Saturday, March 7, 2015

2014 Was Bad, 2015 Will Be Worse; Here's How Atwood Oceanics Is Positioned

This article was first published by Seeking Alpha on February 12, 2015.

By Sarfaraz A. Khan. Research Asst. Adnan Mushtaq

Earlier this month, Atwood Oceanics (NYSE:ATW) posted strong first quarter results. The company's adjusted income came in at $1.72 a share, topping analysts' consensus estimate of $1.45 a share. The drilling revenues climbed 23% year-over-year to $337 million, also ahead of markets' expectation of $336 million. EBITDA came in at $186 million while EBITDA margins were 55%. This was also better than market's expectations - based on February 3 report from Credit Suisse's Gregory Lewis emailed to me.

But what investors were looking for was a glimpse into the future outlook of the offshore drilling industry and Atwood Oceanics management seemed honest in its assessment when it said that it is not expecting any recovery until 2017.

2015 Will Be Worse

In 2014, the offshore drilling industry was already struggling with the overcapacity of drilling rigs. Then the massive drop in WTI and Brent crude prices by nearly 50% in the second half of the year made things worse. 

In his February report emailed to me, Raymond James's analyst Marshall Adkins wrote that 2014 was the second slowest contracting year of the past decade, ahead of 2009 when operators signed just 70 rig years' worth of contracts. In 2014, operators signed 135 rig years of contracts, significantly lower than an average of 240 rig years in each year. Utilization rates declined to 84% in December 2014 from approximately 90% in December 2013 while day-rates for Ultra-deep-water rigs fell to $400,000 a day after touching $700,000 a day in ...… read full article at Seeking Alpha