AWLCF - Awilco Drilling

[bz1516]

Packer, I think the only way you and the Norwegian analysts can be getting such high numbers for distributions over the next two years while I'm getting such low numbers is we are using different capex numbers.  Hard to believe all those Norwegian analysts can be wrong? :)  What numbers are you using?

 

 

[siddharth18]

Here is my "rough order of magnitude" calculation:

 

Maximum possible revenue based on contractual dayrates (assuming premier opts for smallest option) = $277M, but revenue assuming 93% Utilization = $257M

 

OpEx = 69M

SG&A = 19M (12M expected + 7M stock options)

Interest = 10M

Depreciation = 18M

 

NOPAT (at 10% tax rate) = (257-69-18-10-18) x 0.90 = 141M

 

Operating cash flow = $125m + $18m = $159M

Total CapEx = $30M

 

FCF = $159 - $30 = $129M or $4.29/share

 

What did I miss?  :-\

[Hielko]

You are missing the debt repayments. This is how I calculated FCF for 2014:

 

Max revenue: 273.4 million

Revenue efficiency: 95%

Revenue: 260 million

- Operating expenses: 70 million

- G&A expenses: 12 million

- Interest expense: 8.8 million

- Taxes: 12 million

Cash from operations: 157 million

- debt repayment 11 million

- capex 30 million (includes 15 million prepayment for new BOPs)

FCFE: 116 million

[gary17]

So why are they paying out $4.4/share dividend?

[Hielko]

So why are they paying out $4.4/share dividend?

Because they are simply paying out all FCF? Not sure what your point is...

[gary17]

If 129M is $4.29, then  isn't 116M like $3.85/sh? So they are paying out more than fcf per your calcs.

[Hielko]

The current FCF is simply a bit higher than it probably will be next year because of the capex requirements in 2014, so the current dividend is higher too.

[gary17]

I see, thanks....

So the market price is probably trending down in anticipation of smaller dividends going forward then.... 

 

[rayfinkle]

packer--sorry if I missed this, but you own this?

[Packer16]

Yes I do.

 

Packer

[siddharth18]

You are missing the debt repayments. This is how I calculated FCF for 2014:

 

Max revenue: 273.4 million

Revenue efficiency: 95%

Revenue: 260 million

- Operating expenses: 70 million

- G&A expenses: 12 million

- Interest expense: 8.8 million

- Taxes: 12 million

Cash from operations: 157 million

- debt repayment 11 million

- capex 30 million (includes 15 million prepayment for new BOPs)

FCFE: 116 million

 

Just a bit confused here. They mentioned here that TOTAL cap-ex for 2014 is US$30Million. They break it out - $15M for "routine" capex and $15M for BOP commitments. This makes sense because last year they said they were targeting $15M Capex for 2013 (all of it "routine" since there were no BOP commitments).

 

Finally, it seems they are quite conservative in their estimates as the YTD capex hasn't even been HALF of $15M.

 

Any thoughts?

 

Yes I do.

 

 

Packer

Wondering if Awilco is in your "top 5" positions & did you buy it in Norway or US?

 

I've received dividend on shares I bought in Norway but still waiting for US bought shares...

[marcosc]

Dividend just hit my account on the US ADRs (Ameritrade)

[Hielko]

Just a bit confused here. They mentioned here that TOTAL cap-ex for 2014 is US$30Million. They break it out - $15M for "routine" capex and $15M for BOP commitments. This makes sense because last year they said they were targeting $15M Capex for 2013 (all of it "routine" since there were no BOP commitments).

What exactly are you confused about? Seems like you understand the situation perfectly fine :).

 

Finally, it seems they are quite conservative in their estimates as the YTD capex hasn't even been HALF of $15M.

In earlier quarters the company made some comments about delaying capex because of the unavailability of the required helicopters or something along those lines. I think that's part of the explanation of the low capex YTD.

[bz1516]

I think its important to look at projections for the next three years.  Capex is where there is the most uncertainty in the market.

 

Here are their capex numbers for 2014 - $30mm,  2015 -  $51mm, and 2016 - $49mm.

 

The question is how generally known are these numbers?  Every indication is the effects of these numbers on DCFPU is not generally known to the market.  There effect is another matter.

[siddharth18]

What would the residual value of the rigs be in 2017? Say the management wants to sell the 2 rigs: What price per rig would they be able to sell it for?

[zippy1]

Bull case by Geppe on seekingalpha.

http://seekingalpha.com/article/1918681-awilco-drilling-sell-scrap-analysis-and-worries-gives-huge-opportunity?source=yahoo

I am happy because A) they do not think beyond a couple of months and thus created an opportunity, B) They do not understand who runs the business nor the obvious long term perspective undervaluation case C) Dividend will increase yet again, which I will explain later.

[xxx1313]

I owned some Awilco Drilling stocks for about half a year and made about 50 % with it, but I sold a few months ago. Drillers with old rigs are discounted by Mr. Market because in a weaker environment many old rigs may need to be cold stacked or even scrapped. Mr. Market may be right or not - who knows. Awilco Drilling is still rather inexpensive, but it is not the no-brainer it once was. For example, Fred Olsen Energy is already cheaper on some metrics. It is comparable to Awilco Drilling, because it also owns many very old rigs, but also two new UDW drillships (the second one will be delivered in Q1 2014). Moreover, most of Fred Olsen Energy's rigs operate in UK waters (such as Awilco's) and in Norway, a market with similarly strong demand for the foreseeable future.

 

Here some metrics for both stocks.

 

Awilco Drilling (in USD):

Market Cap: 611 million (at 125 NOK)

Enterprise Value: 668 million

Book Value: 209 million

Equity Ratio: 57 %

EBITDA (2013e): 145 million

EBITDA-Margin: 64 % (very high - sustainable??)

Fleet: 2 old midwater semis

Average fleet age: 32 years

Backlog: 0.8 billion incl. options

Price/Book: 2.9

EV/EBITDA: 4.6

 

Fred Olsen Energy (in USD):

Market Cap: 2655 million (at 245 NOK)

Enterprise Value: 3483 million

Book Value: 1363 million

Equity Ratio: 48 %

EBITDA (2013e): 928 million

EBITDA-Margin: 51 %

Fleet: 7 old midwater semis, 1 old deepwater semi, 1 new UDW drillship (2nd UDW drillship delivered in Q1 2014)

Average fleet age: 29 years (26 years after the delivery of the new UDW drillship)

Backlog: 4.5 billion incl. options

Price/Book: 1.95

EV/EBITDA: 3.75

One more (the third) UDW unit  is expected in Q1 2015 and is contracted with Chevron for over 5 years at a day rate of 560,000 USD (not bad for such a long contract!)

 

Fred Olsen Energy's dividend yield is "only" 8 %, but this is not bad for a conservatively mananged and growing company.

 

By the way, the cheapest companies with new rig fleets and at least ok balance sheets trade at about 6x EV/EBITDA (e.g. Atwood Oceanics with an average rig fleet age of about 8 years).

[siddharth18]

Thanks for the comment. Will look into the company.

 

One more (the third) UDW unit  is expected in Q1 2015 and is contracted with Chevron for over 5 years at a day rate of 560,000 USD (not bad for such a long contract!)

 

This should be better for Awilco in some sense right? If companies like Chevron are agreeing to pay $560K/day from 2015 to 2020, then that means mid-water semi-submersibles shouldn't face much competition? The market in Awilco's niche should seem tight - No one wants to build mid-water rigs anymore and UDW rig prices seem to be strong so far out. Thoughts?

[xxx1313]

Siddharth18, you are right. But the difference in pricing between new and old rigs is already rising (see attachment). My point is not that Awilco Drilling will necessarily be a bad investment (in most scenarios it will be a good one), but that in my opinion there is at least one other attractive opportunity in this sector, with maybe better risk/return characteristics.

Dayrate_Trend.pdf

[siddharth18]

Siddharth18, you are right. But the difference in pricing between new and old rigs is already rising (see attachment). My point is not that Awilco Drilling will necessarily be a bad investment (in most scenarios it will be a good one), but that in my opinion there is at least one other attractive opportunity in this sector, with maybe better risk/return characteristics.

 

Duly noted and thanks for the dayrate PDF! I'd think that since Awilco's rigs are some of the better ones of all the rigs available among all the alternatives (since they were refurbished just a few years ago and it will undergo a BOP replacement in the near future) they should be able to command better day-rates in their cohort.

 

At today's enterprise value US$668M, you get two rigs that are old, but well maintained and can command decent day-rates.

 

Compare that to almost $700 million it costs to order a new rig: http://translate.googleusercontent.com/translate_c?depth=1&hl=en&ie=UTF8&prev=_t&rurl=translate.google.com&sandbox=0&sl=no&tl=en&u=http://www.offshore.no/sak/34174_odfjell_bygger_super-rigg_for_bp&usg=ALkJrhigmtaQN2Up3fD00jDIljYVKZPu4A

 

This is the same rig that sank a few days ago in the shipyard: http://gcaptain.com/odfjell-drilling-rig-sinks-dsme/

 

It was leased by BP (starting 2014) for 7 years (firm) + 3 years (of option). In a semi-rational world, the fact that oil companies (Chevron, BP, Apache, etc) are willing to commit to seemingly high day-rates should mean something.

 

http://translate.google.com/translate?hl=en&ie=UTF8&prev=_t&sl=no&tl=en&u=http://www.nrk.no/verden/norskbestilt-rigg-sank-i-sor-korea-1.11440292&sandbox=0&usg=ALkJrhjIup_S2RWvd1RfHdx9R1Wg854-Xg

 

 

That said are you holding any Awilco in your portfolio at all?

[xxx1313]

Siddharth18, thank you  for the links, especially concerning Odfjell's new rig. Odfjell is also on my watch list.

 

From a balance sheet perspective, a new UDW rig with a life of 30-50 years is worth more than two >30 year old midwater rigs with useful lives of 15-20 years at best. On the other hand, the two old midwater rigs together (at least in UK or Norway) will probably generate higher EBITDA than the new UDW rig. This is what seems unsustainable and the big question is, how long this environment will persist. Awilco is a classic Graham-style cigar butt. It is still inexpensive (but not for free) on an EV/EBITDA basis, but with the real risk that the cigar goes out sooner than one can or will throw it away.

 

The day-rates for long contracts (for example the 7 year BP/Odfjell lease you mention) are lower than those of shorter contracts. So the forward curve of rig dayrates (I do not know if something like that officially exists) is certainly in backwardation. This means that oil companies expect lower dayrates in 2-4 years. Of course there is no guarantee that they are right.

 

I sold my Awilco shares a few months ago, but bought some Fred Olsen and Atwood shares recently. If Odfjell becomes cheaper, it is certainly interesting, too. The stocks of the market leaders, Transocean and even more Seadrill, are much more expensive.

 

 

 

 

[Myth465]

I plan on selling and adding to my ORIG position.

[Olmsted]

For discussion.  A Norwegian analyst gives Awilco a sell and a NOK 117 price target.  Gist is that day-rates are too high and will go lower:

 

Nordea Markets regner med at overtilbud i flytermarkedet vil føre til fall i dagratene og utnyttelsesgraden for de fleste segmentene innenfor riggsektoren.

 

Meglerhuset nedjusterer sine EBITDA-estimater for industrien og reduserer kursmålene med 14 prosent i snitt.

 

Nordea anbefaler kjøp av Odfjell Drilling og har et kursmål på 55 kroner pr aksje.

 

«Selskapet har en relativt ung og moderne flåte med spesifikasjoner som gjør at riggene kan være på kontrakt i de mest utfordrende og krevende områdene i verden», heter det.

 

Awilco Drilling får derimot en salgsanbefaling og et kursmål på 117 kroner

 

Meglerhuset mener er perfekt timing for å ta gevinst i denne aksjen etter kraftig oppgang.

http://www.hegnar.no/analyser/article754271.ece

 

And in (sort-of) English, from Google Translate:

 

Nordea Markets expects that the offers in floating market will lead to a fall in day rates and utilization for most segments in the rig sector.

 

The brokerage lowered their EBITDA estimates for the industry and reduces price target by 14 percent on average.

 

Nordea recommends the purchase of Odfjell Drilling has a price target of NOK 55 per share.

 

"The company has a relatively young and modern fleet of specifications so that the rigs could be operating in the most challenging and demanding areas of the world," it says.

 

Awilco Drilling offers less a sales recommendation and a price target of 117 million

 

The brokerage believes is perfect timing to make gains in this stock after a sharp rise.

[siddharth18]

http://seekingalpha.com/news/1523261-noble-corp-diamond-offshore-shares-down-big-on-slower-drilling-outlook

 

 

http://www.businessweek.com/news/2014-01-23/noble-leads-offshore-drillers-lower-on-slowdown-dallas-mover

[siddharth18]

http://www.hegnar.no/bors/article754599.ece

 

 

Rough Translation into English:

 

 

Pareto expecting tighter oil market: Pareto Securities expects the oil market will tighten up to from 2015 to 2018.

 

Fresh analysis shows that Pareto Securities expects the oil market will tighten up to from 2015 to 2018 is relatively well supplied market in 2014.

 

The driver for tightening should be a reduction in production outside OPEC growth from an estimated 1.5 million barrels per day in 2013 to 2014 to 0.8 million barrels per day in 2015 to 2018 due to lower growth in North America.

 

Also expected global demand growth to 1.2 million barrels per day, says the news agency.

 

Pareto assumes that current prices already reflect a well-supplied market in 2014 and estimates an average price of $ 108 a barrel this year.

 

In 2015, estimated according to TDN Finans an average price of $ 115 per barrel rising to $ 120 a barrel from 2016 onwards.