Friday, November 19, 2010

Atwoods Oceanics Drops 5% on Solid Results




Last night Atwoods Oceanics (ATW) reported Q3 results of $.99 that easily surpassed the estimates of $.92. Revenue came in slightly ahead of expectations all suggesting the stock would pop today. Well, evidently the huge 3 month gains and possibly a better understanding by the market that 3 rigs were cold stacked caughtt the street off guard.

As far back as the end of October, ATW had made it known that three of the lowest specification rigs, Southern Cross, Seahawk, and Richmond, had been cold stacked. Maybe it caught Wall Street off guard that they don't expect any deals near term as they aren't even actively marketing the rigs. Some analysts only get news from the quarterly earnings reports and calls so maybe this was the first time getting the official word.

Although these 3 rigs aren't huge contributors to the bottom line, it is ironic that one of the companies least involved in the Gulf of Mexico was so heavily impacted by the Macondo accident. With rigs moving out of the GOM, the ATW rigs have faced higher competition forcing these low spec rigs on the sidelines.

Regardless, ATW has a very bright future. As the GOM reopens for business, naturally competition will decline. They also have one of their new ultra-deepwater floaters coming out of the shipyard around Q2 of 2011. The $470K dayrate will more then exceed the lost revenue from the 3 cold stacked rigs. This rig is headed to Australia to work on the Greater Gorgon natural gas development for Chevron.

In 2012, the other ultra-deepwater floater called the Condor comes online. Yet another great opportunity for growth. In addition, ATWs has orders for two high spec jackups in 2012. Considering the much higher demand for the high spec over the lower spec rigs in places like the Middle East and Southeast Asia, its apparent that ATWs expects these new rigs to easily find work by at the least supplanting older low spec rigs such as the ones idled by them.

So while Atwoods only has 6 of 9 rigs working now, they are for the most part the 6 best rigs. With four more rigs including two ultra-deepwater rigs on delivery schedule for the next 2 years expect ATW to see significant growth the in the near term especially if the GOM opens back up reducing competition for rigs around the world.

Its very possible that the stock is down 5% today mainly because of an overbought rally the last 3 months.  The stock has rallied from a low around $24 in August to a high around $38 just this week. Thats an outstanding gain for such a short period no matter whether it was depressed due to the Macondo accident. With earnings expectations in the $4+ range for next year, don't expect the stock to trade in the mid $30s for long. Those new rigs will quickly drive up profits.



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