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.

TUTORIAL: Introduction To Accounting

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.

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.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing

    Asset Manager Ethics: Acting With Competence and Diligence

    Managers must make investment decisions based on their personal investment process, which in turn should be based on solid research and due diligence.
  2. Forex Education

    Understanding The Income Statement

    Learn how to use revenue and expenses, among other factors, to break down and analyze a company.
  3. Stock Analysis

    Will J.C. Penney Come Back in 2016? (JCP)

    J.C. Penney is without a doubt turning itself around, but that doesn't guarantee the stock will respond immediately.
  4. Economics

    Why It Is Important to Follow Crude Oil Inventories

    Discover what oil inventories are, how they are communicated and what important insights they provide into the state of the oil market.
  5. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  6. Economics

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  7. Stock Analysis

    The Biggest Risks of Investing in Pfizer Stock

    Learn the biggest potential risks that may affect the price of Pfizer's stock, complete with a fundamental analysis and review of other external factors.
  8. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  9. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  10. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  3. What does low working capital say about a company's financial prospects?

    When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business ... Read Full Answer >>
  4. Do nonprofit organizations have working capital?

    Nonprofit organizations continuously face debate over how much money they bring in that is kept in reserve. These financial ... Read Full Answer >>
  5. Can a company's working capital turnover ratio be negative?

    A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>
  6. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>

You May Also Like

Trading Center