The state of the offshore drilling industry continues to inspire much debate on Wall Street. The majority of analysts believe that over the next few years, the industry is going to become oversupplied with drilling units. This will combine to form a perfect storm as oil and gas majors cut costs and capital spending
As a result, the Street believe that companies like Rowan Companies (RDC) and Transocean (RIG -0.86%) will see their earnings collapse as the demand for offshore drilling declines.
These forecasts have sent shivers through the market and raised concerns for investors. However, it would seem that Rowan is not yet feeling the pain.
Strong figures
Rowan recently released its fleet status update for the month of May. While it does contain some bad news, the good news is that it continues to extend contracts at or above previous rates.
The bad news is that the company's newest drillship, the Rowan Renaissance, is experiencing issues with its subsea systems despite having only entered services within the past few months. The issues began on May 19, but the team expects the drillship to be up and running again by the beginning of June.
The downtime will cost the company, although it is not possible to put together an estimate. It's more disappointing to see one of the company's new drillships, supposed to be the crown jewel of Rowan's fleet, malfunction within weeks of commencing its first job.
Still, the rest of Rowan's fleet status update contained relatively good news. The company reported that its Joe Douglas rig in the Gulf of Mexico had its contract extended for 90 days at a day rate of $165,000, up from the previous rate of $160,000. In addition, the Rowan Gorilla VII and II had their contracts extended with no change from the previous day rate.
The contrast between Rowan's most recent fleet update is staggering. Transocean released an update for the period from April 17 to May 17, and its revelations were poor to say the least.
A poor report
Transocean's report provided updates on four drilling units. Aside from one, all were contracted at lower day rates as shown below:
- Dhirubhai Deepwater KG1 - Awarded a three-year contract at a dayrate of $440,000. The rig's prior dayrate was $510,000.
- Paul B. Loyd, Jr. - Awarded a two-year contract extension at a dayrate of $430,000. The rig's prior dayrate was $447,000.
- GSF Development Driller II - Awarded a three-well contract at a dayrate of $360,000. The rig's prior dayrate was $606,000.
- GSF Constellation II - Customer exercised a one-year option at a dayrate of $165,000. The rig's prior dayrate was $165,000.
These figures from Transocean were, in a word, terrible. They bring the company crashing back to earth after releasing a relatively upbeat first quarter earnings update.
Transocean's first quarter update showed that the company was making solid progress in restructuring, reducing costs, spinning off non-core entities, and finding new customers.
Transocean's revenue ticked up 2% year-over-year in the first quarter, and the company's utilization rate came in at 78%, compared to the 75% reported during the fourth quarter. Cost fell 13% and earnings per share came in at $1.25, up around 40% year over year. The company ended the quarter with a contract backlog of $26.1 billion.
Looking at the above fleet status report, though, it seems as if Transocean's second quarter will not be as impressive as the first.
