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
old day rate
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.|
|Rowan Gorilla IV||9||0||0||0||0||0||0||0||0||75|
|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|
Note: Amount estimated by Fun Trading.
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.
Commenced on 9/8/15
[Anadarko] US GOM
Commenced on 2/1/15
Off rate (3d)2Q'16 DP trials
Rig actually on standby at 98% of operating rate
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.