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.
TUTORIAL: 20 Investments To Know

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.)

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

Related Articles
  1. Stock Analysis

    Fortinet: A Great Play on Cybersecurity

    Discover how a healthy product mix, large-business deal growth and the boom of the cybersecurity industry are all driving Fortinet profits.
  2. Stock Analysis

    2 Catalysts Driving Intrexon to All-Time Highs

    Examine some of the main reasons for Intrexon stock tripling in price between 2014 and 2015, and consider the company's future prospects.
  3. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  4. Savings

    Do Natural Gas Prices Always Follow Oil Trends?

    Prices for oil and natural gas are highly correlated. But investors should be aware of different factors affecting the prices of these commodities.
  5. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
  6. Technical Indicators

    4 Ways to Find a Penny Stock Worth Millions

    Thinking of trading in risky penny stocks? Use this checklist to find bargains, not scams.
  7. Professionals

    Chinese Slowdown Affects Iron Ore Market

    The Chinese economy's ongoing slowdown is having a major impact on iron ore demand.
  8. Investing Basics

    Why do Debt to Equity Ratios Vary From Industry to Industry?

    Obtain a better understanding of the debt/equity ratio, and learn why this fundamental financial metric varies significantly between industries.
  9. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  10. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!