Aban Offshore: Oil prices help

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 $3-billion 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.