Rowan To Implement Additional Job Cuts At Reliance Drillship

Offshore drilling service provider, Rowan Companies plc (NYSE:RDC) is going to increase the number of job cuts by 40-50 at its Rowan Reliance drillship. It is located in the Gulf of Mexico and is under contract with oil exploration and production company, Cobalt International Energy, Inc. (NYSE:CIE) .

Rowan recently sent a letter to the Texas Workforce Commission mentioning its plan to cut more jobs. We would like to remind investors that the company had sent the commission a letter last month. It stated the company’s intention to lay off approximately 150 workers during the two-week period beginning Jul 21, with the termination of the Rowan Reliance drillship contract. The additional layoff is scheduled to begin on Aug 21, 2017.

The drilling contract with Cobalt was previously scheduled to terminate on Feb 1, 2018. The time period was later advanced to Mar 31, 2017. The company expected the work to be completed by mid-June and the drillship to be idle after that.

Due to the early termination, Cobalt can save 45% of the contract value, which is around $80 million. Rowan will get the remainder, amounting approximately $98 million, which will help the company to strengthen its balance sheet. According to the amendments, Rowan will remain the exclusive drilling service provider for Cobalt for five more years.

Although, per the company's Worker Adjustment and Retraining Notification Act letters, Rowan is yet to finalize a specific job cut program, it plans to keep some of the employees to maintain the rig during its idle period. The nature of the job cuts is anticipated to be permanent. Rowan might rehire some employees in the future when the rig gets a new contract, which significantly depends on market conditions.

Other than Rowan Reliance, the company has 28 more offshore drilling units.

About the Company

Houston, TX-based Rowan Companies provides international and domestic contract drilling and aviation services. It focuses mainly on high-specification, premium jack-up rigs, and ultra-deepwater drillships. It also operates a mini-steel mill, a manufacturing facility that produces heavy equipment for mining, timber, and transportation industries and a drilling products group that design or builds about one-third of all mobile offshore jack-up drilling rigs. The company's fleet of 31 rigs is located worldwide, including the United States, the United Kingdom, Middle East, the North Sea, Trinidad and the Gulf of Mexico. The company operates through two operating segments – Deepwater and Jackups.

Price Performance

Rowanfalls under the Zacks categorized Oil and Gas – Drillingindustry. Its shares have lost 14.5% over the last one month compared with the broader industry’s decrease of 8.8%.

Zacks Rank and Stocks to Consider

Rowan presently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the oil and energy sector include Enbridge Energy, L.P. (NYSE:EEP) and Canadian Natural Resources Limited (TO:CNQ) . Both these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Enbridge’s sales for the second quarter of 2017 are expected to increase 13.2% year over year. The company delivered a positive earnings surprise of 128.6% in the first quarter of 2017.

Canadian Natural Resources’ sales for the second quarter of 2017 are expected to increase 26.9% year over year. The company pulled off a positive earnings surprise of 30.8% in the first quarter of 2017.

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