Wednesday, June 25, 2008

Atwood Oceanics (ATW) Announces New Contract for Atwood Hunter

Atwood Oceanics (ATW) is one of my oil sea drillers - this group continues to confound me in terms of valuation - many trade at 11-15x estimates even though the growth rates are 30-35%+. Blah, they are still valued as cyclical stocks. Anyhow, unlike the godfather of the industry, Transocean (RIG), which has a bazillion (ok maybe a few less than a bazillion) rigs, Atwood only has 8 functioning rigs, and of those only 3 are of the "deeper" variety - Falcon, Hunter, and Eagle (along with 1 new deepwater scheduled for 2011). So when news comes out on any of these 3, we want to focus on it.

Last night Atwood Oceanics announced the new rates for Hunter, and coming as no surprise we are seeing huge increases over old rates. This is playing out across the industry. This announcement seems to be buffeting ATW from the selloff in anything commodity related today.
  • Atwood Oceanics, Inc. (NYSE: ATW - News), announced today that the ATWOOD HUNTER has been awarded contracts by Noble Energy, Inc. (NBL) for work in the eastern Mediterranean Sea and by Kosmos Energy Ghana HC ("Kosmos") and Noble Energy for work offshore West Africa for a combined term of four years. These contracts provide for an operating dayrate of US $511,000 while working in the eastern Mediterranean Sea, approximately and approximately US $538,000 while working offshore GhanaUS $545,000 while working in other West African designated areas.
  • Immediately upon the ATWOOD HUNTER completing its current work offshore Mauritania (estimated September 2008), the rig will be relocated to the eastern Mediterranean Sea (estimated to take 35 days) to perform the Noble Energy contract (estimated to take 80 to 160 days to complete) and then mobilized to West Africa (estimated to take 55 days) to commence the combined Kosmos and Noble Energy contract, with the rig being moved between Ghana and other designated areas at various intervals. The initial work in Ghana for Kosmos is estimated to take 270 days to complete. These contracts provide that Noble Energy and Kosmos will provide all tow vessels and pay a dayrate of approximately $460,000 during all mobilization periods.
Current rate for Hunter? $240,000.

Eagle is contracted out to 2011, so no good upside from that one for a long time, but Falcon comes off the lowly dayrate of $160-$200K twelve months from now. We can expect a similar increase in dayrate to Hunter, when it does come free. Again, even if oil goes back to $80-$100 there is a chronic shortage in the deep(er) sea oil rigs - if these stocks even got a multiple of 3/4 of their growth rate we'd see some serious expanded stock prices.

For Atwood Oceanics their 2008 ends in September and estimates are $6.61; a year later $10.52 - toss even a 22 multiple (well below their growth rate) and you'd have a $145 stock in September, and $231 stock a year later. But the market has stuck this name / sector with a mid teens multiples...

[May 8: Atwood Oceanics Short and Sweet Beat]
[Feb 7: Earnings Update on Our 2 Drillers: Atwood Oceanics and Diamond Offshore Drilling]
[Nov 29: Deep Sea Driller Atwood Oceanics Earnings Surge]

Long Atwood Oceanics in fund; no personal position

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