Why OII’s Free Cash Flow Is Remarkable



Comparing free cash flow growth

In this article, we will look into the free cash flow (or FCF) growth of Transocean (RIG), Ensco (ESV), Oceaneering International (OII), and Oil States International (OIS), the four prominent names in the oilfield services (or OFS) space we have been analyzing in this series.

Free cash flow is defined as cash flow from operations (or CFO) less capital expenditures (or capex). Some of these companies recorded negative FCF in 3Q15. Some relatively improved FCF over a year ago.

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OII is the 3Q15 FCF growth leader

Oceaneering International recorded a 308% 3Q15 FCF increase compared to the corresponding quarter last year. OII’s free cash flow in 3Q15 was $128 million and was a huge improvement over $31 million FCF a year earlier. The company’s 3Q15 CFO increased 55% over 3Q14 while its capex fell 44%. Higher CFO and lower capex led to higher FCF in the most recent quarter.

OIS’s 3Q15 FCF deteriorated

Oil States International recorded a 78% 3Q15 FCF decrease compared to the year-ago quarter. Its 3Q15 FCF was $7.4 million against $34 million in 3Q14. OIS’s CFO fell 67% in 3Q15 over 3Q14, led by lower revenues. Its capex fell 60% during the same period. However, lower capex could not offset the falling CFO, leading to the poorer FCF situation. OIS makes up 1.1% of the VanEck Vectors Oil Services ETF (OIH).

RIG and ESV’s FCF crashed

Ensco’s 3Q15 FCF slumped to a negative $191 million compared to a negative $13 million in 3Q14. From 3Q14 to 3Q15, its CFO fell 43%, which more than offset a 14% capex fall, leading to the FCF fall.

Transocean’s 3Q15 FCF fell 156%, turning to a negative $292 million compared to a positive $517 million in the corresponding quarter last year. RIG’s CFO fell 27% in 3Q15 versus in the prior-year period. Its capex more than doubled during the same period, leading to the FCF crash. Read the previous part to know where RIG spent its capital investment.

In the following section, we will look into these companies’ indebtedness.


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