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Pacific Drilling’s Future Revenues: Is Wall Street Overly Optimistic?

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Analyst revenue estimates

Wall Street analysts estimate revenues of $270 million in 3Q15 for Pacific Drilling (PACD)—close to the $274 million revenue earned in 2Q15. The company’s contract with the multinational integrated oil and natural gas company Total SA for Pacific Khamsin will roll off in December 2015. Due to this, analysts estimate a dip in revenue in 1Q16.

Pacific Drilling’s revenues over the next four quarters are expected to be $1.01 billion, compared to the $1.15 billion it brought in over the last four quarters. Going forward, analysts project the company’s 2016 and 2017 revenues to decline even further, to $963 million and $935 million, respectively.

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Revenue sources

Pacific Drilling (PACD)—unlike its peers Diamond Offshore (DO), Noble Corporation (NE), Ensco (ESV), Seadrill (SDRL)—earns its revenue solely from its high specification drillships segment. Currently, the company earns the majority of its revenue only through one client, Chevron Corporation (CVX). Out of the five rigs currently contracted, four are contracted by Chevron and one by Total.

Analyzing analyst estimates

We believe that analysts are expecting new contracts to replace Pacific Drilling’s expiring or expired contracts in 2016 and 2017. But acquiring three new contracts in 2016 amid this industry downturn could be a challenge. According to Barclays, in the offshore drilling (OIH) industry there were only four significant floater contract announcements in 2015.

Worst case scenario

There’s a possibility that Pacific Drilling (PACD) will fail to secure even one new contract. In such a scenario, based on its existing contracts, the company’s revenue would be $715 million in 2016—25% lower than analyst estimates. Similarly, revenues in 2017 would be just $280 million—75% lower than analyst estimates.

In the next part of this series, we’ll take a deeper look at the company’s backlog.

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