Rowan's Deepwater Initiative - Analyst Blog

Offshore drilling service provider Rowan Companies Inc. (RDC) is constantly endeavoring to speed up its entry into the deepwater segment. As part of this effort, Rowan intends to acquire deepwater rigs to hasten its entry plan by at least one year versus its earlier approximation of two to four years.

The company also anticipates that rigs demand will surge and thereby boost utilization and dayrates. Pride International Inc. (PDE), the Norweigian subsidiary of SeaDrill Limited (SDRL) and DryShips Inc. (DRYS) are also building rigs in order to meet the expected demand.

While the majority of Rowan's fleet is considered to be high-end premium jackups, the company is also a proven offshore driller, with a long-term strategy in place.  For 2011, the company plans to either divest or spin off its manufacturing business and land drilling operations to focus entirely on offshore markets. Rowan's manufacturing capability should provide it a competitive advantage in jackup technology.

Rowan is also experiencing strong demand in the North Sea region where the high-spec market is prolific. Its acquisition of Norway's Skeie Drilling in July also helped in this regard. Following this acquisition, Rowan is building five jackups.  Among these, three N-class jackups are currently under construction. With this, the company remains confident of expanding its operations in the Nordic region.

We remain optimistic about the company's premium high specification rig fleet, which enjoys greater utilization than most other shallow water fleet. Hence, we believe that significant earnings leverage could be achieved with increasing tendering activity.

In corroboration of our earlier anticipation of a potential acceleration in demand for offshore drilling activity at the end of this year or early next year, we believe that Rowan is well positioned to capitalize on the favorable trend.

We maintain our long-term Neutral rating on Rowan. The company  holds a Zacks #3 Rank (short-term Hold rating).

 
DRYSHIPS INC (DRYS): Free Stock Analysis Report
 
PRIDE INTL INC (PDE): Free Stock Analysis Report
 
ROWAN COS INC (RDC): Free Stock Analysis Report
 
Zacks Investment Research