Monday, May 20, 2013

Atwood Oceanics Announces Contract Extension, updated model - new Price Target

Atwood Oceanics, Inc. announced last week that it has successfully secured a 1-year contract extension for one of its rigs, the Atwood Aurora until February 2015.  The Atwood Aurora is a jack up rig that is currently operating in offshore Cameroon, and this contract is essentially a continuation of its previously secured contracts.  The drilling rig will bring in a day rate of $193,000 (if the 15% Cameroon withholding tax is applicable at the time), or $164,000 if the withholding tax is not applicable.  Effectively, any excess taxes applicable to this rig's operations are paid for by the customer, and it will be bringing in revenue that is above what the Aurora is currently earning, and also above the day rate that is specified in its first contract extension.

This contract helps to alleviate some of the worry surrounding downward price pressure in the drilling industry.  It shows that companies are actively looking to expand operations in major offshore areas.

I have updated the model and uploaded a copy to Dropbox.  The investment thesis is still intact, and ATW has a new 12-month price target of $63.89, representing a 15% upside over today's closing price of $55.77.

-Nick Randone

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