tips to buy best shares Aban Offshore stock

Aban Offshore (updated - 09 Sept 2009)
Aban Offshore, the Chennai-based drilling firm, is likely to lose a contract for its drill ship ‘Aban Abraham’ for deployment at an offshore field in Ghana, Africa, for developing the Jubilee Field. The 33-year-old drill ship was contracted to Kosmos Energy for the field’s development from September 1 to October 21 at a rate of $300,000 a day (about Rs 14.6 crore a day).

The loss of the contract would make a dent of about Rs 743.5 crore in the current financial year’s revenues. The company had reported net sales of Rs 3,050 core for 2008-09. Its profit for the period was Rs 540 crore.

“The drill ship had developed some technical problem about four months ago and was under repair and maintenance,” an oil company official familiar with the development said. “The delay in its deployment made Kosmos look for an alternative,” he added.
Aban may have to compensate Kosmos for not making the drill ship available in time. An email sent to the company did not get any response.

About two weeks ago, the company announced the deployment of four of its seven idle jack up rigs - three in West Asia for three years and one in Latin America for over 25 months. Revenue from the West Asian contract is expected to be Rs 2,925 crore and the contract for Latin America would fetch the company Rs 446 crore.

Aban Offshore, which began as a comparatively small manufacturer of pipelines for oil refineries and fertiliser plants, grew to its present size through a series of expansion plans. Explorations at high costs became unviable when Brent, the benchmark crude oil price, crumbled from a high of over $145 per barrel in July 2008 to just $34 per barrel by end-December in the same year due to the economic slowdown.

This downturn affected the demand for rigs of the company. Aban Offshore saw as many as seven out of the total 20 rigs becoming idle, weakening its capability to repay the loan. However, oil prices have been gradually recovering. As of Tuesday, Brent was priced at $68.2 per barrel. The recovery in oil prices has helped the company deploy some of its idle assets.

The company has a debt of Rs 13,000 crore on its books and it is negotiating with its lenders to increase the repayment period for about Rs 8,000 crore of the loan to 10 years from 5-6 years now.

The stock of the company settled 1 per cent lower at Rs 1,572 a share at close of Tuesday’s trade on the Bombay Stock Exchange.
source - BS

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Aban Offshore (updated - Mar 2009)
The Aban Offshore stock has been a huge underperformer over the past year, losing 91 per cent to the Sensex’s 40 per cent. However, the stock has bounced back in the last few days with the Street seemingly convinced that concerns about the company’s high level of borrowings are exaggerated and that, at aprice-earnings ratio of close to one, there can’t be too much downside. Of the total gross debt of $3.3billion, Aban needs to re-finance around $170 million by December this year. That may not be easy though Aban may manage by paying a higher coupon rate.

There after there are repayments due at regular intervals including bonds due for conversion in 2012. The worry is that Aban may not be able to generate sufficient cash flows in the near term. Already, four of its oil rigs are lying idle and Goldman Sachs reckons more assets that come out of contracts in the coming months would “increase the risk of lower utilisation pushing up the amount of re-financing needed.” So, although operating margins should sustain at close to 60 per cent in the next couple of years and cash flows from operations too should increase smartly in 2009-10 to an estimated Rs 1,530 crore and further in 2010-11, the repayment of loans is a worry.
source - BS

Aban Offshore (updated - 16 July 2009)
The Aban Offshore stock has gained 25 per cent in two trading sessions. Of course, it had been outperforming the market even before that. The reason for the move over the past couple of months has been the rise in crude oil prices. According to a Morgan Stanley report, the outlook for the offshore jack-up industry is improving with crude oil prices rising from $40 per barrel to $60 currently.

That is expected to result in higher rig rates and more contracts for the company. Already, oil services companies are understood to be seeing better demand across the globe, and it could mean that at least three of Aban’s seven idle rigs will be deployed in the near future.

Also, with credit markets easier than they were even six months back, there is a higher probability that Aban will now be able to restructure its financials.

The company needs to strengthen its balance sheet and bring down the debt-equity ratio. As Morgan Stanley points out, Aban can do a placement of shares to institutional buyers and also restructure its $3billion foreign currency debt. Aban is required to pay off a small part of its borrowings by the end of the year, after which repayments at regular intervals include bonds due for conversion in 2012.

Improving cash flows from operations would also help. Aban is expected to report losses for the first half of 2009-10 with many of the firm’s assets remaining unutilised. However, things should improve with most of the company’s assets expected to be deployed by the end of 2010-11.

The company is expected to turn in revenues in the region of Rs 3,400 crore in the current year, while operating profits are expected to come in close to Rs 1,910 crore.
source - BS

Aban Offshore Ltd (updated - 19 Nov 2009)

Some highlights
1) Aban Offshore company is in oil drilling and exploration.
2) The company has seen lots of hurdles to pay its huge debt in last couple of years.
3) The company’s current debt stands at 16,600 crore.
4) It is successful able to raise the funds through qualified institutional placement (QIP).
5) Its current debt-to-equity ratio stayed above 9.5 for the year ended March 2009. This
will now ease to below 6, after the QIP placement.
6) It has acquired Norwegian company “Sinvest” in 2007.

8) The stock price was underperformed the Sensex in the first three months of 2009 and now it has nearly quadrupled (four times)
    since April 2009 as compared to 72% rise in Sensex. The share price has risen from Rs 400 to Rs 1600 which is four times.

9) Earnings details - The company has more than quadrupled its consolidated operating income to Rs 3,050 crore in FY09 from Rs
    719 crore two years ago, while its cashflow from operations grew nearly seven times to Rs 2,108 crore from Rs 319 crore in
    FY07. Although the interest burden during this period has more than tripled to Rs 885.3 crore in the year ended March 2009 and
    could rise to Rs 1,000 crore for FY10, Aban Offshore appears well-positioned to meet future debt commitments.

10) Valuations - The oil drilling and exploration sector will be in huge demand in future. The companies with good fundamentals and
     growth oriented will provide good returns. Aban offshore looks good for long term investing but it should be bought at lower levels.
     It should be bought below Rs 1000 which is its appropriate valuations.
     And should be hold for 3 to 4 fours to get excellent returns.