Atwood Oceanics

Atwood Oceanics, Inc. is engaged in the business of international offshore drilling and completion of exploratory and developmental oil and gas wells as well as related support, management, and consulting services. They own and operate a premium, modern fleet of eight mobilte offshore drilling units.

Four of their rigs are semi-submersibles, which can drill in 3,000 to 5,000 feet of water, for which the leasing rate is now about $400,000 per day. The other rigs they own, which drill in shallower water, go for closer to $200,000 per day. There’s huge operating leverage at current rates: operating costs are $45,000 per day on the semisubmersibles and $30,000 per day on the shallower-water “jack-ups.”

Notes:

• September 1, 2006 - Chevron Corp. awarded Trans Oceanics a large contract driller a five-year, $862 million contract to build a drillship. This is the third such contract award for Transocean this year and the second contract award from Chevron. Transocean expects to begin the contract during the first quarter of 2010, following shipyard construction, sea trials, mobilization to the U.S. Gulf of Mexico and customer acceptance. This provides visibilty beyond 2009 that demand for oil driller equipment at the current market rates. Despite the fact that oil prices fell a $1 to $69, the stock prices of drillers soared. TransOceanics price rose 4.33 to 71.08. While ATW's price rose $1.60 to $44.60. Atwood stock chart shows its price rebounding from a base.

• September 1, 2006 - Seeking Alpha has an article based on an interview with August 25th with Robotti & Co. manager Bob Robotti that discusses the outlook for oil drillers and ATW in particular. He argues that while the off shore drilling industry has currently around 200 deep-water rigs – semisubmersibles and drill ships – and another 35 are under construction, demand for deepwater drilling will soon explode because the world needs the offshore oil. Exploration to find a deep-water field costs $5-7 per barrel and producing costs another $3-5 per barrel. "So whether oil is at $75 or $40 won’t make that much difference on demand."

Atwood has fully contracted their fleet next year and almost all contracted the following year. Based on contracted rates, the company should earn $5 per share next fiscal year and more like $9 in fiscal 2008. By the end of 2009, they will have earned $20. At $45, the price looks like a bargin.

• Forbes, in their Sept 4, 2006 issue, has an article on Texas and Louisiana oil drillers.