Rowan Companies - All You Need To Know About The Q2 '16 Results

| About: Rowan Companies (RDC)

Summary

Another good quarter with revenues of $611.9 million, with net income of $216.7 million including $120 million related to the Rowan Relentless termination.

A new 8-month contract extension announced at the conference call for the Gorilla V in the North Sea with Total, however the day rate sank from $175k/d to under $100k/d.

RDC is by far the best managed offshore drillers in the industry, with an excellent balance sheet. RDC is a long-term investment grade and should be accumulated on any weakness.

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The drillship Rowan Renaissance; Source: Company website.

This article is an update of my preceding article on Rowan Companies (NYSE:RDC) on May 5, 2016, regarding the 1Q'16 and fleet status.

I commented on July 3, 2016, regarding the July 1, 2016 fleet status.

Click here for the most recent conference call.

2Q'16 results (7 consecutive quarters).

Q2 2016 Q1 2016 Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014

Revenue in

$ Million

611.9 500.2 535.8 545.4 508.7 547.1 556.2

Net Income

in $ Million

216.7

94.9

122.8 124.4 111.4 84.7 123.7 111.5

Contract drilling expense

in $ million

207.5 204.8 235.8 247.6 253.9 255.7 279.5

EPS

in $

1.72*

0.75

0.98 0.95 0.89 0.68 0.99 0.89

G&A

in $ million

26.2 26.9 27.4 29.7 31.2 27.6 33.8

Interest expense

in $ million

38.5 40.5 42.4 42.9 30.5 33.6 29.7

Dividend

$/Q

0 0 0.10 0.10 0.10 0.10 0.10

Shares Outstanding basic

in Million

126.3 125.8 125.8 124.8 125.4 125.1 124.3

Cash and Cash equivalent

in $ Million

761.4 595.2 484.2 290.5 198.6 56.8 339.2

Non-cash impairment charge

$ million

0 0 0 329.8 0 0 438.4

Long-term Debt

$ Billion

2.6454 2.655 2.6924 2.8067 2.8069 2.8071 2.8073

Adj. EBITDA

$ Million

256.3 263.3 272.7 265.9 223.3 264.2 246.4
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* Per press release: Net income for the current quarter included a $120.0 million, or $0.95 per share, after-tax increase to net income for the Rowan Relentless contract termination and related items. The $120.0 million reflects the amount in excess of the Rowan Relentless drillship's day rate for the three months ended June 30, 2016.

Fleet status report snapshot:

Note: backlog estimated in August 1, 2016, is $2.43 billion.

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The last fleet status report was on July 1, 2016 and I commented on July 3. Please review items by reading this preceding article, especially about the Rowan Resolute blend & extend with Anadarko.

A new contract extension announced at the conference call by M. Marc A Keller, VP Marketing:

Additionally, we're pleased to announce that we have extended the contract on the Gorilla V with Total in the North Sea for approximately eight months plus an option period.

I assumed first that the 8-month contract extension will have a lower day rate at about $135k/d, from the actual $175k/d until end of August. M. Keller did not specify the new day rate immediately at the conference call, but when asked again in the Q&A he said finally:

but I'll just tell you it's below $100,000 but it's above our OpEx. I'm not trying to be coy or vague on it. We're just in a very competitive situation with a lot of other rigs and so we're really happy the Total has continued to extend the rig.

Also, RDC is still negotiation with Cobalt.

RDC 8/1/2016 2016 2017 2018 2019 2020 2021 2022 2023 2024 D rate + Mob.
Renaissance 5 4 0 0 0 0 0 0 0 619
Resolute 5 12 7 0 0 0 0 0 0 456
Reliance 5 12 2 0 0 0 0 0 0 602
Relentless 0 0 0 0 0 0 0 0 0 0
Drillship 15 28 9 0 0 0 0 0 0
Rowan Gorilla IV 5 0 0 0 0 0 0 0 0 73
Joe Douglas 4 5 0 0 0 0 0 0 0 157
Bob Keller 5 12 12 12 12 12 12 12 5 120
Hank Boswell 5 12 8 0 0 0 0 0 0 163
Scooter Yeargain 5 12 11 0 0 0 0 0 0 163
Bob Palmer 5 8 0 0 0 0 0 0 0 198
Arch Rowan 5 12 9 0 0 0 0 0 0 69
Charles Rowan 5 12 9 0 0 0 0 0 0 69
Gilbert Rowe 5 0 0 0 0 0 0 0 0 69
Rowan Mississippi 5 12 12 0 0 0 0 0 0 195
Rowan California 2 0 0 0 0 0 0 0 0 130
Rowan Middletown 5 12 9 0 0 0 0 0 0 69
Rowan Norway 0 0 0 0 0 0 0 0 0 363
Rowan Viking 5 11 0 0 0 0 0 0 0 275
Rowan Gorilla V 5 4 0 0 0 0 0 0 0 95
Rowan Gorilla VI 5 12 3 0 0 0 0 0 0 362
Rowan Gorilla VII 5 0 0 0 0 0 0 0 0 181
Rowan EXL II 5 3 0 0 0 0 0 0 0 180
Ralph Coffman 5 9 0 0 0 0 0 0 0 145
Jackups 86 136 73 12 12 12 12 12 5
101 164 82 12 12 12 12 12 5
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Commentary:

Rowan Companies released its 2Q'16 on August 3, 2016. It was another impressive quarter with $611.9 million in revenue -- $485 million excluding special items -- up 22.3% quarter over quarter. Net income was $216.7 million or $1.71 per share. Excluding special items (Rowan Relentless) net income was $94.9 million or $0.75 per share.

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As we can see in the chart above, RDC is delivering a perfect score, based on the Adjusted EBIDTA for the last 7 quarters. Despite an extremely challenging environment in the offshore drilling industry.

M. Steven M. Butz, CFO, said in the conference call:

Our exceptional financial performance continued in the second quarter despite strong market-related headwinds. Even when excluding the positive impact of the contract termination for the Relentless on our second quarter results, our adjusted EBITDA margin of 52% was nearly on par with the record margin that we generated in the first quarter. We further strengthened our balance sheet by generating $166 million of cash even after retiring $31 million of debt.

Due to the Rowan Relentless the operating costs for 2016 has been revised lower to $795 million from $805 million. Also the company is reducing its full year CapEx guidance by $25 million to a new range of $145 million to $155 million.

Conclusion:

RDC is a very good company, one of the best in the offshore industry sector that should be considered as a long-term investment. Good balance sheet, good client base, managing debt properly and have long experience in the field.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.