Tickers in this Article: ATW, CVX, NBL, BHP
Atwood Energy (NYSE:ATW) will have one of the youngest offshore rig fleets, after the company completes its new build program in 2013. This fleet might be the prime beneficiary of higher day rates if the market absorbs the excess capacity by that time.

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Rig Fleet Summary
Atwood Energy has 15 rigs in its fleet, including those that are under construction, and three rigs that are cold stacked. In the active fleet, the company has three ultra deepwater rigs, three deepwater semisubmersibles and six jack up rigs. Atwood Energy has only seven of these rigs under contract, yielding a backlog of $1 billion in contract revenues for the company. The company also has little exposure to the still weak Gulf of Mexico market.

Under Construction
Atwood Energy has two ultra deepwater rigs under construction with delivery dates in 2012 and 2013. The Atwood Condor and Atwood Advantage have no contracts and are currently being marketed by the company. The Atwood Osprey, another ultra deepwater rig, was recently completed and is undergoing final testing by the company. This rig is leased to Chevron (NYSE:CVX) through 2014, and will be put to work at the Gorgon development in Australia. Atwood Energy has three jack up rigs under construction. The Atwood Mako, Atwood Manta and Atwood Orca are scheduled to be delivered from the shipyard from 2012 to 2013. None of these jack up rigs have contracts at the current time.

Atwood Energy also has an option to build two more jack ups of identical design, but recently extended the decision date on one of these options until the end of 2011.

Strategy
Atwood Energy is depending on the substitution effect to absorb some of its new build rigs when they come to market. This refers to the propensity of newer equipment to push older rigs out of the market as they age and become incapable of handling the more demanding task of higher pressure and deeper wells. Atwood Energy estimates that in 2015, there will be 194 jack up rigs working that are older than 30 years and these will become prime candidates for cold stacking when new equipment is available.

Recent Contracts
Atwood Energy disclosed that the Atwood Aurora was contracted to begin work in October 2011. Noble Energy (NYSE:NBL) will use the rig to drill wells offshore of Africa at rates between $126,000 and $134,000 per day. The company received a better rate on the Atwood Eagle, which was leased to BHP Billiton (NYSE:BHP) at a rate between $376,000 and $399,000 per day for 45 days.

Earnings
Investors are not looking for much earnings growth for Atwood Energy in 2011 or 2012, and expect the company to earn $3.96 per share in the fiscal year ending September 2011, and $4.14 per share in September 2012. These estimates might increase quickly if the company finds operators to lease some of its rigs.

Atwood Energy will see the delivery of five new build rigs through 2013, and may be the beneficiary of high day rates, if market capacity tightens by that time. (Find out how the PPI can be used to gauge the overall health of the economy. Check out Predict Inflation With The Producer Price Index.)

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