KCA Deutag - rising oil price lift all rigs?

All,

Please find our updated analysis here.

Amazing what a difference 6 months makes. Listening to the last conference call on KCA Deutag, with talks of consolidation, funding acquisitions and potential dividends, you would be forgiven for asking: Was it the same company that restructured last year under the burden of too much leverage and depressed oil prices?

Positioning:
We maintain our position in the SSNs and restructured equity from our pre-restructured bond purchase and although the “package” has rallied 30%+ since the restructuring, we maintain our long position in the Company.

Backlog:
Backlog remains robust in the current environment, and although the overall backlog has reduced, we gain comfort from the level of backlog in current and subsequent year, versus previous levels. The most recent figures reported by the Company don't include the Offshore contract wins in June 2021, which totalled c.$550m. But in our analysis we focus on the firm & option contracts held by KCA in current and following year. This metric is an excellent tool to forecast revenue for current and subsequent year.

The original business plan had $2.2bn of revenue of FY21 & FY22, with $2bn from non-engineering segments (Offshore and Land Drilling). At beginning of March 2021, KCA had $1,581m of backlog for FY21 &FY22 (plus 2/3rds of Q1 revenue c.$100m), meaning that just on existing contracts $1.7bn of the $2bn was secured. Add in the recent contract wins and the Company should meet and beat its original projections.

Happy to discuss.

Tomás
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