Atwood Oceanics, Inc. (ATW) announced that one of its subsidiaries has been awarded an extension to the drilling services contract with Addax Petroleum Cameroon Limited for the jackup drilling unit Atwood Aurora. The original contract for a one-year term to be performed offshore Cameroon has been lengthened to a term of two years, and the operating dayrate for the full two-year term will be approximately $185,000 or $158,000, depending on the well location.
Atwood Oceanics also announced that for the contract extension, cost escalation provisions will apply at the beginning of the second year of the contract term. The contract will commence from Jul 2014 in direct continuation of the previously announced contractual commitments. With this extension, the firm contractual commitment for the Atwood Aurora is extended till Jul 2016.
Founded in 1968, Atwood Oceanics is a global offshore drilling contractor 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 four ultra-deepwater drillships.
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 is bound to affect the earnings and cash flow to the company. Also, downtime in any of the company’s rigs currently under contract will be an additional blow to the 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 Helmerich & Payne, Inc. (HP), New Source Energy Partners L.P. (NSLP), and Seadrill Partners LLC (SDLP) as attractive investments. All these firms sport a Zacks Rank #1 (Strong Buy).
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