Rowan Companies (NYSE:RDC) made positive comments on the strength of the offshore drilling cycle during a recent conference call. The company indicated improved demand for its rigs, with the most strength in higher end jack up equipment.
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Q2 - 2011 Review
Rowan Companies reported net income of $465.9 million or $3.65 per share in the second quarter of 2011, compared to net income of $90.9 million or 79 cents per share in the second quarter of 2010. The large increase was due to a gain on the sale of one of the company's business segments. Excluding this gain, Rowan Companies reported net income from continuing operations of $44.4 million or 35 cents per share.

Management Commentary
During the conference call, Rowan Companies indicated that it saw "improved demand" for all the company's rigs, with a particular emphasis on the high specification jack up rigs. During a review of recent contract signings, the company noted a contract extension with McMoRan Exploration (NYSE:MMR) for a rig to drill a natural gas well in the Gulf of Mexico.

Rowan Companies also highlighted 2012, when the company expects to have significant earnings growth as most of its rig fleet will be under contract.

Current consensus earnings estimates for Rowan Companies in 2012 are at $3.63 per share, compared to $1.83 per share in 2011.

Strategic Restructuring
Rowan Companies, like many of its peers in the industry, is in the process of a restructuring, and has adopted a new strategy that involves a focus on the offshore drilling segment, along with the sale of the company's other divisions. Rowan Companies also plans to expand into the ultra deepwater segment of the market.

Rowan Companies has been working on this strategy for some time and in July 2011 announced the sale of the company's land rig division to Ensign Energy Services for $540 million. The company estimates the after tax proceeds at $370 million.

Rowan Companies also recently closed on the sale of LeTourneau Technologies, the company's manufacturing segment, to Joy Global (Nasdaq:JOYG) for $1.1 billion.

Ultra Deepwater
Rowan Companies will redeploy the funds to support the company's expansion into the ultra deepwater market and reported that it had contracted with Hyundai Heavy Industries to build two drill ships at a cost of $605 million each. The rigs are set to be delivered in 2013 and 2014, and the company has an option for a third rig if needed.

Other offshore operators are also optimistic about the trend in business over the next year. Hercules Offshore (Nasdaq:HERO), which owns a fleet of offshore rigs, barge rigs and lift boats, recently said that the company was seeing "solid indications of a healthy upturn" in the offshore segment of the market.

The Bottom Line
Rowan Companies optimistic outlook on future business trends might be an encouraging sign for some energy investors. However, this viewpoint should be analyzed in the context of global economic growth, which seems to be on a very precarious footing based on recent reports on GDP, consumer spending and other data. Another economic contraction will delay the future demand that Rowan Companies is counting on. (For additional reading, check out A Primer On Offshore Drilling.)

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Tickers in this Article: RDC, JOYG, MMR, HERO

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