Aban Offshore
Contract woes
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CMP: Rs1,144 Target Price: Rs513
Aban Abraham could face contract cancellation
After waiting for more than a year for drillship Aban Abraham, Addax Petroleum has hired the services of the Transocean Deepwater rig Pathfinder for its drilling program. The contract with Transocean requires it to drill four wells in total with a minimum commitment of 120 days at a day rate of USD600,000. We believe this could lead to possible cancellation of its contract with Aban Abraham.
Aban Abraham, recently started its one year contract with Pioneer at a day rate USD325000. However this has been delayed by more than a year on account of its refurbishment at Singapore based Sembawang Shipyard. After completion of the above program the rig was expected to perform a contract with Addax Petroleum in Gulf of Guinea at a day rate of USD 410000. The contract with Addax was for 5 firm well and five optional well. This would have meant 300 days of firm contract and 300 days of optional contract. On account of delay in arrival of drillship Aban Abraham, the rig could face possible cancellation of order by its operator Addax Petroleum.
Aban's FY2011 earnings could get impacted by 10%
The cancellation of contract will be extremely negative for Aban as it would reduce its FY2011 revenue visibility from 67% to 55%. However given continued shortage of deep water we believe that deploying the rig will not be difficult for Aban. Assuming that after completing its contract with Pioneer Aban Abraham bag a contract at the same day rate of USD 325000 (instead of USD410000 with Addax), our FY2011 earnings would get negatively impacted by 10% to Rs176.
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