We initiate coverage of Atwood Oceanics with a BUY recommendation and target price of USD 19

The company has four modern UDWs/Drillships and five modern Jackups on the water, in addition to an aging Deepwater rig and two UDW newbuildings stacked at DSME until 2019/20 but deliverable at Atwood’s option.

Atwood has ample liquidity after the recent equity issue of net USD 181m at the accretive adj. net price of USD 10.3/sh, and has an additional USD 545m undrawn under its revolver which is maturing in May/19. Currently USD 850m is drawn under the facility, and the refinancing will most likely be a hot topic on the street as long as the rig market remains in a trough. However, we expect rates to improve in 2017 and that the company will retain ample liquidity in the expansionary phase of the cycle.

 

Valuation: We pencil in a 35% appreciation of asset values to reach our target price of USD 19/sh, with further support lent from a mid-cycle EV/EBITDA valution in 2018E at USD 12/sh.

Company specifics:

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Market fundamentals:

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 Disclaimer: The publisher currently has no investments in the company
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2 thoughts on “ATW-US: Initiation (BUY, TP 19)

  1. Ensco to Acquire Atwood (http://ir.atwd.com/file/Index?KeyFile=2000800211)

    London & Houston – 30 May 2017 – Ensco plc (NYSE: ESV) and Atwood Oceanics, Inc. (NYSE: ATW) jointly announced today that they have entered into a definitive merger agreement under which Ensco will acquire Atwood in an all-stock transaction. The definitive merger agreement was unanimously approved by each company’s board of directors.

    Under the terms of the merger agreement, Atwood shareholders will receive 1.60 shares of Ensco for each share of Atwood common stock for a total value of $10.72 per Atwood share based on Ensco’s closing share price of $6.70 on 26 May 2017. This represents a premium of approximately 33% to Atwood’s closing price on the same date. Upon close of the transaction, Ensco and Atwood shareholders will own approximately 69% and 31%, respectively, of the outstanding shares of Ensco plc. There are no financing conditions for this transaction.

    Ensco expects to realize annual pre-tax expense synergies of approximately $65 million for full year 2019 and beyond. The combination is expected to be accretive on a discounted cash flow basis.

    Ensco Chief Executive Officer Carl Trowell said, “The combination of Ensco and Atwood will strengthen our position as the leader in offshore drilling across a wide range of water depths around the world – creating a broad platform that we can build upon in the future. This acquisition significantly enhances our high-specification floater and jackup fleets, adding technologically advanced drillships and semisubmersibles, and refreshing our premium jackup fleet to best position ourselves for the market recovery. We believe that the purchase price for these assets represents a compelling value to our shareholders, which is augmented further by expected synergies from the transaction.”

    Mr. Trowell added, “By bringing together our high-specification rig fleets, technology and innovation, and talented rig crews, we plan to continue delivering high levels of operational and safety performance to an even larger group of clients. We will remain one of our industry’s best capitalized companies. Our combined financial strength, diverse customer base and larger scale should lead to greater strategic and competitive advantages as well as cost efficiencies, allowing for opportunistic investments through the market cycle.”

    Atwood’s Chief Executive Officer Rob Saltiel stated, “The combination is an ideal strategic fit. Both companies are passionate about operational excellence, safety and customer satisfaction with core values and cultures that are perfectly aligned. We believe the combined company will offer an unmatched rig fleet and workforce. These attributes, anchored by a strong balance sheet, should enable the company to thrive as market conditions improve and allow Atwood shareholders to fully participate in the market recovery.”

    Strategic Fit

    The transaction will join two leading offshore drillers – combining long-established histories of operational, safety and technical expertise with high-quality assets that cover the world’s most prolific offshore drilling basins.

    The acquisition will strengthen Ensco’s position as the leading offshore driller with exposure to deep- and shallow-water markets that span six continents. Upon closing, Ensco will add six ultra-deepwater floaters, including four of the most capable drillships in the industry, and five high-specification jackups. The combined company will have a fleet of 63 rigs, comprised of ultra-deepwater drillships, versatile deep- and mid-water semisubmersibles and shallow-water jackups, along with a diverse customer base of 27 national oil companies, supermajors and independents.

    Combined Company Highlights

    The combined company’s fleet will be among the most technologically advanced in the industry and will meet the deep- and shallow-water drilling requirements of an expanded base of clients around the world. Within the fleet of 26 floating rigs (semisubmersibles and drillships) are 21 ultra-deepwater drilling rigs, capable of drilling in water depths of 7,500′ or greater, with an average age of five years – establishing this fleet among the youngest and most capable in the industry.

    The jackup fleet will be the largest in the world, composed of 37 rigs, including 27 premium units. These jackups are all equipped with many of the advanced features requested by clients for shallow-water drilling programs, such as increased leg length, expanded cantilever reach, greater hoisting capacity and offline handling capabilities.

    The combined company will be among the most geographically diverse drillers with current operations and drilling contracts spanning six continents in nearly every major deep- and shallow-water basin around the world. Regions will include major markets such as the Gulf of Mexico, Brazil, West Africa, Middle East, North Sea, Mediterranean and Asia Pacific.

    Customers will include most of the leading national and international oil companies, plus many independent operators. In total, the combined company will benefit from a diversified client base with the largest number of current customers of any offshore driller.

    Ensco’s executive management will continue with Carl Trowell as President and Chief Executive Officer, Carey Lowe as Executive Vice President and Chief Operating Officer, and Jon Baksht as Senior Vice President and Chief Financial Officer.

    Ensco plc’s Chairman will continue to be Paul Rowsey and the board of directors will include Carl Trowell, plus two members from Atwood’s current board effective at closing.

    Ensco will continue to be domiciled in the UK and senior executive officers will be located in London and Houston. Ensco plc shares will continue to trade on the New York Stock Exchange under the symbol “ESV”.

    Financial Highlights

    Future revenue growth opportunities are anticipated with an expanded fleet serving a larger customer base across a wide geographic footprint. While current market conditions are challenging, Ensco will be ideally positioned to meet increasing levels of customer demand as the market recovers.

    Annual expense savings of $65 million are estimated to be realized in full year 2019 and beyond, and 2018 cost synergies are projected to be more than $45 million. Expense savings are anticipated from the consolidation of offices that include corporate staff departments and shore-based operations in overlapping markets, as well as the standardization of systems, policies and procedures across the organization.

    Based on the anticipated annual savings, the planned combination is expected to be accretive on a discounted cash flow basis.

    The balance sheet of the combined company will remain strong. Adjusted for the expected retirement of Atwood’s outstanding revolving credit facility with cash and short-term investments on hand, total available liquidity was $3.9 billion on 31 March 2017 and included $1.6 billion of cash and short-term investments.

    The estimated enterprise value of the combined company is $6.9 billion, based on the closing price of each company’s shares on 26 May 2017. The combined company will have approximately $3.7 billion in revenue backlog.

    Conditions and Timing

    The transaction is subject to approval by the shareholders of Ensco and Atwood, as well as other customary closing conditions. The transaction is not subject to any financing conditions. Ensco and Atwood intend to file a joint proxy statement/prospectus with the Securities and Exchange Commission as soon as possible. The companies anticipate that the transaction could close as soon as calendar third quarter 2017.

    Advisors

    Morgan Stanley & Co. LLC is lead financial advisor to Ensco. DNB Markets, part of DNB Bank ASA and HSBC Securities (USA) Inc. also provided financial advice to Ensco. Ensco’s legal advisor is Latham Watkins LLP. The financial advisor for Atwood is Goldman Sachs & Co. LLC and its legal advisor is Gibson, Dunn & Crutcher LLP.

    Conference Call/Webcast

    Ensco and Atwood will conduct a conference call to discuss the proposed acquisition today at 10:00 a.m. CDT (11:00 a.m. EDT and 4:00 p.m. London time). The call will be webcast live at http://www.enscoplc.com/ and http://www.atwd.com . Alternatively, callers may dial 1-855-239-3215 within the United States or +1-412-542-4130 from outside the U.S. Please ask for the Ensco conference call. It is recommended that participants call 20 minutes ahead of the scheduled start time. Callers may avoid delays by pre-registering to receive a dial-in number and PIN at http://dpregister.com/10108374.

    Shortly before the conference call begins, slides will be posted under the investor relations sections of each company’s website that will be referred to during the call.

    A webcast replay and transcript of the call will be available within 36 hours at http://www.enscoplc.com and http://www.atwd.com. A replay will also be available by phone for six days after the call by dialling 1-877-344-7529 within the United States or +1-412-317-0088 from outside the U.S. (conference ID 10108374).

    ABOUT ENSCO

    Ensco plc (NYSE: ESV) brings energy to the world as a global provider of offshore drilling services to the petroleum industry. For more than 29 years, the company has focused on operating safely and going beyond customer expectations. Ensco is ranked first in total customer satisfaction in the latest independent survey by EnergyPoint Research – the seventh consecutive year that Ensco has earned this distinction. Operating one of the newest ultra-deepwater rig fleets and a leading premium jackup fleet, Ensco has a major presence in the most strategic offshore basins across six continents. Ensco plc is an English limited company (England No. 7023598) with its corporate headquarters located at 6 Chesterfield Gardens, London W1J 5BQ. To learn more, visit our website at http://www.enscoplc.com.

    ABOUT ATWOOD
    Atwood Oceanics, Inc. (NYSE:ATW) is a leading offshore drilling company engaged in the drilling and completion of exploration and development wells for the global oil and gas industry. The Company currently owns 9 mobile offshore drilling units and is constructing two ultra-deepwater drillships. The Company was founded in 1968 and is headquartered in Houston, Texas. For more information about the Company, please visit http://www.atwd.com.

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