3 Offshore Drillers - Contract Backlog Comparative Analysis, Part I

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Includes: ESV, NE, RIG
by: Fun Trading

Summary

RIG, NE and ESV present an excellent technical profile.

Of course, it is only one side of the equation that I have presented here. A thorough analysis about their respective balance sheets is required.

I believe these three companies will weather the downturn and should be accumulated slowly even if 2016 may be far from being a stellar year.

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Image: The Drillship Dhirubhai Deepwater KG1.

There are multiple subclasses within the general oil sector that have been deeply affected by the unprecedented crash in oil prices that we are experiencing. In fact, the oil industry is going through its third crash in prices since the formation of the OPEC cartel in the 1970s. The first price crash came in the mid-1980s, a decade after the OPEC's formation, which represented about 81% of the world's entire oil reserve in 2014, according to the organization.

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Subsequently, the second crash came at the onset of the Great Recession in 2008, when oil prices tumbled from over $100 a barrel to below $40.

Finally, the third crash is the present decline, which began in September 2014.

Among the worst afflicted segments is, without any doubt, the offshore drilling industry, where companies had over-leveraged during good times and found themselves in a precarious financial situation when the market turned quickly sour.

This is the source of the problem, thereby offshore companies had to get a high-level of debt, billions and billions of dollars, based on an expected optimistic future revenue. It is easy to blame them now that we know what happened, but it would not be totally fair because no one, and I mean no one, was expecting this total collapse before September 2014.

This series of articles discusses and compares the order backlog (as of 4/1/2016) for key offshore drilling players, such as Transocean (NYSE:RIG), Noble Corp. (NYSE:NE), Ensco (NYSE:ESV), Seadrill Ltd.(NYSE:SDRL), Diamond offshore (NYSE:DO), Rowan Companies (NYSE:RDC), Ocean Rig UDW (NASDAQ:ORIG), Atwood Oceanics (NYSE:ATW), Pacific Drilling (NYSE:PACD), Paragon Offshore (OTCPK:PGNPQ), Hercules Offshore (NASDAQ:HERO) and Vantage Drilling (OTCPK:VTGDF).

Note: The backlogs indicated below are estimated, the best I could do with what I had. The numbers may differ slightly from what the companies will indicate later, including bonuses, zero-rate time, special expenses, mobilization, etc.

In Part I of this series, I will compare the three companies with the largest backlog and fleet status situation.

1 - Transocean Ltd.

RIG owns the biggest contract backlog among its peers, with approximately $14.3 billion as of 4/1/2016. RIG owns the Discoverer Clear Leader, Discoverer Inspiration and GSF Development Driller III with Transocean Partners LLC (NYSE:RIGP) owning 49%.

Note: The repartition is based on the backlog generated by each segment in 2016.

RIG 4/1/2016 16 17 18 19 20 21 22 23 24 25 26 27 D-Rate
DW Proteus 6 12 12 12 12 12 12 12 12 12 6 0 538
DW Pontus 0 3 12 12 12 12 12 12 12 12 12 9 538
DW Poseidon 0 0 9 12 12 12 12 12 12 12 12 15 538
DW Conqueror 3 12 12 12 12 10 0 0 0 0 0 0 630
DW Thalassa 9 12 12 12 12 12 12 12 12 12 2 0 525
DW Asgard 9 6 0 0 0 0 0 0 0 0 0 0 620
DW Invinctus 9 3 0 0 0 0 0 0 0 0 0 0 640
Discoverer Clear Leader 9 12 10 0 0 0 0 0 0 0 0 0 581
Discoverer Inspiration 9 12 12 12 3 0 0 0 0 0 0 0 585
Dhirubhai DW KG I 9 12 0 0 0 0 0 0 0 0 0 0 405
Discoverer India 9 12 12 12 12 1 0 0 0 0 0 0 520
Petrobras 10000 9 12 12 8 0 0 0 0 0 0 0 0 430
DW Milleniun 2 0 0 0 0 0 0 0 0 0 0 0 600
Cajun Express 1 0 0 0 0 0 0 0 0 0 0 0 305
DW Nautilus 9 8 0 0 0 0 0 0 0 0 0 0 540
Discoverer Luanda 9 12 1 0 0 0 0 0 0 0 0 0 500
GSF Development Driller I 9 6 0 0 0 0 0 0 0 0 0 0 380
GSF Development Driller III 9 0 0 0 0 0 0 0 0 0 0 0 430
Total UDW - month 120 134 104 92 75 59 48 48 48 48 32 24
Sedco 706 9 10 0 0 0 0 0 0 0 0 0 0 280
Jack Bates 1 0 0 0 0 0 0 0 0 0 0 0 200
Sedco 702 0 0 0 0 0 0 0 0 0 0 0 0 285
MG Hulme Jr 2 0 0 0 0 0 0 0 0 0 0 0 170
Total DW - month 12 10 0 0 0 0 0 0 0 0 0 0
Transocean Leader 9 12 12 5 0 0 0 0 0 0 0 0 330
Paul B Loyd Jr 9 6 0 0 0 0 0 0 0 0 0 0 450
Transocean Arctic 5 7 0 0 0 0 0 0 0 0 0 0 220
Transocean Spitsbergen 0 0 0 0 0 0 0 0 0 0 0 0 475
Henry Goodrich 6 12 5 0 0 0 0 0 0 0 0 0 360
Total SemiSub HE 29 37 17 5 0 0 0 0 0 0 0 0
Transocean Driller 3 0 0 0 0 0 0 0 0 0 0 0 215
Sedco 712 7 0 0 0 0 0 0 0 0 0 0 0 415
Transocean Winner 4 0 0 0 0 0 0 0 0 0 0 0 500
Sedco 704 2 0 0 0 0 0 0 0 0 0 0 0 185
GSF Rig 140 4 0 0 0 0 0 0 0 0 0 0 0 165
Total Midwater 20 0 0 0 0 0 0 0 0 0 0 0
GSF Constellation I 8 0 0 0 0 0 0 0 0 0 0 0 110
GSF Galaxy I 9 5 0 0 0 0 0 0 0 0 0 0 225
Transocean Honor 1 0 0 0 0 0 0 0 0 0 0 0 198
Transocean Andaman 9 5 0 0 0 0 0 0 0 0 0 0 140
Transocean Siam Driller 9 12 3 0 0 0 0 0 0 0 0 0 145
Transocean Ao Thai 9 12 10 0 0 0 0 0 0 0 0 0 145
Total JU 45 34 13 0 0 0 0 0 0 0 0 0
TOTAL 226 215 134 97 75 59 48 48 48 48 32 24
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RIG owns by far the biggest backlog that stretches to 2027. It is an important advantage that may hold the key to survival.

2 - Noble Corp.

Noble Corp. has the second largest backlog among its peers with $6.3 billion as of 4/1/2016, excluding Seadrill Group.

Note: The repartition is based on the backlog generated by each segment in 2016.

NE 4/1/2016 2016 2017 2018 2019 2020 2021 2022 2023 Day rate
Noble Bob Douglas 9 1,5 0 0 0 0 0 0 636
Noble Bully I 9 2,5 0 0 0 0 0 0 494
Noble Bully II 9 12 12 12 12 12 3,25 0 456
Noble Don Taylor 9 12 12 1,85 0 0 0 0 489
Noble Globetrotter I 9 12 12 12 12 12 6,5 0 449
Noble Globetrotter II 9 12 12 12 12 12 12 8,15 460
Noble Sam Croft 9 6,85 0 0 0 0 0 0 643
Noble Tom Madden 9 10,85 0 0 0 0 0 0 637
Total Drillship 72 69,7 48 37,85 36 36 21,75 8,15
Noble Discoverer 8 0 0 0 0 0 0 0 369
Noble Dave Beard 0,15 0 0 0 0 0 0 0 235
Noble Paul Romano 5 0 0 0 0 0 0 0 302
Total Semi-sub 5,15 0 0 0 0 0 0 0
Noble Alan Hay 9 11,85 0 0 0 0 0 0 85
Noble Lloyd Noble 1 12 12 12 11 0 0 0 447
Noble David Tinsley 9 11,85 0 0 0 0 0 0 85
Noble Gene House 9 12 11 0 0 0 0 0 63,65
Noble Hans Deul 6,3 0 0 0 0 0 0 0 235
Noble Houston Colbert 3 0 0 0 0 0 0 0 190
Noble Joe Beall 9 12 10,5 0 0 0 0 0 63,65
Noble Mick O'Brien 6,8 4,25 0 0 0 0 0 0 150
Noble Roger Lewis 8 2,25 0 0 0 0 0 0 161
Noble Sam Hartley 9 12 12 0,5 0 0 0 0 111
Noble Sam Turner 9 12 7,85 0 0 0 0 0 111
Noble Scott Marks 9 6,25 0 0 0 0 0 0 161
Noble Tom Prosser 9 3,25 0 0 0 0 0 0 203
Total Jackup 97,1 99,7 53,35 12,5 11 0 0 0
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3 - Ensco Plc

Ensco is the third largest with $5.1 billion as of 4/1/2016.

Note: The repartition is based on the backlog generated by each segment in 2016.

ESV 4/1/2016 2016 2017 2018 2019 D-rate/mob.
Ensco DS-3 3 0 0 0 475
Ensco DS-5 (dispute) 0 0 0 0 0
Ensco DS-6 9 12 2 0 468
Ensco DS-7 9 11 0 0 604
Ensco DS-8 9 12 12 23 656
Ensco DS-9 (early term.) 0 0 0 0 550
Drillship 30 35 14 23
Ensco 8503 9 7 0 0 352
Ensco 8504 4 0 0 0 272
Ensco 8505 9 12 1 0 180
Ensco 6001 9 12 6 0 365
Ensco 6002 9 12 7 0 370
Ensco 6003 9 1 0 0 315
Ensco 6004 7 0 0 0 315
Ensco 5004 9 1 0 0 324
Ensco 5005 0 0 0 0 115
Ensco 5006 9 12 5 0 681
Semi-sub 74 57 19 0
Ensco 141 NB 0 0 0 0 0
Ensco 140 NB 0 0 0 0 0
Ensco 123 NB 0 0 0 0 0
Ensco 122 8 0 0 0 246
Ensco 121 3 0 0 0 242
Ensco 120 5 0 0 0 215
Ensco 110 9 12 5 0 115
Ensco 109 9 12 2 0 185
Ensco 108 9 4 0 0 162
Ensco 104 9 12 9 0 95
Ensco 102 1 0 0 0 55
Ensco 101 4 0 0 0 125
Ensco 100 9 12 6 0 185
Ensco 97 9 12 12 2 69
Ensco 96 9 12 12 2 69
Ensco 94 2 0 0 0 85
Ensco 92 9 12 8 0 90
Ensco 88 8 0 0 0 85
Ensco 80 9 4 0 0 145
Ensco 76 9 12 12 0 125
Ensco 75 9 1 0 0 45
Ensco 72 9 12 9 0 95
Ensco 71 9 12 7 0 95
Ensco 68 2 0 0 0 68
Ensco 54 12 12 9 0 129
Ensco 53 0 0 0 0 0
Ensco 52 9 12 8 0 98
Jackup 171 153 99 4
Thunder horse 9 1 0 0 95
Mad Dog 9 1 0 0 62
Ensco 83 7 0 0 0 92
Under Management 25 2 0 0
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4 - Backlog comparison

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Total
RIG 2448 2517 1723 1440 1210 975 770 770 770 770 516 387 14296
NE 1669 1500 935 682 639 491 298 112 0 0 0 0 6326
ESV 1999 1801 823 461 0 0 0 0 0 0 0 0 5084
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Commentary and analysis:

RIG, NE and ESV present an excellent technical profile. Their respective fleet is modern and somewhat balanced, between the floaters (Drillship and Semisubmersible - midwater and deepwater) and the Jackups.

However, the most balanced fleet is Ensco by far, as the graph below demonstrates. We can see that Noble has put an emphasis to its UDW segment, especially after spinning off Paragon Offshore. Transocean, on the other hand, has a very small jackup segment.

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It is not surprising to notice that ESV backlog is disappearing first in 2019 because of its jackup segment that shows contracts with generally shorter time length and lower backlog effect.

Other important elements to be considered are the client relationship and modernity of the fleet. Transocean did an excellent job of retiring a huge part of its obsolete fleet, and Noble did it indirectly, when it spun off the unfortunate Paragon Offshore.

However, Ensco is not far behind, but should accelerate its rig attrition. All three have several decades of professional experience and have built up a very strong relationship based on trust with their clients.

Of course, it is only one side of the equation that I have presented here. A thorough analysis about their respective balance sheets (debt, capex, income...) is also paramount and should be done in correlation.

There are plenty of articles focusing on this second aspect because it is much easier to present with a few ratios, but often offer a very narrow vision of what is important. In some instances, it can lead investors to a totally erroneous conclusion.

I believe these three companies will weather the downturn and should be accumulated slowly even if 2016 may be far from being a stellar year.

Disclosure: I am/we are long RIG, NE, ESV.

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.