A subsidiary of Rowan Companies Inc. (RDC) has inked a contract with Hyundai Heavy Industries Co. for the construction of two ultra-deepwater drillships, representing the company’s pioneering deepwater venture. The contract is worth around $1.2 billion and is a part of Rowan’s long-term agenda to diversify its offshore drilling business.
The new rigs, capable of drilling wells to depths of 40,000 feet in waters of up to 12,000 feet, is slated for delivery in late 2013 and mid-2014. The company will utilize its available cash, cash flow from operations and short-term borrowings to pay for the rig. Rowan also secured an option to order a third drillship of the same specification. The option can be exercised in the third quarter of 2011, for delivery in late 2014.
The latest GustoMSC P10,000 designed DP-3 compliant and dynamically positioned drillships include retractable thrusters, dual-activity capability, five mud pumps, dual mud systems and a maximum hook-load capacity of 1,250 tons.
Rowan highlighted that $605 million construction cost is based on a 12,000 foot water depth capable rig equipped with 10,000 feet of riser. But it intends to provide these rigs with 2,000 feet of additional riser so that they perform operations up to 12,000 feet of water that no other company’s newbuild drillship has till date. Again, Rowan will have to shell out $50 million extra per drillship for this supplementary equipment as well as operational training and personnel.
Rowan’s greater focus on high-spec resources as well as impending tendering activities for multi-year drilling programs in the North Sea, Saudi Arabia and South East Asia are likely to support the requirement for high-spec units. The company also anticipates improvements in utilization and day rates for offshore and land rigs in 2011.
Recently, Rowanstruck a $1.1 billion deal with a leading mining equipment maker, Joy Global Inc. (JOYG) for the sale of its manufacturing unit, LeTourneau Technologies Inc., to focus entirely on offshore markets that will, in turn, unlock value for shareholders.
Rowan currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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