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How Will Rowan’s Capex Guidance Impact Free Cash Flow?

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Nov. 17 2015, Updated 12:05 p.m. ET

Cash flow

The operating cash flow represents the cash flows from a company’s core operations. In 3Q15, Rowan Companies (RDC) had cash flow from operations of $210 million compared to $147 million in the prior quarter. Cash flow from operations totaled $658 million for the first nine months of 2015.

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 Capital expenditure

  • Capital expenditure totaled $675 million for the first three quarters of 2015.
  • Out of this, $537 million went towards the construction of newbuilds Rowan Reliance and Rowan Relentless. Improvement of the company’s existing fleet required capital expenditure amounting to $102 million and $36 million for rig equipment.
  • For the fourth quarter of 2015, the company expects its capital expenditure to range between $82 million and $87 million. This includes approximately $12 million towards a newbuild drillship and $68 million towards fleet maintenance and spares.
  • The company also put out preliminary 2016 guidance, which it will refine in its fourth quarter earnings call. The management expects 2016 maintenance capital expenditure to range from $175 million to $200 million.
  • The company considers itself unique in this sector, as it doesn’t have any newbuild capex going forward in 2016.

Free cash flow and dividends

The company recorded a positive free cash flow of $106 million in 3Q15, but free cash flow for the first three quarters of 2015 was negative $16 million overall. For this period, the company’s capital expenditure was greater than its cash flow from operations. The company’s capital expenditure is estimated to substantially fall in the future, so the company will likely enjoy higher free cash flow in 2016.

Rowan Companies declared a quarterly dividend of $0.10 per share. The dividend amount has remained constant for the past six quarters. On the other hand, other offshore drillers (XLE) Ensco (ESV), Diamond Offshore (DO), and Transocean (RIG) decreased their per-share dividends in 2Q15 compared to 2Q14. Ocean Rig (ORIG) and Seadrill (SDRL) did not pay any dividends in 2Q15.

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