The market has been going through a rough patch because of overcapacity that caused double-digit drops in daily rental rates for floaters -- rigs that are used for drilling in deep waters -- and for jack-ups -- rigs that usually work on depths of less than 600 feet.
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In September, industry executives, including senior officers of some of the leading offshore drillers such as Seadrill (SDRL) and Transocean (RIG) , predicted even tougher conditions for 2015. Then, oil futures dropped in October, exacerbating an already tough situation for oilfield-service companies.
Falling oil prices could also hit Rowan, which owns four floaters, the ultra-deep-water drillships, and 30 jack-ups. The company's shares have dropped 33% year-to-date through Thursday's close. They were trading at $23.94, up 18 cents, on Friday morning.
During the company's third-quarter earnings conference call last week, CEO Thomas Burke said utilization and rental rates for the company's rigs have been "under pressure" because of excess capacity, adding that he's "quite cautious" about a rebound in the jack-ups and floater market in the near term.
Still, Houston-based Rowan is confident about its ability to weather the slump. The driller has forecast an increase in revenue for 2015, and Goldman Sachs analyst Waqar Syed wrote in Nov. 6 report that Rowan "is among a select group of companies who could grow EPS [earnings per share] in 2015."
Rowan's biggest strength is its modern rig fleet. About 65% of the company's offshore drilling units are 14 years old or newer. Further, the company has 19 high-specification jack-up rigs that can drill deeper wells more efficiently than conventional jack-ups can. Rowan's four drillships are also high-specification, which means that they are capable of drilling in significantly greater water depths than other drillships.
That is in contrast to some of Rowan's competitors, such as Diamond Offshore (DO) whose fleet consists of a majority of rigs that were built before the 2000s, including a dozen rigs that are more than 40 years old.