Rowan exercises option for third drillship

Drilling contractor Rowan Companies, Inc. (NYSE:RDC) reported results for the three months ended September 30, 2011, that included net income from continuing operations of $31.4 million or $0.25 per share, compared to $60.2 million or $0.51 per share in the third quarter of 2010.

The company also announced that it has exercised its option to build a third GustoMSC P10000 design ultra-deepwater drillship with Hyundai Heavy Industries Co., Ltd. (“HHI”) with delivery scheduled for the fourth quarter of 2014.  The cost for this rig, including commissioning, project management and spares, but excluding capitalized interest is estimated to be approximately $600 million, or slightly below the cost of the first two, similarly equipped drillships ordered in June.  As with those rigs, the cost of the additional owner furnished equipment plus training and ramp-up costs is estimated to be approximately $50 million, and total costs are anticipated to be paid out of cash flow and available funds. The agreement with HHI also includes an option, exercisable in February of 2012, for an additional drillship of the same specification for delivery in the first half of 2015.

Income from discontinued manufacturing and land drilling operations totaled $162.4 million in the third quarter of 2011 or $1.28 per share, including the after-tax gain on the sale of the company’s land division of approximately $155 million, compared to $7.0 million or $0.06 per share in the third quarter of 2010.

Net income totaled $193.8 million or $1.53 per share in the third quarter of 2011, compared to $67.2 million or $0.57 per share in the third quarter of 2010.

Rowan’s offshore drilling revenues were $234.7 million in the third quarter of 2011, compared to $238.6 million in the third quarter of 2010, as overall activity levels and average day rates changed only slightly between periods despite additions to the Company’s offshore fleet.  Rowan’s gross offshore drilling margin was 45 percent of revenues in the third quarter of 2011, down from 55 percent in the prior-year quarter, as increased rig shipyard and other downtime together with higher costs associated with rig start-ups and relocations this year offset the impact of fleet additions.

Matt Ralls, President and CEO, commented, “Our financial performance during the third quarter was negatively impacted by the effects of rig moves and upgrades as we prepared for several new contracts.  During the quarter, we had nine rigs moving to or preparing for new contracts and several of those projects took longer than anticipated.  The combined effect of being off day rate longer than expected and the higher repair and maintenance expense that accompanies most upgrade projects hurt our third quarter performance and will have an impact on the fourth quarter as well, after which all of those nine rigs are expected to be on contract.

“On a positive note, demand for high specification offshore rigs continues to strengthen, for both jack-ups and ultra-deepwater.  We are optimistic about finding term opportunities at attractive day rates for our high-spec jack-ups with availability in 2012.  Likewise, recent fixtures for ultra-deepwater rigs, along with very positive feedback from potential customers regarding the drillships we are building, has led us to exercise our option to build a third drillship at Hyundai Heavy Industries.”

November 1, 2011