I'm not sure whether I should curse TODCO (NYSE:THE) management for giving a thorough rundown of market conditions on its conference call -- and thus stealing some of my thunder -- or credit the team for giving even the smallest shareholder access to some worthwhile information.
While TODCO's market (Gulf of Mexico jack-ups) is still a bit controversial, results continue to look quite solid. Revenue jumped 64% on strong utilization and seemingly ever-climbing dayrates. And while operating and reactivation expenses are rising, TODCO is still thus far leveraging that revenue growth into significant earnings and cash flow.
Looking at the operating statistics for the quarter, we see that dayrates were higher everywhere. The company enjoyed a nearly 76% jump in Gulf rates (on a year-over-year basis), while inland barge rates rose 35%, and the international business saw rates rise by about 61%. And one quick note on the reported utilization rates -- while the company reported only 50% utilization in the Gulf jack-up business and 60% in the barge business, that's a little misleading. Those numbers include cold-stacked (i.e., inactive) rigs and rigs under repair; of those rigs in the market and working, there was 100% utilization.
As I mentioned before, the Gulf jack-up market is a bit controversial. First of all, jack-ups are the low-end rigs in the offshore business -- they can't drill to the depths of the rigs that deepwater players like Transocean (NYSE:RIG) use, but they're relatively cheaper to build. And longer-term contracts are rarer in this business relative, again, to deepwater.
Second, the Gulf itself is a controversial place. Big companies like BP (NYSE:BP) are easing out of the shallower areas, and there's skepticism as to whether companies like Apache (NYSE:APA) can continue to earn good returns on Gulf operations. And don't forget the overriding risk of lower energy prices. If prices go into a sustained drop, rig demand will probably ease off.
But you know what? Figuring that all out is like playing three-dimensional chess while drinking absinthe. What's more, it's not exactly the true picture that TODCO faces. Sure, some companies are leaving the Gulf, but there's still oil and gas there, and that's friendly territory for the United States. What's more, rigs are leaving the Gulf for international markets, like some owned by Rowan (NYSE:RDC) and ENSCO (NYSE:ESV), and that's left rig counts low. That's good for pricing for those who stay.
With all that said, TODCO seems somewhat cheap. I'm still drawn somewhat more toward the deepwater players, but it's hard to ignore the earnings potential if TODCO continues to reactivate its stacked rigs.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
