With new high-value prospects of oil being found regularly off coastal areas and under seabeds, drilling companies are out to make a killing. Houston-based Vantage Drilling
A relatively new company, Vantage is an offshore drilling contractor specializing in deepwater drilling and other high-end drilling solutions. It has a new fleet of mobile drillers and drillships with drilling-depth capacities ranging from 30,000 to 40,000 feet. With assets worth more than $1.7 billion having an average age of less than two years, Vantage looks like it should be a major player in the drilling sector for years to come.
The revenues look impressive, with year-over-year growth of 149%. However, with only three years of operations under its belt, it's too early to comment on this trend; it will take a few years to really see what's going on. Gross profit for 2010 of $102 million rose by 36% from the previous year. However, the company reported a net loss of $47.6 million thanks to a net interest expense of $49.3 million, which is not entirely usual for a new energy company.
The year-over-year long-term debt rose to $1.1 billion, from $378 million. However, this should not be taken as a negative development as it is common for new companies in the oil industry to have substantial debt. In fact, the positive thing is that the company has the ability to service its debt. One thing to watch in the short term is EBITDA/interest expense, which stands at 1.6 times, down from 3.6 times in 2009. While this is not bad in itself, the company needs to work harder to generate higher revenues to finance the loans. I expect that to occur once operations really take flight.
Generating higher revenues in the long run does not seem to be a big problem. Established players like Diamond Offshore Drilling
What's in store?
With emerging markets like India requiring the services of offshore drilling contractors, the demand for such is on the rise. Last December, Vantage commenced operations for Oil and Natural Gas Corp. in a contract that is expected to fetch approximately $1.1 billion in revenues over the next five years. It also bagged a contract with Petronas worth $77.9 million in the same month.
This stock is definitely not for a short-term hold, and I'm confident that Vantage is on its way to become an established player in the sector. Think otherwise? Let us know in the comments section below.
Isac Simon does not own shares of any of the companies mentioned in this article. Atwood Oceanics is a Motley Fool Stock Advisor pick. The Fool owns shares of Diamond Offshore Drilling. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.