Vantage Orders New Drillship

Vantage announced the order of its fifth drillship, the Cobalt Explorer, to be built at Daewoo for an August 2015 delivery. The company will issue convertible debt to fund the initial $60 million yard payment.

Last night, Vantage announced a construction contract with DSME to build the Cobalt Explorer, which they said will be one of the highest-spec drillships in the global fleet when it is delivered in August of 2015. When the Palladium Explorer is delivered toward the end of 2015 (the Cobalt will actually be delivered earlier) Vantage will have five modern drillships and four high-spec jackups. We believe the company will be just starting to reach the point where a growing scale will lead to increased profitability as fixed costs are spread over a larger number of rigs.

The company announced a $75 million convertible debt offering in conjunction with the Cobalt order, which will be used to fund the initial $59.5 million shipyard payment. The remaining payments on the rig will be heavily back-end loaded which will likely improve the economics of the project. While the convertible offering may pressure shares in the near-term, the order is accretive to our NAV estimate; it is likely that the remaining cost of the rig will be financed through more attractive debt instruments that will be raised once the rig is contracted.

The Cobalt will be able to drill in 10,000 feet of water and to depths of 40,000 feet. It will be equipped with two seven-ram BOP's and will be capable of dual-activity operations. The Cobalt is the fourth rig VTG has ordered from DSME, (the Palladium joint venture rig will be built at the STX yard) and will have the same equipment on board as its sister ships Tungsten, Titanium and Platinum (Aker drilling package and Cameron subsea systems). While the all-in construction cost was not disclosed it its likely in the range of ~$625 million; the second BOP and additional equipment will likely add to the final cost of the rig.

While the company’s 2013 estimate remains unchanged at $0.02, it is lifting 2014 and 2015 estimates to $0.35 and $0.45 (from $0.30 and $0.40, respectively), as it tempers opex assumptions and take into account the announced contract on the Sapphire Driller. The company’s NAV estimate rises to $2.77 per share (from $2.49) while the price target is unchanged at $2.50 (0.9x NAV).

cowen.com