1 billion.
Q2 2014 results snapshot.
Link: 10Q second-quarter 2014.
|Q2 2014||Q1 2014|
|Revenue in $ Million||422.9||377.6|
|Net Income in $ Million (1)||41.2||34.7|
|Contract drilling expense in $ million||244.6||220.3|
|Direct rig-related daily Opex $ K||232.9||211.9|
|Earnings per share in $ (1)||0.33||0.28|
|G&A in $ million||29.1||29.9|
|Interest expense in $ million||27.5||20.7|
|Shares Outstanding basic in Million||124.9||124.8|
|Cash and Cash equivalent in $ Million||1,247.0||1,440.4|
|Long-term Debt $ Billion||2.81||X|
|Stock price August 11, 2014 in $||29.72|
|Enterprise Value $ Billion||5.25|
|EBITDA $ Million||561.4|
(1) Excluding special items.
Average day-rate per the 3 main locations:
|North Sea||Middle East||GOM|
RDC operates also in South-East Asia (About $150k) and Trinidad (About $170k); however, the day-rate were not supplied by the company.
Rowan Company Plc, is a strong offshore drilling company as we can see above. The last second-quarter saw an increase of 12% in revenue from quarter to quarter and despite a definitive slowdown in the jackups market. The stock price has lost about 16% since the beginning of the year.
I always try to compare the company I am studying with another similar one, in an attempt to show a detailed comparison that will allow you and me, to gauge better the real strength of the company and its future potential. For Rowan, I believe the company that can be safely compared to, is Ensco Plc. (NYSE:ESV). It is due, mainly, to the strong presence in the jackup rig's market they both have; however, ESV is a bigger company.
Let's look at their mutual rig fleet.
Fleet comparison between RDC and ESV.
|ESV||46 (4 under constr.)||7.5||19 (5 rigs are actually for sale.)||15||10 (3 are under const.)||5||6.74||11.0||4.73|
|RDC||30||18 (1)||0||-||4 (1 is under const.)||1||9.35||5.1||2.81|
(1), The conventional and premium jackups are over 30 years old whereas the high-specification jackups are modern and around 8 years old.
(2) the ratio EV/EBITDA is often used to assess the future strength of the company.
YTD Chart comparison:
RDC is really shining when compared to a great company like ESV. The ratio EV/EBITDA is a bit high due to, essentially, RDC four modern UDW drillships that have not impacted fully EBITDA yet, and it should be seen more as a sign of strength rather than a sign of weakness, in my opinion.
One clear weakness, is the old age of the conventional and premium jackups which average about 35 years and approximately 11 rigs. Many will have to be cold-stacked or/and sold.
During the last conference call, I was particularly interested about what Mark A. Keller, Vice president of business development, said:
With influx of new supply, we're seeing downward pressure on both day rates and length of term in some operating regions. However, we believe Rowan is well positioned to weather a potential downturn.
Much concern surrounds the number of jack-up newbuilds entering the market. I'd like to take a more detailed look at the makeup of those units. Currently, there are 141 newbuild jack-ups, 18 of which are already committed. That leaves 123 jack-ups that need a contract. We believe approximately 27 of those units are intended for captive markets and will not be competitive with Rowan rigs. Additionally, 73 of the remaining 96 uncontracted newbuilds are what we consider speculative.
Clearly, Rowan will have to be vigilant during this period of oversupply and reduced contract environment. The Jackups working in the Asian market are the most vulnerable; however, RDC has only four rigs actually working there. Furthermore, the new UDW division is now fully contracted until 2017 and will be a significant revenue growth going forward. The company is serving 1.3% in dividend.
I recommend the stock as a BUY.
Disclosure: The author is long ESV. 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.