Rowan Companies - Announces New 2016 Day Rate For Its 4 Jackups Working For Saudi Aramco

| About: Rowan Companies (RDC)

Summary

RDC confirmed the new lower dayrate for the four Jackups working for Saudi Aramco. Backlog is now $3.2 billion as of April 2016.

The company will have its four drillships rolling off contract at the end of 2017 or early 2018.

Rowan is a perfect long-term investment and I advise to accumulate the stock on any weakness, with a five years horizon.

Click to enlarge

The drillship Rowan Renaissance; Source: company website.

This article is an update of my preceding article on Rowan Companies (NYSE:RDC) on February 27, 2016, regarding the 4Q'15 and fleet status.

Yesterday, March 29, 2016, the company filed a SEC 8K filing regarding a new presentation on March 29, 2016.

Before commenting on the presentation, my attention has been particularly drawn by the announcement of a new official dayrates for the entire year 2016, about the four RDC jackups working for Saudi Aramco.

  • The Scooter Yeargain
  • The Hank Boswell
  • The Bob Keller
  • The Bob Palmer

New dayrate

$k/d

old day rate

$k/d

End contract
Scooter Yeargain 163 175 11/18
Hank Boswell 163 180 8/18
Bob Keller 120 170 5/24
Bob Palmer 198 205 8/17
Click to enlarge

The company indicated a contract backlog of $3.2 billion as of March 2016 which is explained below, using dayrates and mobilization costs.

RDC 4/1/2016 2016 2017 2018 2019 2020 2021 2022 2023 2024 D rate + Mob.
Renaissance 9 5 0 0 0 0 0 0 0 635
Resolute 9 11 0 0 0 0 0 0 0 635
Reliance 9 12 3 0 0 0 0 0 0 625
Relentless 9 6 0 0 0 0 0 0 0 605
Drillship 36 33 3 0 0 0 0 0 0
Rowan Gorilla IV 9 0 0 0 0 0 0 0 0 75
Joe Douglas 9 6 0 0 0 0 0 0 0 160
Bob Keller 9 12 12 12 12 12 12 12 5 120
Hank Boswell 9 12 9 0 0 0 0 0 0 163
Scooter Yeargain 9 12 12 0 0 0 0 0 0 163
Bob Palmer 9 8 0 0 0 0 0 0 0 198
Arch Rowan 9 12 9 0 0 0 0 0 0 69
Charles Rowan 9 12 9 0 0 0 0 0 0 69
Gilbert Rowe 8 0 0 0 0 0 0 0 0 69
Rowan Mississippi 9 12 12 0 0 0 0 0 0 195
Rowan California 7 0 0 0 0 0 0 0 0 130
Rowan Middletown 9 12 10 0 0 0 0 0 0 69
Rowan Norway 4 0 0 0 0 0 0 0 0 363
Rowan Viking 9 2 0 0 0 0 0 0 0 355
Rowan Gorilla V 5 0 0 0 0 0 0 0 0 180
Rowan Gorilla VI 9 12 4 0 0 0 0 0 0 355
Rowan Gorilla VII 9 0 0 0 0 0 0 0 0 185
Rowan EXL II 9 3 0 0 0 0 0 0 0 180
Ralph Coffman 3 9 0 0 0 0 0 0 0 135
152 124 75 12 12 12 12 12 5
Click to enlarge

Note: Amount estimated by Fun Trading.

Commentary:

The new presentation is showing some impressive numbers, and confirmed again that Rowan is definitely one of the best among its peers. The company has approximately 3,400 employees worldwide, and has 31 offshore drilling units (4 drillships and 27 Jackups including 19 High-spec and 8 premium).

I believe it is not essential to comment in-depth about the presentation, and I advise the readers to look for themselves by clicking the link above.

I will comment essentially about the nature of the backlog, and eventually the weakness and strength that I can find.

The strength is the nature and quality of the fleet, its professional management, and the impressive RDC client base worldwide. The company had $484 million in cash and a long-term debt of $2,692 million at the end of 2015. The ratio Net debt to EBITDA is 2.15 for 2015, based on an EBITDA of $1,026 million.

The weakness is quite obvious when we look at the graphs. Rowan has a strong backlog, but extremely limited in time.

After 2017 the backlog is disappearing rapidly. Almost $2.6 billion in backlog is used in 2016 (remaining 3 quarters) and 2017. It is difficult to add more backlog during this period. The problem is that RDC four drillships will roll off their contract in the second-half of 2017 or early 2018. A few months will separate them.

Of course, it is still early to venture a firm outlook, and the oil market can still improve in a few months. However, I do not see Rowan succeeding in extending four drillships, that are all working now in the Gulf of Mexico for Repsol (OTCQX:REPYY), Anadarko (NYSE:APC), Cobalt (NYSE:CIE) and Freeport-McMoRan (NYSE:FCX). I expect some serious idle time in 2018.

RDC may eventually get a 12-18 month extension for one or two drillships in a "blend & extend" type of agreement, in which the contract is extended at a reduced day rate?

Ultra-Deepwater Drillships Segment.

# Name

Specification

K feet

Comment CC

Information

Contract

End

Current

Day rate

K$

Location

Information

1

Rowan Renaissance

2014

10/12

(Drilling 40k)

4/17

620-655

Commenced on 9/8/15

[REPSOL]

US GoM

2

Rowan Resolute

2014

10/12

(Drilling 40k)

10/17

608

[Anadarko] US GOM

3

Rowan Reliance

Q4 2014

10/12

(Drilling 40k)

2/18

602

Commenced on 2/1/15

[Cobalt]

US GOM

4

Rowan Relentless

Q2 2015

10/12

(Drilling 40k)

6/17

596

Off rate (3d)2Q'16 DP trials

[Freeport McMoRan]

US GOM

Rig actually on standby at 98% of operating rate

Click to enlarge

Already, the Rowan Relentless has been placed on standby by Freeport-McMoRan, who is in the process of exiting the offshore business at a huge loss.

Some analysts are expecting a rebound around 2018-2019, however, it will take longer to get back to a more balanced demand versus supply situation for the deepwater segment, and offshore drillers will face a harsh competitive environment, due to a large rig oversupply. Day rates will be close to breakeven level probably until mid-2019 or 2020.

Nonetheless, I believe Rowan will be a survivor because its debt is manageable. But the company is still facing some tough headwinds going forward and we should be prepared.

Conclusion, Rowan is a perfect long-term investment and I advise to accumulate the stock on any weakness, with a five years horizon.

Disclosure: I am/we are long RDC.

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.

Additional disclosure: I have starting RDC quite recently and accumulate on weakness.