Texas-based offshore drilling contractor Atwood Oceanics, Inc. (ATW) recently announced that it would repurchase 2 million shares of its common stock from Helmerich & Payne Inc. (HP).
Atwood’s move comes in the wake of Helmerich & Payne offloading a substantial portion of its equity portfolio in line with its strategy of monetizing its investments. Helmerich is also selling another 2 million shares of Atwood to a financial institution. This would reduce the equity portfolio of Helmerich to only 4 million shares of Atwood and close to a million shares of Schlumberger Limited (SLB).
Atwood would repurchase the shares at a discount to the closing price of $55.28 on May 23. The company expects to close the transaction on Jun 13. Subsequent to the transaction, Atwood plans to cancel the shares with a focus to improve its shareholder value.
Founded in 1968, Atwood Oceanics is a global offshore drilling contractor mainly focusing on the drilling and completion of exploratory and developmental oil and gas wells. The company currently owns 13 mobile offshore drilling units and is constructing three ultra-deepwater drillships.
We see Atwood’s leverage to the global drilling market rather than the domestic market as its biggest advantage over most of its peers. The drilling outlook internationally 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 which 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 to the company. Also, downtime in any of the company’s rigs currently under contract will result in an additional blow to the bottomline, going forward.
Atwood Oceanics carries a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. There are other stocks in the sector that however appear more rewarding like Abraxas Petroleum Corp. (AXAS) which is expected to perform impressively over the next few months and carries a Zacks Rank #1 (Strong Buy).
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