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Atwood Oceanics Inc. Reports Operating Results (10-K)

November 23, 2010 | About:

Atwood Oceanics Inc. (NYSE:ATW) filed Annual Report for the period ended 2010-09-30.

Atwood Oceanics Inc. has a market cap of $2.3 billion; its shares were traded at around $35.74 with a P/E ratio of 8.6 and P/S ratio of 3.5. Atwood Oceanics Inc. had an annual average earning growth of 20.1% over the past 10 years.ATW is in the portfolios of Robert Rodriguez of FPA Capital, Columbia Wanger of Columbia Wanger Asset Management, First Pacific Advisors of First Pacific Advisors, LLC, David Dreman of Dreman Value Management, Chuck Royce of Royce& Associates, George Soros of Soros Fund Management LLC, Steven Cohen of SAC Capital Advisors, Jeremy Grantham of GMO LLC, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which our Common Stock, $1 par value was last sold, or the average bid and asked price of such Common Stock, as of March 31, 2010 was $2,230,000,000.

Besides our current nine drilling units, we are also in the process of constructing four additional drilling units. During fiscal year 2008, we entered into construction contracts with Jurong Shipyard Pte. Ltd. to construct two Friede & Goldman ExD Millennium semisubmersible drilling units (the Atwood Osprey, a conventionally moored 8,200 foot water depth unit and the Atwood Condor, a dynamically positioned 10,000 foot water depth unit). The Atwood Osprey is expected to cost approximately $625 million and is scheduled for delivery in the second quarter of fiscal year 2011. The Atwood Condor is expected to cost approximately $750 million and is scheduled for delivery in the third quarter of fiscal year 2012. In October 2010, after the end of the fiscal year covered by this report, we entered into turnkey construction agreements with PPL Shipyard PTE LTD to construct two Pacific Class 400 jack-up drilling units. These new rigs will have a rated water depth of 400 feet, accommodations for 150 personnel, and significant offline handling features. The two rigs are scheduled for delivery September 30 and December 31, 2012, respectively. The total cost, including project management, drilling and handling tools, spares and capitalized interest, of each high specification rig approximates $190 million.

One of our main strategic focuses has been maintaining high equipment utilization. Maintaining high equipment utilization in up, as well as down, cycles is a significant factor in generating cash to satisfy current and future obligations. We had an 88% utilization rate in fiscal year 2010 while our utilization rate has averaged over 90% during the past ten fiscal years. Of our six actively marketed rigs (the Atwood Southern Cross, Richmond, and Seahawk are currently idled and not marketed), we have approximately 88% and 30% of our available rig days contracted for fiscal years 2011 and 2012, respectively, with approximately $1.2 billion of revenue backlog compared to approximately $1.0 billion of estimated capital commitments primarily related to the construction of our four new drilling units. Information regarding the contract status of our drilling units may be found in the table with the caption heading “Offshore Drilling Operations” in the Company's Annual Report to Shareholders for fiscal year 2010, which is incorporated by reference herein.

Although oil prices have traded in a range between $65 and $85 per barrel for the past 12 months, most U.S. economic indicators, including unemployment rates, continue to remain soft. Conversely, developing countries, including the BRIC nations (Brazil, Russia, India and China) have comparatively strong growth supporting higher commodity prices. This, however, has not led to a sustained increase in the demand for offshore drilling services, especially in the deepwater and ultradeepwater drilling segments due to the uncertain regulatory and legislative environment in the wake of the Macondo incident.

Virtually all of our tax provision for fiscal years 2008, 2009 and 2010 relates to taxes in foreign jurisdictions. As a result of working in foreign jurisdictions, we earned a high level of operating income in certain nontaxable and deemed profit tax jurisdictions which significantly reduced our effective tax rate for the current fiscal year when compared to the United States statutory rate. Our effective tax rate for fiscal year 2010 was 20% which is higher than fiscal year 2009 due to the recording of a $16.5 million valuation allowance on deferred tax assets related to our United States net operating loss carryforwards and share-based compensation expense. We do not record United States federal income taxes on the undistributed earnings of our foreign subsidiaries that we consider to be permanently reinvested in foreign operations. The cumulative amount of such undistributed earnings was approximately $804 million at September 30, 2010. It is not practicable to estimate the amount of any deferred tax liability associated with these undistributed earnings. If these earnings were to be remitted to us, any United States income taxes payable would be substantially reduced by foreign tax credits generated by the repatriation of the earnings. Such foreign tax credits totaled approximately $186 million at September 30, 2010. For information about risk associated with our foreign operations, see Part I, Item 1A, “Risk Factors ­— Our Reliance on Foreign Operations Exposes Us to Additional Risks Not Generally Associated With Domestic Operations Which Could Have an Adverse Effect on Our Operations or Financial Results.”

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