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Atwood Rig Contracted by Eni

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Texas-based offshore drilling contractor Atwood Oceanics Inc. recently announced that its subsidiary has won a drilling services contract for its rig – Atwood Beacon. The rig has been contracted by Italian explorer, Eni SpA (E - Free Report) .

The 2-year rig contract – following the end of the current deal in Israel by July 2013 – can be extended by another year and adds approximately $128 million in revenue backlog. Atwood Beacon will be deployed in Italy and will bear some charges related to compliance with local laws and regulations.

The contract signifies Atwood Oceanics’ emphasis on expanding its overseas offshore exploration programs. We believe the company’s strategy of optimizing its global oil and natural gas drilling assets will generate favorable returns.

Recently, Atwood Oceanics was awarded a 39-months contract for the semisubmersible drilling unit Atwood Condor, by Shell Offshore Inc, a subsidiary of Royal Dutch Shell plc (RDS.A - Free Report) . The rig was contracted at a dayrate of $555,000.

Founded in 1968, Atwood Oceanics is a global offshore drilling contractor focusing on the drilling and completion of exploratory and developmental oil and gas wells. The company currently owns 13 mobile offshore drilling units and is constructing three ultra-deepwater drillships.

We see Atwood Oceanics’ leverage to the global drilling market rather than the domestic market as its biggest advantage over most of its peers. The international drilling outlook has been strong versus the muted fundamentals in the U.S. In our view, the company presents investors growth opportunity from any global deepwater drilling recovery.

However, certain factors remain that are likely to keep near-to-medium-term earnings under pressure. The termination of any contract for tender-assist rigs is bound to affect the earnings and cash flow to the company. Also, downtime in any of the Atwood Oceanics’ rigs currently under contract will be an additional blow to the bottom line.

Atwood Oceanics currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next 1 to 3 months.

Meanwhile, investors can consider another energy firm like Newpark Resources Inc.  (NR - Free Report) , carrying Zacks Rank #1 (Strong Buy), as an attractive investment.

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