Rowan Reports Decent Quarter; Fireworks Yet to Come

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Rowan reported decent fourth-quarter results as it awaits delivery of its four deep-water rigs over the next two years. Revenue was $354 million, up 29% from last year’s levels due to new fleet additions (jackups) and higher levels of activity for its existing rigs.

Thanks to healthy levels of operating leverage, operating income doubled over the same time frame to $61 million. Also during 2012, Rowan built out key support functions for its deep-water effort and entered into one deep-water contract; it now expects to contract its three remaining deep-water rigs without a contract in 2013, which is very good news.

It is worth noting Rowan’s success on the tax front over the past few years, given that it recorded a $23.7 million tax benefit for the fourth quarter. In 2008, Rowan reported a tax rate of 34.6%, which meant that its reported income tax expense was around $226 million; it subsequently moved to take full advantage of the fact that many of its rigs work internationally and can take advantage of more favorable tax structures.

By 2011, Rowan actually reported a tax credit of $5.7 million (or a negative 4.4% tax rate), and it repeated this success in 2012 with another tax credit of $19.8 million (or a negative 10.7% tax rate). This level of success isn’t expected to continue, but a high-single-digit tax rate for Rowan is now a reasonable forecast.

 

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