We maintained our recommendation on
Rowan Companies plc
) at Neutral on Mar 15, 2013. The company, with its improved rig
execution level, stands to benefit from the upward trend in the
high-spec ultra-deepwater as well as jackup market and mining
equipment orders. However, Rowan's 2013 guidance of increased
costs is a major hindrance to its earnings growth.
Rowan, a provider of international and domestic contract drilling
and aviation services, and premium high-specification rig fleet
enjoys greater utilization than most other shallow-water fleets.
Rowan's recent fleet status comprises three new contracts with
one in the Middle East and two in the GoM. Among these,
Rowan California was awarded a three-year contract by Maersk,
jackup EXL III received a two-month contract with Nexen in the
GoM, while Rowan Louisiana received a three-month contract, to be
employed in the GoM. These contracts received higher dayrates
from its previous contracts and will help the company in reducing
the rig downtime days and provide impetus for increased
The company has significant exposure to the ultra-deepwater
market with three uncontracted drillships that are under
construction and slated for deliveries starting late 2013 and
through 2014. Rowan's first ultra-deepwater drillship - Rowan
Renaissance - was contracted by Repsol for a period of three
years, at dayrates that beat market expectations. Currently,
Rowan is pursuing active requirements for 22 ultra-deepwater
units with emphasis on receiving a multi-rig package.
Rowan's deeper focus on high-spec resources, as well as impending
tendering activities for multi-year drilling programs in key
markets including the North Sea, Southeast Asia and Saudi Arabia,
are likely to support the requirement for high-spec units.
Long-term growth drivers for Rowan include its high quality fleet
and strong relationships with operators.
However, Rowan sees shipyard time in 2013 to increase to around
10% of available days. The company also expects contract drilling
expenses to increase by 5% to 7%, while selling, general and
administrative expenses to increase by 16% from the last year.
The interest expense is also expected to creep up due to the
recent debt issue. These factors are likely to have a negative
impact on the company's revenue and investor sentiment.
Other Stocks to Consider
While we prefer to remain on the sidelines for Rowan, there are
other stocks in the sector that appear rewarding. Among these,
Stone Energy Corporation
Range Resources Corporation
EPL Oil & Gas, Inc.
), are expected to perform impressively over the next few months,
and carry a Zacks Rank #1 (Strong Buy).
EPL OIL&GAS INC (EPL): Free Stock Analysis
ROWAN COS PLC (RDC): Free Stock Analysis
RANGE RESOURCES (RRC): Free Stock Analysis
STONE ENERGY CP (SGY): Free Stock Analysis
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