Atwood Oceanics cut net debt ‘modestly’ in Q1, says CFO; cash, credit availability adequate for capex

By Paul Deckelman

New York, Feb. 4 – Atwood Oceanics, Inc. saw its net debt decrease “modestly” during its most recent fiscal quarter, its chief financial officer said Wednesday, thus also bringing down its leverage ratio of net debt as a percentage of total capitalization.

And despite the downturn in energy drilling activity in the wake of sliding world oil prices, the Houston-based operator of offshore oil and natural gas drilling rigs believes that its cash on hand, cash flow generated from operations and availability under its revolving credit facility should be sufficient to fund its capital expenditures, including the scheduled final payments on a big new ultra-deepwater drilling ship being delivered in September and another scheduled for delivery in June of 2016.

‘Modest’ debt decline

Executive vice president and CFO Mark L. Mey told analysts on the company’s fiscal 2015 first-quarter conference call following the release of its results for the period ended Dec. 31, 2014 that net debt declined “modestly” during the quarter by $48 million, to $1.62 billion at the quarter’s end.

That, in turn, brought its measure of net debt as a percentage of total capitalization down to 38.3% from 40% at the end of the fiscal 2014 fourth quarter and full year on Sept. 30, 2014.

The company’s balance sheet showed $121.8 million of cash at Dec. 31, up from $80.08 million at Sept. 30, though down from $132.3 million at the end of the year-ago fiscal first quarter on Dec. 31, 2013.

Long-term debt at Dec. 31 was just under $1.74 billion and had decreased by about $288,000 from the Sept. 30 quarter. It was up from $1.6 billion a year earlier.

Short-term debt stood at $5.95 million at Dec. 31 versus $11.88 million the quarter before and $2.05 million a year before.

According to the company’s latest available quarterly filing with the Securities and Exchange Commission covering the period ended Sept. 30, the long-term debt – which was essentially little changed in the fourth quarter from third-quarter levels – included $1.09 billion of revolver borrowings, $5.9 million of outstanding letters of credit counted against the revolver and $650 million principal amount of 6½% senior notes due 2020 that the company had issued in two tranches: the original $450 million sold in 2012, and a $200 million add-on was done in 2013.

In April of 2014, parent Atwood and its Atwood Offshore Worldwide Ltd. subsidiary had entered into an agreement with the lead arranger on the revolver, Nordea Bank Finland plc, New York Branch, upping the lender commitment on the facility to $1.55 billion from $750 million previously and cutting the interest rate on borrowings to Libor plus a margin of 175 basis points to 200 bps from Libor plus 250 bps previously. The amendment also extended the maturity on the facility by two years to May of 2018 from May of 2016 originally.

CFO Mey thus declared on the call that “we have neither any debt amortization nor any debt maturities until May 2018.”

Liquidity adequate for ship deliveries

He also said that “our liquidity totaled $581 million at the end of the quarter – and I do not foresee it dipping below $400 million until the delivery of the Atwood Archer in mid-2016.”

Atwood Archer and its sister drillship, the Atwood Admiral, are currently under construction at the Daewoo Shipbuilding and Marine Engineering Co., Ltd. shipyard in South Korea. Atwood Admiral was started first and was originally supposed to have been delivered to the company this March, with Atwood Archer slated for delivery this coming December.

However, in October, Atwood and Daewoo agreed to delay delivery of the ships for six months, until September for Atwood Admiral and June of 2016 for Atwood Archer; the company explained in the 10-K that “due to lack of suitable drilling programs, we have not secured the initial drilling contracts for these rigs,” causing it to ask for, and get, a postponement of the scheduled delivery. Atwood agreed to accelerate some of the interim milestone payments that it was making to the shipbuilder as partial compensation for the delay.

Mey asserted on the call that “regarding our decision to delay the delivery of the two remaining drill ships by six months, please note that the financial impact of this decision to our five-year planning model is positive to both liquidity and leverage ratios.”

He said that the company’s capital spending for the current 2015 fiscal second quarter that ends on March 31 should total between $40 million and $50 million, while full-year fiscal 2015 capex should approximate $630 million. The “vast majority” of the remaining capex will be incurred in the fiscal fourth quarter upon the delivery of the Atwood Admiral.

“We will continue to use a mix of cash, cash flow from operations and our revolving credit facility to fund these capital expenditures,” Mey said

During the question-and-answer portion of the conference call that followed the formal presentations by Mey and by the company’s president and chief executive officer, Robert J. Saltiel, an analyst asked about how the company will pay for the Atwood Admiral upon its delivery.

Mey answered: “Suffice it to say that our revolving credit facility could be used by about another $250 million upon delivery of Admiral. We have about a $430 million final payment, so you’re looking at about a 60/40 [split] between the revolving credit facility, and cash and cash flow.”

He did not go into specifics about the company’s payment plans for Atwood Archer in June of 2016 – but while acknowledging that liquidity would likely fall below $400 million following the final payment for that vessel, he projected that “liquidity rapidly increases above $400 million in the following quarters.”

The company’s interest expense, net of capitalized interest, rose to $15.5 million in the fiscal first quarter, nearly double the $8.2 million recorded in the year-ago quarter.

Mey said that interest expense should range between $14 million and $16 million, net of capitalized interest, for each of the remaining three quarters of the current fiscal year.

© 2015 Prospect News.
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