In an unfortunate incident, one of Aban?s semi-sub rigs (Aban Pearl), which was contracted at a day rate of $358K (c. $290K post-tax) with PDVSA of Venezuela for a long-term contract (till 2015), has sunk. It was drilling in the Mariscal Sucre offshore natural gas project off the coast of Venezuela?s Sucre state. We do not have too many details at this stage as to the extent of the damage except that the crew on the rig has been acuated and are safe. Press reports indicate there is no spillage, which is a relief given the recent BP episode in the Gulf of Mexico.
The 12% full year impact on earnings before interest, taxes, depreciation and amortisation (Ebitda) ? While the rig itself is fully insured, the loss of revenues will have to borne by the company, and the impact on earnings could be meaningful. Assuming the rig earned revenues for one month (April), the full year impact on FY11E Ebitda would be ~12% or ~ $67 m. This is assuming, at this stage, that the company does not have to pay additional damages. However, given the high leverage, the impact on PAT could be more severe (~30%), although cash flow (and, therefore, Ebitda) impact is more pertinent, in our view.
The rig is fully insured for a sum of c. $240m. Assuming the company can claim this entire amount and pay down its debt, its net debt would reduce from c. $3 bn currently to ~ $2.7 bn. Using a 7x enterprise value (EV)/Ebitda multiple yields an EV (ex-Aban Pearl) of ~ $3.5bn, which after reducing net debt yields an implied equity value of $800-850 m. Given the current market cap of $980 m, this could result in downside of ~15% on the equity value.
We rate Aban as Buy/Medium Risk (1M). Aban is a material play on the global offshore services industry with a fleet of 20 assets.