>Aban Offshore (CITI)

Reports 4QFY09 Loss

4Q results well below expectations due to asset write-off: Aban reported a 4QFY09 loss of Rs930m vs. our expectation of a profit of Rs1.8bn. The loss was driven by a one-off impairment charge of cRs1.5bn on one of its assets – jack-up Murmunskaya. This was an asset, leased by Aban, which had been lying idle. The company has decided to return the asset to the owner and capex incurred on the same has correspondingly been written off. Sequential PAT was also impacted by lower other income (NOK/US$ exposure hedged).

EBITDA below estimates, witnesses qoq decline: EBITDA of Rs4.3bn was down 9% qoq driven by lower revenues (-7% qoq). Revenues were impacted by: (i) jack-up DD 7 lying idle during the quarter, and (ii) drillship Aban Ice being dry-docked during the quarter. While 1Q EBITDA should recover with commencement of contribution from drillship Aban Abraham, this could be partly offset by higher capital costs on the same.

Idle assets + no improvement in fundamentals; maintain Sell: 4 of Aban’s 20 assets are currently idle (Aban VII, DD2, DD6, DD7), with contracts for another 4 (DD1, DD4, DD5, DD8) ending over the next 6 months. Further, US drillers reporting so far have stated that global demand in the shallow water segment remains weak and that there are not a meaningful number of opportunities to put idle rigs to work. Moreover, with activity still falling and more rigs expected to go idle worldwide, competition for any incremental demand is likely to be fierce.
Consequently, day rates and utilisations could face severe erosion for Aban’s jackups. Maintain Sell/Speculative risk (3S).

To see full report: ABAN OFFSHORE