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How Atwood Oceanics Looks Following Fiscal 4Q16

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Part 3
How Atwood Oceanics Looks Following Fiscal 4Q16 PART 3 OF 6

Could Atwood Oceanics Reduce Costs Further in 1Q17?

Offshore drillers’ cost reduction plans

To withstand the current industry downturn, offshore drilling companies (OIH) (IYE) have no choice but to reduce their costs as much as possible. Atwood Oceanics (ATW) and peers Diamond Offshore Drilling (DO), Ensco (ESV), Rowan Companies (RDC), Seadrill (SDRL), Transocean (RIG), and Noble (NE) have announced cost-reduction plans to maintain their profit margins.

Could Atwood Oceanics Reduce Costs Further in 1Q17?

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4Q16 expenses

Atwood Oceanics’ (ATW) drilling expenses, excluding reimbursable costs, fell to $77 million in fiscal 4Q16 from $81 million in the previous quarter. Actual drilling expenses were in line with the company’s guidance provided in the previous quarter’s conference call. The total drilling expense for fiscal 2016 totaled $379 million.

The 5% quarter-over-quarter cost reduction is attributed to the completion of idling the Atwood Eagle in the third quarter. This was offset by the cost to idle the Atwood Beacon in 4Q16.

In spite of Atwood Oceanics’ cost-control efforts, its costs are falling at a slower rate than its revenue. Its drilling-expense-to-revenue ratio rose to 41% in fiscal 4Q16 from 35% in fiscal 3Q16.

General and administrative expenses remained flat quarter-over-quarter at $12 million, which is in line with the company’s previous guidance. General and administrative expenses for fiscal 2016 totaled $51 million, compared with $57 million in fiscal 2015.

1Q17 expectations

Atwood Oceanics expects to further manage its cost base and anticipates a decrease in its contract drilling expenses in the first quarter. The fiscal 1Q17 drilling costs are expected to be in the range $65 million to $72 million. The fiscal 2017 costs are expected to be $235 million to $250 million.

General and administrative expenses are expected to range from $13 million to $16 million in fiscal 1Q17, consistent with prior quarters. The first quarter’s general and administrative expenses for ATW are skewed higher than those of other quarters because incentive compensation is determined and paid in the first quarter. Fiscal 2017 expenses are expected to be $46 million to $50 million.

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