SHELF DRILLING: BOTTOM FISHING
Offshore drilling companies have given investors a sinking feeling in the past year. Although oil prices bob near the year's highs, the stocks have been drifting lower. Two of the largest, Transocean and Noble Group, are trying to appease their owners with plans to spin out the lower growth parts of their fleet. This backdrop has not deterred Shelf Drilling. On Thursday the company announced plans to list in the UK.
Shelf specialises in shallow-water "jackup" rigs that oil companies use to maintain or improve production from existing fields. The company purchased its 37 rigs from Transocean two years ago. The fleet has an average age of more than 30 years. That is old. No surprise that Shelf's leasing rates have recently run to about $120,000 a day - less than a quarter of what a deepwater rig would fetch.
This is the steadier, relatively low-margin end of the rig business. The pricing of the IPO will have to reflect that. Specialist oil investors may think Shelf a little dull, given its low-end position in the rig market; generalist investors' interest would probably depend on the dividend offered.
But there are pluses. The company has an order backlog of more than $3bn, nearly three times last year's revenues. Management also expects to pay out half the company's earnings as dividends, which is a higher proportion than its peers.
Shelf's closest competitors are US-listed Ensco and Noble Group, both of which offer high dividend yields. Ensco trades at about nine times forward earnings - well below its five-year average of 10.5 - on a 5 per cent dividend yield. Noble is also on nine times earnings, with a 3 per cent yield. A decent discount on the earnings multiple to its peers, say at seven times, would suggest a market value in the region of $2bn. At the right price, Shelf's IPO could go swimmingly.
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