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Aban Offshore
Drillship returned – Bottom line de-risked
Event
Aban Offshore’s (ABAN) subsidiary Sinvest recently returned the scandal-hit
leased drillship Deep Venture to its owner Arktik, and yesterday exited the JV
Venture Drilling which was operating it. While reducing a growth option, we
believe this removes an overhang on earnings in the medium term as the rig
was mired in legal issues and could not be leased out, thus incurring large
costs for ABAN for keeping it warm-stacked. We are 26% below consensus
for FY12E PAT as we had not factored in much profit from the JV. With
improved overall profits likely to come through, we adjust our TP mildly to
Rs756 (-1%) and reiterate OP.
Impact
Venture Drilling a single-asset entity; Sinvest had 50% share: ABAN’s
subsidiary Sinvest held 50% in a Norwegian JV with Petrolia SA called
Venture Drilling (see Fig 1), which operated the drillship Deep Venture
(Valentin Shashin). Sinvest had invested ~US$14m in 2005 in the JV and sold
its 50% stake for US$34m yesterday with the JV having returned the drillship
to its owner for US$138m towards equipment added.
Deep Venture was mired in legal issues: The Russian Federal Property
Management Agency had barred Arktik (a Russian firm) from leasing out any
of its 25 vessels since the former head of the company had been jailed for
allegedly leasing several of the company’s key assets to foreign companies at
prices far below market levels. Arktik had (during the tenure of the above
management) leased the drillship at US$21,000/day to Venture Drilling, and
then had approached the courts for renegotiation (after a new management
took charge) as the rate was too low for such a vessel (Fig 2 & 3 for details).
The beleaguered Arktik is being bought over by state-owned Zarubezhneft.
Deep Venture warm-stacking costs were prohibitive: The drillship was on a
US$495,000/day contract with Maersk Oil which it terminated early due to the
legal wrangles (see Fig 3 & 4). Since then, the rig was kept warm-stacked,
which impacted ABAN’s bottom line to the extent of 30-40% in Q2 and Q3FY11
due to operational costs. A removal of this overhang as well as reduced debt
due to the US$34m termination fee are a medium-term positive for ABAN, in our
view. Management indicated it may look to lease other rigs going forward.
Earnings and target price revision
FY12 & FY13 PAT reduced by 2% and 8% respectively. TP cut by 1% to
Rs756.
Price catalyst
12-month price target: Rs756.00 based on a DCF methodology.
Catalyst: Re-financing of debt/issuance of equity; charter of fresh rigs
Action and recommendation
India currently deploys the highest number of rigs globally (ex North America),
indicating strong demand regionally. With high crude prices boosting capex
programmes, we expect rig utilisations to increase and rates to inch up (Fig 5
& 6). ABAN enjoys the highest EBITDA margin of ~60% amongst peers and is
trading at valuations of 7.1x FY12E EV/EBITDA (vs 8x global mean) and an
FY12E PER of 5.8x (vs 10.5x). We recommend ABAN as a high-risk, highgain
stock, which could jump sharply on any announcements about
refinancing its debt.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Aban Offshore
Drillship returned – Bottom line de-risked
Event
Aban Offshore’s (ABAN) subsidiary Sinvest recently returned the scandal-hit
leased drillship Deep Venture to its owner Arktik, and yesterday exited the JV
Venture Drilling which was operating it. While reducing a growth option, we
believe this removes an overhang on earnings in the medium term as the rig
was mired in legal issues and could not be leased out, thus incurring large
costs for ABAN for keeping it warm-stacked. We are 26% below consensus
for FY12E PAT as we had not factored in much profit from the JV. With
improved overall profits likely to come through, we adjust our TP mildly to
Rs756 (-1%) and reiterate OP.
Impact
Venture Drilling a single-asset entity; Sinvest had 50% share: ABAN’s
subsidiary Sinvest held 50% in a Norwegian JV with Petrolia SA called
Venture Drilling (see Fig 1), which operated the drillship Deep Venture
(Valentin Shashin). Sinvest had invested ~US$14m in 2005 in the JV and sold
its 50% stake for US$34m yesterday with the JV having returned the drillship
to its owner for US$138m towards equipment added.
Deep Venture was mired in legal issues: The Russian Federal Property
Management Agency had barred Arktik (a Russian firm) from leasing out any
of its 25 vessels since the former head of the company had been jailed for
allegedly leasing several of the company’s key assets to foreign companies at
prices far below market levels. Arktik had (during the tenure of the above
management) leased the drillship at US$21,000/day to Venture Drilling, and
then had approached the courts for renegotiation (after a new management
took charge) as the rate was too low for such a vessel (Fig 2 & 3 for details).
The beleaguered Arktik is being bought over by state-owned Zarubezhneft.
Deep Venture warm-stacking costs were prohibitive: The drillship was on a
US$495,000/day contract with Maersk Oil which it terminated early due to the
legal wrangles (see Fig 3 & 4). Since then, the rig was kept warm-stacked,
which impacted ABAN’s bottom line to the extent of 30-40% in Q2 and Q3FY11
due to operational costs. A removal of this overhang as well as reduced debt
due to the US$34m termination fee are a medium-term positive for ABAN, in our
view. Management indicated it may look to lease other rigs going forward.
Earnings and target price revision
FY12 & FY13 PAT reduced by 2% and 8% respectively. TP cut by 1% to
Rs756.
Price catalyst
12-month price target: Rs756.00 based on a DCF methodology.
Catalyst: Re-financing of debt/issuance of equity; charter of fresh rigs
Action and recommendation
India currently deploys the highest number of rigs globally (ex North America),
indicating strong demand regionally. With high crude prices boosting capex
programmes, we expect rig utilisations to increase and rates to inch up (Fig 5
& 6). ABAN enjoys the highest EBITDA margin of ~60% amongst peers and is
trading at valuations of 7.1x FY12E EV/EBITDA (vs 8x global mean) and an
FY12E PER of 5.8x (vs 10.5x). We recommend ABAN as a high-risk, highgain
stock, which could jump sharply on any announcements about
refinancing its debt.
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