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DEALTALK-Rowan Cos in focus with rig fleet, safety record
September 16, 2010 / 2:48 PM / 7 years ago

DEALTALK-Rowan Cos in focus with rig fleet, safety record

* Rowan may be attractive to Norway’s Seadrill

* High-spec, safe rigs bring in premium dayrates

* Drillers eye attractive assets post-BP oil spill

* Rowan seen getting more than 30 pct premium (For more Reuters DEALTALKs, click [DEALTALK/])

By Thyagaraju Adinarayan

BANGALORE, Sept 16 (Reuters) - The damaging BP oil spill in the Gulf of Mexico is pressuring drillers to upgrade and modernise their equipment, and has brought drilling contractor Rowan Cos (RDC.N) into focus as a potential bid target.

In the wake of the BP (BP.L) spill, drilling firms are looking to buy state-of-the-art, high-end assets that have a strong safety record and command premium dayrates.

Rowan’s jack-up rigs -- drilling platforms with extendable legs that stand on the ocean bed -- have an industry reputation for robustness and safety, making the company attractive to the likes of Norway’s Seadrill Ltd (SDRL.OL), analysts say.

Rowan, which went public in 1967, owns about half the world’s top rigs, and more than half its rigs are less than 10 years old, against an industry average of nearer twice that.

“The bifurcation between new assets and older ones is only widening and accelerating,” said Simmons & Co analyst Ian Macpherson. “So there was already a preference for companies to try to consolidate the newer equipment.”

Rowan’s relatively young fleet could come on the radar of Seadrill, the world’s No.2 deepwater driller behind Transocean (RIG.N) RIGN.VX, which is scouting for high-quality rigs to compliment its own modern jack-up fleet. [ID:nLDE67T1CH]


Jack-up location Graphic:

Rowan share price Graphic:


Rowan CEO Matt Ralls, who was chief operating officer at GlobalSantaFe before its 2007 acquisition by Transocean has been identified by bankers as a possible seller. [ID:nN01243805]

Rowan, which plans to become a pure play offshore driller in 2-4 years, is keeping its options open over a merger to get into the deepwater market. [ID:nWNAB5009]

With global utilization of high-specification jack-up rigs running at more than 90 percent, Rowan recently bought Skeie Drilling to expand its jack-up fleet. [ID:nN01114673]

“The company has aggressively added high-spec rigs, which should enable it to outperform peers in terms of utilization and day rates,” Global Hunter Securities analyst Matthew Beeby said.

With a premium on rig safety in the wake of the BP spill in April and a fire on a Mariner Energy ME.N platform, Rowan’s safety record is another plus -- and could bring it to the attention of U.S.-based deepwater drillers Noble Corp (NE.N), Ensco PLC (ESV.N) or Transocean, owner of the Deepwater Horizon rig that exploded in the U.S. Gulf, triggering the worst offshore oil spill in U.S. history.

“Rowan has a strong safety track record and highly respected operations. This will help win awards at better than market rates, despite new builds entering in 2010-11,” UBS analyst Angie Sedita wrote in a recent client note.

Stronger pricing power would also help earn top dayrates -- the cost that exploration and development firms pay rig owners to use their equipment.

“Rowan’s rigs are all very high end jack-ups. Pricing power is much better for those types of rigs,” said Rikard Ekstrand, partner at First Pacific Advisors.

First Pacific Advisors recently raised its Rowan stake to above 6.4 percent, a move Ekstrand attributed to the stock’s discount, given its highly-valued drilling assets.

Shares in Rowan, valued at $3.4 billion, have almost trebled since their March 2009 lows, to just above $30, but are still some way off their mid-2008 levels of around $48 each.

“If they get like $45 a share, or even $35-$40, they could accept an offer,” said Brian Uhlmer, analyst at Pritchard Capital.

But bidders are unlikely to want to take on Rowan as long as it has its onshore and rig design and manufacture business, LeTourneau Technologies Inc.

“The problem is they have land rigs as well as manufacturing and I don’t think in the short-term any big buyer will look to buy it with those assets,” said Pritchard’s Uhlmer.

Rowan does have plans to spin off those operations, and that could be a starting gun for bidders. (Reporting by Thyagaraju Adinarayan in Bangalore and Richard Solem in Oslo; Editing by Ian Geoghegan)

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