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Rowan's Cost Efficiency Impresses; Lower Dayrates a Concern

On Sep 28, we issued an updated research report on international and domestic contract drilling and aviation services provider, Rowan Companies plcRDC .

Rowan has successfully contracted four of its newbuild drillships. This represents its venture into the ultra deepwater space. Each of the rigs is expected to work at least through 2017 on the current contracts. The market's inclination for high-specification assets favors the company, as the majority of Rowan's fleet comprises high-end premium jackups with a long-term strategy in place. Long-term growth drivers for Rowan include its high quality fleet and strong relationships with operators.

Rowan has reduced its cost estimates for 2015 as well as projects a lower out-of-service time. The company's remarkable cost-control effort is a major positive in the current scenario of falling commodity prices. Operating costs are estimated to reduce by $90 million and selling, general and administrative costs are expected to fall by $10 million.

Rowan's premium high-specification rig fleet enjoys greater utilization than most other shallow-water fleet. We believe that the company, with its improved rig execution level, will benefit from the high-spec jackup market and mining equipment orders.

However, in the current scenario of falling oil prices , most of the oil majors are reducing their operations and cutting expenses. Thus, we believe that even Rowan's earnings will be adversely impacted. Any contract extensions on the shelf in the Gulf of Mexico will be at significantly lower dayrates than the earlier ones and will also be for a shorter period. Additionally, the dayrates for Rowan Stavanger has been reduced for the last two months of its contract in the U.K. North Sea. The jackup will now work at a dayrate of $150,000 per day instead of its previously contracted dayrate of $223,000 per day. The Ralph Coffman's contract was reduced to May of this year from the rig's original end date of July as it had completed drilling the well.

Moreover, Rowan reiterated that it's estimated planned out-of-service time for 2015 is expected at 3%-6% for its jack-ups and drillships, subject to fleet repositioning and market conditions. However, any increase in this figure will have a negative impact on the company's operations.

Zacks Rank and Key Picks from the Sector

Rowan holds a Zacks Rank #3 (Hold). Some better-ranked players from the same space are Alon USA Partners, LP ALDW , Braskem S.A. BAK and ReneSola Ltd SOL . All these stocks sport a Zacks Rank #1 (Strong Buy).

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ROWAN COS PLC (RDC): Free Stock Analysis Report

RENESOLA LT-ADR (SOL): Free Stock Analysis Report

BRASKEM SA (BAK): Free Stock Analysis Report

ALON USA PTNRS (ALDW): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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