August 2, 2011 / 1:00 PM / in 6 years

UPDATE 3-Rowan prefers existing rigs over building new assets

* Q2 adj EPS $0.38 vs est. $0.35

* Q2 offshore drill rev down 21 pct at $223.5 mln

* May buy existing rigs or under-construction assets - CEO

* Says reviewing option to build one more drillship

* Shares up 2 percent (Adds CEO quotes, analyst comments, updates shares)

By Krishna N Das

BANGALORE, Aug 2 (Reuters) - Oil and natural gas driller Rowan Cos Inc , faced with a void in its earnings power following recent divestitures, would prefer to grow its fleet through acquisitions of existing rigs at a time when about a third of the world’s shallow-water rigs are sitting idle.

The idle capacity is forcing drillers to avoid building new rigs, as they take time to deliver and add to industry capacity, hurting daily rates.

Houston-based Rowan on Tuesday posted a market-topping second-quarter profit as costs remained under control in spite of regulatory delays in the Gulf of Mexico and civil unrest in the Middle East.

Rowan sold its drilling and mining equipment unit in May and then hived off its onshore rig fleet late last month, leaving it with a fleet of just 29 shallow water rigs, or jack-ups, and funds to pursue a long-stated desire to expand into deepwater.

Analysts reckon that following the recent deals, Rowan could be a good takeover target, but said the company would first look at buying smaller peers to bulk up.

“Our preferred approach would still be to grow our presence in both high-specification jack-ups and ultra-deepwater through acquisitions of existing rigs or rigs already under construction, just because it doesn’t further add to the overall capacity,” Chief Executive Matt Ralls said on a conference call with analysts.

In June, Rowan had ordered to build two drillships for about $1.2 billion, and it is reviewing the option to build one more.

“We do have the ability to pay, I guess, a negotiable amount in order to extend (the option) a little bit further and give us more time,” Rall said on the call.

Rowan’s April-June profit was 38 cents a share, leaving out one-time items, compared with analysts’ average estimate of 34 cents, according to Thomson Reuters I/B/E/S. Offshore drilling revenue fell 21 percent to $223.5 million due to lower average daily rates.

UBS Investment Research analysts said Rowan’s expenses were 9 percent lower than their estimates.

Calling Rowan’s second-quarter show as “solid”, Dahlman Rose analyst Omar Nokta said Rowan’s recent divestiture will “serve to illuminate the value of its offshore rigs.”

“The jack-up market is picking up and the company is well positioned given its fleet quality and divestment of non-core assets,” Sanford C. Bernstein analyst Scott Gruber said.

Rowan shares, which have gained 12 percent in value so far this year, were up 2 percent at $39.74 in Tuesday afternoon trade on the New York Stock Exchange. (Reporting by Krishna N Das and Swetha Gopinath; Editing by Saumyadeb Chakrabarty and Gopakumar Warrier)

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