How Atwood Oceanics’ Newbuilds Are Affecting Its Free Cash Flow
Atwood Oceanics’ (ATW) current fleet consists of ten rigs—five jack-ups, three semisubmersibles, and two drillships. Additionally, the company has two newbuild drillships, the Atwood Admiral, and the Atwood Archer, in the pipeline. These newbuilds are scheduled to be delivered in September 2017 and June 2018, respectively. The Atwood Admiral‘s prospective client, Premier Oil, has recently received an extension to its license, which has delayed its planned exploration drilling program to the second half of calendar 2018. As there is a delay in Atwood Admiral’s contract schedule, the company has approached DSME (Daewoo Shipbuilding and Marine Engineering) to request further extensions for the delivery of the rigs.
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Atwood Oceanics’ capital expenditure totaled $26 million in fiscal 4Q16, compared with $24 million in fiscal 3Q16. Its capital expenditure for fiscal 2016 totaled $224 million, including $156 million of capitalized interest related to newbuild drillships.
The company expects its capital expenditure to be around $140 million, which includes a $94 million payment on the Atwood Admiral on September 30, 2017, under the current delivery and payment schedule with DSME. Capital expenditures are expected to total $12 million during the fiscal first quarter. The company intends to use a combination of cash in hand, cash flow operations, and revolving credit facilities to fund the capital expenditure.
Free cash flow
Atwood Oceanics recorded positive free cash flow in fiscal 4Q16 and fiscal 2016. With the company’s capital expenditure plans, Wall Street analysts expect free cash flow to remain positive only for two more quarters.
In calendar 2015, offshore drillers (IYE) Transocean (RIG), Seadrill (SDRL), Noble (NE), and Rowan Companies (RDC) posted positive free cash flow. Diamond Offshore Drilling (DO) posted negative free cash flow.