The storm raging in the offshore drilling market seems to be growing fiercer by the day. An already saturated market is now being pummeled by plunging oil prices, which will only weaken demand for drilling rigs. This situation in recent weeks has intensified the sell-off in shares of Atwood Oceanics (NYSE:ATW), which are down almost 30% since the start of the year.

ATW Chart

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Atwood will deliver its fiscal fourth-quarter results on Monday after markets close. Investors will want to keep an eye on two particular matters when examining that report.

1. Were there any delays?
Atwood Oceanics delivered better-than-expected numbers in its last quarterly report: Revenue landed about $10 million higher than analysts expected, while it also beat profit expectations by $0.07 per share. That earnings surprise sustained the company's trend of beating the Street. This trend faces a big test on Monday, as analysts expect the company to report revenue of $320.7 million and earnings of $1.55 per share. Both estimates represent a significant increase from the prior quarter's revenue of $292.8 million and earnings of $1.11 per share.

Look to see if Atwood can beat these expectations, too. Given its strong contract backlog, there shouldn't be too much to worry about here. As the following slide illustrates, the company should have received incremental contributions from new, or extended, contracts for some rigs.

Source: Atwood Oceanics Investor Presentation.

Specifically, the mobilization of the Atwood Achiever in late August, rising dayrates of the extended Atwood Eagle contract, and some benefit from the short-term contract for the Atwood Hunter should all be positive contributions for the quarter -- assuming there was no delay in the start time of these contracts.


Atwood Mako. Source: Atwood Oceanics. 

2. How is Atwood battening down the hatches?
While we're not anticipating that the storm in the offshore rig market caused any delays in contract starts, we do anticipate Atwood Oceanics will batten down the hatches so that it comes out of the situation unharmed. The company has already announced that it is delaying the delivery of both the Atwood Admiral and Atwood Archer by six months from the timeline noted on its last investor presentation because neither was under contract. Management apparently did not take this decision lightly, as analysts estimate the move will cost the company an additional $40 million-$45 million per rig.

We'll want to look for any other moves the company might make as it navigates the current storm. For example, the Atwood Mako is coming off its contracted follow-on work later this year. The market for this type of vessel is particularly weak right now, so Atwood could just pull the rig from availability until conditions improve. The company could also look to sell some of its older vessels to bolster its balance sheet.

Investor takeaway
Thanks to its strong contract backlog, Atwood Oceanics should roll out solid quarterly earnings despite the stormy weather in the rig market. However, the current climate in the industry has investors concerned for the future of this company, which has a couple of rigs coming off contract and recently delayed two of its newest rigs because neither had a contract. Because of that, Atwood's outlook and how the company is making preparations for that outlook will hold investors' attention on Monday.