The sinking of Aban Pearl, the highest earning asset of Aban Offshore, on Thursday, has triggered serious worries over the company’s cash flows.
Aban Pearl has a $500 million contract with Petroleos de Venezuela (PDVSA), the Venezuelan oil company, and earned an Ebidta and cash flow of $75 million per annum and $62 million per annum, respectively from the contract.
Aban Pearl had an operating day rate of $358,000 and was contracted till October 14 by PDVSA.
The semi-submersible rig was a significant contributor with annual revenues of $123 million and Ebidta of $77 million.
The incident may lead to Aban losing the PDVSA contract, thereby impacting its debt repayment capabilities.
For fiscals 2011 and 2012 Aban has debt repayment lined up of $375 million and $650 million, respectively.
Kunal Lakhan, analyst with K R Choksey Shares & Securities, said the brokerage had earlier estimated that Aban would be able to generate cash of Rs 1,445 crore for fiscal 2011 and Rs 1,850 crore for fiscal 2012 (balance to be re-financed).
“After Aban Pearl’s accident, we are lowering our estimates further. The company will face revenue loss to the tune of Rs 232 crore if the rig’s replacement is not found for the first half of the year or Rs 532 crore if replacement not found for the full year.”
Analyst estimates show that there could be an annual revenue and Ebidta losses of $125 million and $81 million, respectively, due to the incident.
The negative impact on cash flows by 20% annually would seriously dent the company’s debt paying ability and hence derail the de-leveraging process and the impact on PAT could be more severe — 30%.
Aban has a debt obligation of $1,025 million for FY11-FY12 (estimated), against expected cash flows of $500 million and $240 million from operations and insurance compensation, respectively, implying an unfunded portion of $285 million, according to Saeed Jaffer and Nitin Tiwari, analysts with Ambit Capital.
In such a scenario, Aban would find it challenging to fund (either by equity or debt) this gap due to loss of revenues from a high cash generating asset.
Also, there is no clarity yet as to what is the insurance claim the company would receive. According to sources, only the asset value is insured and not the revenues.
Mayank Maheshwari and Vinay Jaisingh, analysts with Morgan Stanley, said the rig is insured for $235 million.
Aban had acquired the rig for $211 million and the rig had started operations only in January 2010. However analysts do not believe that Aban can recover capex costs of $65 million.
Aban had funded Aban Pearl through $175 million debt and remaining $120 million as equity.Maheshwari and Jaisingh said that assuming that Aban recovers $235 million from insurance companies, it will have $60 million (after repaying the debt holders of Pearl), for the repayment of debt.
However, in fiscal 2012, the funding gap widens from an estimated $350 million to $420 million.
Lakhan said to arrest the revenue loss Aban would have to immediately either charter another rig or purchase a second hand rig at the earliest.
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