Rowan Companies (NYSE:RDC) is in the middle of divesting two of its noncore businesses and will emerge focused on offshore drilling with assets working in major oil and gas basins across the globe.

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Jack-Up Rigs
Rowan Companies owns a fleet of 28 jack-up rigs, with the company classifying 16 of these rigs as high specification, nine as premium and three as commodity. These rigs are diversified geographically with ten rigs in the Gulf of Mexico, ten rigs in the Middle East and five in the North Sea, with one rig in three other regions.

The company also has three additional jack-up rigs under construction that are set to be delivered before the end of 2011. The Rowan Norway has a contract with Xcite Energy beginning in November 2011 and the Rowan Joe Douglas has a verbal commitment to drill a well for McMoRan Exploration (NYSE:MMR) starting in early 2012. The Rowan EXL IV is currently available and being marketed by the company.

The average age of Rowan's jack-up rig fleet is 17 years, and the company reported rig utilization of 65% and an average day rate of $136,400 in the first quarter of 2011.

Ultra Deepwater
In June 2011, Rowan Companies announced that it contracted to build two ultra deepwater drillships at a cost of $605 million each. The rigs are expected to be complete in late 2013 and early 2014 and, if needed, an additional rig can be built under the agreement. The ultra deepwater market is the tightest of all the offshore markets and commands the highest day rates.

Seadrill (Nasdaq:SDRL) recently acquired two semi-submersible ultra deepwater rigs that are under construction. The company estimates that the total project cost of the two rigs is $1.2 billion.

Divestitures
Rowan Companies recently announced the sale of LeTourneau Technologies, the company's manufacturing business, to Joy Global (Nasdaq:JOYG) for $1.1 billion cash. The company will receive $875 million in after tax proceeds and expects the deal to close in July 2011.

Rowan Companies originally purchased LeTourneau Technologies in 1994, when it was called Marathon LeTourneau Company. The company paid $52.1 million in cash and future promissory notes.

This sale is part of the company's plan to divest noncore assets. Rowan Companies is also trying to sell the company's fleet of 30 land rigs. These units operate in the United States and are contracted at an average rate of $21,200 per day.

Another oil service company that is divesting assets is Tetra Technologies (NYSE:TTI). The company just conducted an initial public offering of Compressco Partners, L.P. (Nasdaq:GSJK), the company's gas compression business. Tetra Technologies recently closed on the sale of a partial interest in the company's exploration and production business. (L12)

The Bottom Line
Rowan Companies is moving to divest two business segments that the company considers to be non-core and will soon be a pure play on the offshore drilling market. (Find out how the PPI can be used to gauge the overall health of the economy. See Predict Inflation With The Producer Price Index.)

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Tickers in this Article: RDC, SDRL, JOYG, TTI, GSJK

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