Awilco Drilling increases backlog

Awilco Drilling released a short press release today announcing that they have signed a letter of intent with Apache and Taqa to rent out the WilPhoenix rig for a 3 year period with options for another 2 years. The contract value is estimated to be approximately 424 million USD which implies a day rate of 387,000 dollar (current rate is $315,000/day). This is good news because the company has now locked-in high day rates for both their rigs for the foreseeable future.┬áThe WilHunter is on contract until 15 November 2015 and the WilPhoenix will now be on contract until the second half of 2017. With so much certainty about earnings I don’t think this stock deserves to trade at a 25% dividend yield.

Disclosure

Long Awilco Drilling

3 thoughts on “Awilco Drilling increases backlog

  1. Skeptic

    The main reason for the valuation discount seems to be concerns about the risk for a coming equity issue, as media recent media reports state Awilco Drilling has been looking at newbuild rigs lately. A new rig order and the div yield will go from 25% to 0% overnight. Still cheap on asset values after that, but I wouldn’t buy it with a dividend angle.

    Reply
    1. Alpha Vulture Post author

      I’ve seen this concern voiced before and it certainly is a risk. So far managements track record wrt capital allocation is good though, so I hope they are smart enough to not use undervalued equity as a currency.

      Reply
  2. DTEJD1997

    Hey all:

    The rumors about Awilco building new rigs are just that, rumors.

    Management has denied this, and I am inclined to believe them.

    They have stated on MULTIPLE occasions that returning cash flow to shareholders is a top priority.

    Additionally, what if they could get new rigs that were 100% financed, or close to it, without issuing equity? I don’t think that would be a good idea…but you never know. It appears day rates are going to be solid for the next 4 years.

    If management DOES NOT build new rigs, or buy expensive used ones, and simply keep the company steady, they are going to make a LOT of money for the next several years.

    As long as they don’t do anything stupid, the stock is drastically under priced.

    Reply

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