Tuesday July 31, 2012
by Charles Mizrahi, editor Hidden Values Alert
Atwood Oceanics (ATW), which operates in the international offshore drilling industry, is our latest special situation portfolio update.
The firm is engaged in the exploration and development of oil and gas wells across the globe, serving clients such as Chevron. Here's why we continue to like it.
The company had a record-setting 2011. Atwood increased earnings for the 6th consecutive year to a new record high of $272 in net income in 2011 and brought in approximately $645 million in total revenue, which they attribute to strong performance of their rig operations teams in achieving high levels of reliability and safety.
ATW successfully delivered and started up their first ultra-Deepwater rig without any safety incidents in Australia and have a three-year drilling program in place, which should help boost revenue in the near future.
They recently were able to sign drilling service contracts with over 6 clients ranging from Australia to Malaysia. They believe that the most significant contract they signed was for the 10,000-foot ultra-deepwater rig, Atwood Condor in the U.S. Gulf of Mexico.
The company is excited to operate again in the Gulf of Mexico and anticipate adding additional rigs in the upcoming years.
ATW is in the process of increasing their rig count from 10 to 16 rigs worldwide. They earn their living by major oil companies paying them daily rates to use their rigs and they believe the 60% increase in rigs will increase future revenue and earnings potential. -
Overall, the company is seeing macro tailwinds. Slowing growth in China and a struggling economy in the U.S. have led to a 20% drop in oil prices over the past three months.
With cheap sources of oil becoming harder to find, corporations and governments are looking offshore for their energy needs.
With 6 new oil rigs that are more modern than their competitors, and the ability to increase daily rates to corporations, ATW believes they may be able to double their revenue in the next two years.
Learn more about this financial newsletter at Charles Mizrahi's Hidden Values Alert.