Texas-based offshore drilling contractor Atwood Oceanics, Inc.’s (ATW) subsidiary has inked a contract with Daewoo Shipbuilding and Marine Engineering Co. Ltd. (:DSME) for the construction of fourth ultra-deepwater drillship.
The total cost of the new drillship – Atwood Archer –is estimated at $635 million. This includes the required expenditure on two blowout preventers, project management, drilling and handling tools and spares.
The drillship is expected to be delivered by Dec 2015 and will be deployed at the DSME yard in South Korea. Atwood Archer will be capable of functioning at a water depth of 12,000 feet and drill to a depth of 40,000 feet.
The design of Atwood Archer is similar to the formerly ordered Atwood Advantage, Atwood Achiever and Atwood Admiral. All four drillships will be capable of functioning at a water depth of 12,000 feet and drill to a depth of 40,000 feet.
The latest order received by Atwood Oceanics is the execution of an option that was set to expire on Jun 30, 2013. The company also secured an option to build a fifth ultra-deepwater drillship at the same cost of Atwood Archer with delivery expected in Sep 2016. The option will expire on Mar 31, 2014.
We see Atwood Oceanics’ leverage to the global drilling market rather than the domestic market as its biggest advantage over most of its peers. The international drilling outlook has been strong versus the muted fundamentals in the U.S. In our view, the company presents investors growth opportunity from any global deepwater drilling recovery.
However, certain factors remain that are likely to keep near-to-medium-term earnings under pressure. The termination of any contract for tender-assist rigs are bound to affect the earnings and cash flow of the company. Also, downtime in any of the company’s rigs currently under contract will be an additional blow to its bottom line.
Atwood Oceanics currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next 1 to 3 months.
Meanwhile, investors can consider other energy firms like Enerplus Corporation (ERF), Newpark Resources Inc. (NR) and Sanchez Energy Corporation (SN) as attractive investments. All these firms sport a Zacks Rank #1 (Strong Buy).
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