Is Tidewater a Good Bet?

Solid fundamentals, a modernized and large fleet, and rising deepwater activity makes the company a solid long-term bet

Saurav Chakraborty
Saurav Chakraborty
Jun 26, 2014 at 9:24AM
Energy, Materials, and Utilities

Investment in companies associated with offshore drilling seems like a promising idea as a result of the growing focus on offshore drilling activities. This thought earlier led me to look into ERA helicopters. Another service provider that stands to gain immensely from the deepwater story is Tidewater (NYSE:TDW), a provider of offshore service vessels. 

Good tidings
There seems to be good news all around. Check this:

  • Last October Brazil auctioned off its deepwater oil field, Libra, to a consortium including Petrobras, Total, Shell, CNOOC, and CNPC. Putting things in context, Libra's estimated recoverable oil stands at 8 billion-12 billion barrels  – it's significant.
  • Closer to home, Mexico finally opened up its deepwater oil fields to private energy producers. According to The Financialist, "Proven reserves stand at around 10.3 billion barrels of oil and 17.3 trillion cubic feet of natural gas, but the most optimistic estimates of offshore reserves are double that." The math is simple and runs into billions of dollars.
  • The offshore drilling market is expected to grow to $121.1 billion in 2018 from $73.1 billion in 2013. 

The largest benefactors of this massive spending are oil services companies including transporters, drilliers, technology providers, etc. But there are hundreds of them out there, so why Tidewater?

It's prepared for the high tide...
Fact 1: Tidewater's active vessel fleet stood at 294 on March 31, including 11 owned through joint ventures. The average age of 245 newer vessels built since 2000 was 6.9 years, and 38 active, older vessels averaged 28.8 years.

Fact 2: As part of its expansion program since 2000, Tidewater has invested approximately $4.4 billion in 271 vessels (92 are deepwater platform supply vessels or deepwater anchor handling towing supply). There are another 30 vessels under construction for a total cost of approximately $833 million.  

Fact 3: Tidewater has the 'largest number of new offshore support vessels (PSVs and AHTS vessels only ), among its competitors in the industry.

These facts have a lot of important implications for Tidewater. Firstly, a new, modern and more capable fleet translates into higher revenue and earnings potential.

Also, the timing seems perfect with the markets turning around. Offshore Supply Vessel to Rig ratio is expected to fall below 3.9 by 2014 from 4.1  in 2012. This implies that lesser number of vessels will be available per rig, effectively tilting the balance in favor of vessel owners.

And finally, most of the demand growth is in the ultra-deepwater drilling space, where the company has the largest fleet among competitors Gulfmark Offshore (NYSE:GLF), Seacor Holdings (NYSE:CKH), and Hornbeck Offshore (NYSE:HOS).

Gulfmark has 71 PSVs and AHTS but has no exposure to West African and Chinese markets where Tidewater is strong. Seacor has the second largest fleet after Tidewater and offshore marine services contributed 45% to its revenue in 2013. Hornbeck is more of a Gulf of Mexico play although it has exposure to other international markets.

In for the long haul
According to Barclays, "Global E&P spending is poised to reach a new record of $723 billion in 2014, up 6.1% from $682bn in 2013." In fiscal 2014, Tidewater's revenue increased by 15% year over year, reflecting the rising demand. The company is slightly levered with a total debt/equity ratio of 56.4 but maintains high liquidity with a quick ratio of 2.04. It has about $660 million of available liquidity to fund its operations as well as capital expenditures. Also, while you wait for the tide to turn completely, there is a dividend yield of 1.8% and the newly authorized $200 million repurchase program to benefit from. Surely, it's a good bet.