Texas-based offshore drilling contractor Atwood Oceanics Inc. ATW has entered into an agreement with South Korean shipbuilder, Daewoo Shipbuilding & Marine Engineering Company (“DSME”), to delay the delivery of two newbuild ultra-deepwater drillships.
Per the deal with Daewoo Shipbuilding & Marine Engineering Co., Atwood’s units have agreed to delay the company's requirement to receive the drillships, the Atwood Admiral and the Atwood Archer, to Sep 30, 2017 and Jun 30, 2018, respectively.
The company is slated to pay $50 million for each drillship on Dec 31, 2015. Thereafter, DSME will extend the remaining milestone payments, $93.9 million for the Admiral and $305 million for the Archer, to their respective delivery dates. Nonetheless, the company has the provision to take delivery of each vessel at an earlier date, subject to a 45-day notice period to DSME.
Founded in 1968, Atwood Oceanics is a global offshore drilling contractor with focus on drilling and completion of exploratory and developmental oil and gas wells. The company currently owns 11 mobile offshore drilling units and is constructing two ultra-deepwater drillships.
We see Atwood’s presence in the global drilling market rather than the domestic market as its biggest advantage over most of its peers. The company’s drilling outlook is strong internationally unlike the muted fundamentals in the U.S. In our view, the company presents investors with ample growth opportunities from global deepwater drilling recovery.
However, certain factors might keep near-to-medium term earnings under pressure. The termination of any contract for tender-assisted rigs is bound to affect earnings and cash flow. Also, downtime in any of the company’s rigs currently under contract would deal in an additional blow to the bottom line.
At present, Atwood Oceanics carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector are Energy Transfer Equity, L.P. ETE, ReneSola Ltd. SOL and Boardwalk Pipeline Partners, LP BWP, which sport a Zacks Rank #1 (Strong Buy).
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