January 30, 2009
Rowan cuts dividend--and jackup newbuild program
In an SEC filing, Rowan Companies, Inc. (NYSE: RDC) discloses that it is to eliminate its $0.10 per quarter Common Stock cash dividend.
It is suspending further construction of the third of four 240C class jack-up rigs at its LeTourneau International (LTI) manufacturing subsidiary and canceling the fourth.
It has also asked Keppel to suspend activity on the fourth of four Super 116E class jack-up rigs under construction at Keppel AmFELS, Inc.
The filing also says that due to recent industry and credit market conditions, some of LTI's customers have been asking to delay or terminate their obligations to purchase equipment under construction, notwithstanding firm contractual commitments. Some customers may not have the financial capacity to perform or may seek to deny their contractual obligations, which could mean a significant portion of LTI's external backlog ($558 million as of December 31, 2008) may not be realized.
The filing says, in part:
Reduced Capital Expenditures and Newbuild Plan Revisions. The Company had previously announced a plan to build four 240C class jack-up rigs at its manufacturing subsidiary, LTI. The Company has now determined to cancel the fourth 240C rig and suspend further construction of the third 240C rig; the Company expects to make a determination regarding resumption of construction by mid year 2009. Construction of the first 240C rig, the Rowan-Mississippi, was completed in November 2008; construction of the second 240C, the Ralph Coffman, is proceeding on schedule with delivery expected around year end 2009.
The Company had also previously announced a plan to build four Super 116E class jack-up rigs (the “Rowan EXLs”) with Keppel AmFELS, Inc. (“Keppel”). Construction of the first three Rowan EXLs is well underway with delivery of each rig currently expected in 2010. The Company has asked Keppel to suspend activity on the fourth rig pending a decision in the coming months about whether to go forward with that rig. The Company is also negotiating with Keppel regarding the payment terms on each rig.
Incorporating the expected impact of these revisions to the Company’s newbuild plan, the Company currently estimates that its 2009 capital expenditures will be between $550 million and $575 million. The Company anticipates funding these capital expenditures through available cash and operating cash flows. While not expected to be utilized, the Company also has $155 million of credit available under its undrawn credit facility, and will consider other financing alternatives that may become available.
Common Stock Dividends Ceased. In light of the Company’s commitments under its newbuild program, the dramatic decrease in world oil prices and consequent reduction in worldwide demand for oil services and the severe illiquidity in world credit markets, the Board of Directors of the Company determined to eliminate its $0.10 per quarter Common Stock cash dividend. Quarterly dividends in 2009 would have been approximately $45 million; those funds will now be used for general corporate purposes.
Funding of Pension Obligations in 2009. Due in part to recent funding relief provided by Congress, the Company’s anticipated funding of pension obligations in 2009 is approximately $42 million, significantly lower than originally anticipated.
LTI Backlog Update. Due to recent industry and credit market conditions, some of LTI’s customers have been asking to delay or terminate their obligations to purchase equipment under construction, notwithstanding firm contractual commitments. LTI has been in negotiations with certain of its customers regarding possible adjustments to payment terms and/or delivery dates.
While LTI intends to assert its contractual rights, certain of its customers may not have the financial capacity to perform or may seek to deny their contractual obligations to LTI, which could mean a significant portion of LTI’s external backlog ($558 million as of December 31, 2008) may not be realized.