Atwood Oceanics - All You Need To Know About The 2Q'16

| About: Atwood Oceanics (ATW)
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Summary

Atwood Oceanics released its third-quarter 2016 results on August 1, 2016. Revenues were $227.88 million, down 23.13% quarter over quarter.

From March 31 to July 25, ATW purchased $201.3 million Senior notes for $135.5 million, at 32.7% discount on average. Long-term debt is now $1.375 billion.

Deutsche Bank raises its price target on the stock to $15 from $11, maintaining its "hold" rating.

I recommend ATW as a hold and believe chances are that the stock may re-test the $8.50 support.

Source: Atwood Advantage - ATW website

This article is an update of my preceding article on Atwood Oceanics (NYSE:ATW) published on July 31, 2016 about the fleet status.

Complete fleet status as of July 27, 2016:

1. UDW - UltraDeepwater Drillships and SemiSubmersibles.

# Name

Year

built

Specification

K feet

Contract

End

Current

Day Rate

K$

Location
1 Atwood Achiever 8/2014 12*40

11/18

495.5

Standby starting 6/16 (95%)

[Kosmos Energy] Mauritania/Senegal

2 Atwood Archer

8/2017

12*40 Available

Delivery of rig delayed up to 6/30/2018 at ATW option

3 Atwood Admiral

3/2016

12*40 Available

Delivery of rig delayed up to 9/30/2017 at ATW option

4 Atwood Advantage 2013 12*40

mid 9/16

mid 9/16-mid 11/16

mid 11/16 - 12/16

12/16-8/17

240

581

240

581

[Noble Energy]

US Gulf of Mexico

5 Atwood Condor 2012 Semi-Sub 10*40

mid 8/16

mid 8/16-11/16

543.9

555

[Shell Offshore]

US Gulf of Mexico

6 Atwood Osprey

2011

Semi-Sub

8.2*32

12/16

1/17-2/17

2/17-4/17

4/17-12/17

1/18-9/19

450

Available

185 (min. 45-days)

Available

190

[Woodside]

[ConocoPhilips]

Australia

2. Old Semi-submersibles.

# Name

Year

built

Specification

K feet

Contract

End

Current

Day Rate

Location
1 Atwood Eagle 1982 5*25 Available Singapore

3. Jackups and Others

# Name

Year

built

Specification

Contract

End

Current

Day Rate

Location
1 Atwood Aurora 2008 350'*30k 9/16 185 [Addax Petroleum] Cameroon
2 Atwood Beacon 2003 400'*36k

Early 8/16

91.5

[Rockhopper Exploration]

Italy

3 Atwood Mako 2012 400'*30k Available

Philippines

4 Atwood Manta 2012 400'*30k Available Philippines
5 Atwood Orca 2013 400'*30k

10/16

85

[Mubadala Petroleum] Thailand

Backlog

The contract revenue backlog is currently $890 million as of August 1, 2016 (estimated by Fun Trading), with 34% of available days contracted for fiscal 2016 remaining.

ATW 8/1/2016 2016 2017 2018 2019 2020 day rate
Atwood Achiever 5 12 11 0 0 495,5~
Atwood Archer 0 0 0 0 0 0
Atwood Admiral 0 0 0 0 0 0
Atwood Advantage 5 8 0 0 0 496
Total Drillship 10 20 11 0 0
Atwood Condor 4 0 0 0 0 551
Atwood Osprey 5 1,5 12 9 0 237~
Atwood Eagle 0 0 0 0 0 0
Total SemiSub 9 1,5 12 9 0
Atwood Aurora 2 0 0 0 0 185
Atwood Beacon 0,15 0 0 0 0 91,5
Atwood Mako 0 0 0 0 0 0
Atwood Manta 0 0 0 0 0 0
Atwood Orca 3 0 0 0 0 85
Total Jackups 5,15 0 0 0 0

Atwood Q3 2016 Results - August 1, 2016

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

Revenue in

$ Million

227.80 296.35 307.82 363.18 330.56 350.39 351.7

Net Income

$ Million

99.51 122.44 39.08 150.69 112.99 122.67 46.2

Earnings per share

in $/share

1.53 1.89 0.60 2.32 1.73 1.89 0.71

Operating income

$ Million

89.315 145.121 46.076 178.63 134.20 147.808 70.79

Shares Outstanding basic

In million

64.795 64.781 64.765 64.654 64.653 64.644 64.405

Cash and Cash equivalent

in $ Million

198.974 226.812 115.669 113.983 74.50 90.23 121.8

Long-term Debt

$ Billion

1,374.8 1.5950 1.6084 1.6783 1.65 1.63 1.74

Drilling cost

in $ Million

86 99.041 139.78 127 143 140 -
Dividend 0 Canceled 0.25 0.25 0.25 0.25 0.25
EBITDA $ Million ("TTM") per Yahoo 742.4 741 777 786 691 615 561
Net Debt/EBITDA 1.58 1.84 1.92 1.99 2.28 2.50 2.89
Capital expenditure $ Million 22.1 44.7 131.5 448.02/1Y 241 177.13/6m -

Note from the press release:

During the three months ended June 30, 2016, we repurchased, through open market transactions, $145.8 million aggregate principal amount of our Senior Notes for $97.4 million, including $2.4 million of accrued interest, representing an average discount of 34.8%...

During the three months ended March 31, 2016, we repurchased, through open market transactions, $13.5 million aggregate principal of our Senior Notes at an aggregate cost of $5.1 million, including a minimal amount of accrued interest, representing an average discount of 62.2%...

Revenues per segment:

Segment 3Q'16 2Q'16 1Q'16 4Q'15 3Q'15 2Q'15
Ultra DeepWater 182 189 182 197 174 183
Deep Water 0 59 72 79 77 82
Jackups 36 34 41 73 67 73
Reimbursable 10 14 13 14 13 12
Total 228 296 308 363 331 350

Important recent news:

On March 29, 2016, the company announced an amendment of its credit facility.

Into an amendment to the borrower`s Senior Secured Revolving Credit Facility (the "Amendment"). Among other things, the Amendment removes the maximum leverage ratio financial covenant and delays the implementation of an interest coverage ratio covenant until July 2018. In addition, the Amendment adds a new minimum liquidity financial covenant and reduces the aggregate principal amount of commitments by$152 million.

On April 20, 2016, we learned that S&P downgraded ATW to B+.

Atwood's credit fell since S&P expects Atwood's credit measures to deteriorate significantly in 2017 and 2018 due to depressed industry conditions. S&P also expects the oversupply of new rigs and low commodity prices to increase competition and, consequently, re-contracting risk over the next two years. This change would result in downward pressure on day rates and utilization levels. With lower utilization and reduced day rates, S&P also expects Atwood's cash to deteriorate significantly over the next two years.

On June 24, 2016, Atwood Oceanics announced the following:

Commencement of a modified "Dutch Auction" tender offer (the "Offer") for up to $150,000,000 aggregate principal amount (the "Tender Cap") of its outstanding 6.50% Senior Notes due 2020 (the "Notes"). The terms and conditions of the Offer are described in an Offer to Purchase dated June 24, 2016 (as may be amended or supplemented from time to time, the "Offer to Purchase") and the related Letter of Transmittal dated June 24, 2016 (as may be amended or supplemented from time to time, the "Letter of Transmittal").

On July 25, 2016, following consummation of our modified "Dutch Auction" tender offer (the "Offer"), we acquired $42.0 million aggregate principal amount of the Senior Notes. Including the purchase price for the Senior Notes, which totaled $31.5 million, and accrued interest payable on the Senior Notes acquired and related fees, the total cost of the Offer was $33.0 million. The purchase price in the Offer represented a discount to the principal amount of the Senior Notes of 25.0%.

Commentary:

Atwood Oceanics released its third-quarter 2016 results on August 1, 2016. Revenues were $227.88 million, down 23.13% quarter over quarter. Net income was $99.5 million or $1.53 per share.

From March 31 to July 25, ATW purchased $201.3 million Senior notes for $135.5 million, at 32.7% discount on average.

Cost

in $ million

Senior Notes value

in $ million

Discount
March 31 5,1 13,5 62,20%
June 30 97,4 145,8 34,80%
July 25 33 42 25%
Total 135,5 201,3 32.7%

Today, Deutsche Bank raises its price target on the stock to $15 from $11, maintaining its "hold" rating.

"Despite the upside, we maintain our hold rating as we see global offshore rig utilization and dayrates falling in the near term,"

Deutsche Bank said that Atwood's healthy balance sheet combined with no near-term maturities and a young fleet makes it a company they "prefer." However, Deutsche Bank added that the positives do not combat concerns about "soft" contract coverage for the company after 2016.

"While we expect to see improved demand for high-spec rigs in 2017, new contracts will likely carry little margin given the growing number of available, capable units," the firm noted.

While, I agree that Atwood has a healthy balance sheet, right now, with no-near term maturities, I am much more conservative than Deutsche Bank, and will not set a target so high.

In fact, I believe that Atwood Oceanics is overvalued compared to its peers, and is more likely to retreat, sooner or later, to a more appropriate valuation around $9 or less.
Thus, it is difficult to see ATW reaching the $15 target. I recommend a hold, as well.

Looking at the FSR, I see that the entire Jackup segment is about to roll off contract and the Atwood Advantage will probably end its contract mid-2017.
My main concern, is that Atwood has still two Ultra-deep drillships under-construction without a firm contract, and despite a potential contract in Brazil for the Atwood Archer, I see a company struggling in 2017, as well as the entire offshore drilling industry.
The only positive potential would be an oil price in strong rally mode, at the end of 2016, which is possible but still highly uncertain.

Technically ATW seems about to form a technical "death cross", with the 50MA crossing the 200MA, which indicate a re-test of the $8.50 support soon. Thus, traders and investors alike, should be careful for the next couple of weeks.

Important note: Do not forget to become one of my follower with ATW and the entire offshore drilling industry. Thank you.

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.

Additional disclosure: I trade ATW