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Atwood to Sell Jackup Drilling Unit

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Atwood Oceanics Inc. announced that it had entered into a definitive agreement for the sale of its standard jackup drilling unit, the Vicksburg, to Gulf Drilling International Ltd.

This is in sync with Atwood’s strategy of upgrading the quality and capability of its drilling rig fleet through newbuild construction and selective asset divestitures. Also the purchase consideration for the sale is a hefty price of $55.4 million. This stands in good stead for the company which is looking for funds to finance its expansion plans.

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 four 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 company’s 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 other energy firms like Devon Energy Corp. (DVN - Free Report) , Dril-Quip, Inc. (DRQ - Free Report) and Resolute Energy Corp. (REN - Free Report) as attractive investments. All these firms sport a Zacks Rank #1 (Strong Buy).

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