Aban Offshore Ltd (Aban) ranks among the top 16 offshore drilling
companies in the world with a significant presence in the high-end
offshore drilling market. The company operates a fleet of 15 jack-up
rigs, three drill ships and one floating production unit. The global
economic crisis and resultant decline in crude oil prices led to a drop in
exploration and drilling activities globally, which resulted in a drop in
utilisation levels for Aban’s fleet. High leverage post acquisition of
Sinvest and sinking of Aban Pearl further led to a dip in performance.
In the last few months, Aban secured long-term contracts for
deployment of its idle vessels leading to higher utilisation levels and
improvement in operating performance. Also, crude oil prices have
consistently sustained above $60/barrel for the last 15 months. This
would lead to increased spend towards offshore exploration and
drilling.
Operating performance to gain traction
Currently, only two vessels out of its fleet of 19 are idle and under
marketing while out of the remaining 14 assets are already deployed
while three have secured contracts for deployment. This provides stable
earnings visibility over the next two years. Aban has also provided for
the loss of Aban Pearl and also for Petrojack bankruptcy. This means that
the recent setbacks have been factored in the stock price. High debt
levels are the single biggest concern for Aban Offshore. However, as
operating performance improves, debt/equity ratio is likely to moderate.
Valuation
We have valued the stock on multiple valuation parameters and
recommend BUY with a price target of | 947.
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