Rowan Companies Plc, the shallow-water rig contractor building four new ultra-deepwater vessels, is “open minded” to forming a tax-advantaged partnership for some of its rigs.
“We’re looking at it,” Chief Executive Officer Matt Ralls said in an interview at the Howard Weil energy conference in New Orleans. “If it proves to be an acceptable investment vehicle at a lower cost of capital, we would study it further.”
Master-limited partnerships, or MLPs, don’t pay federal income taxes and distribute most of their available cash to holders of their units, which are similar to shares in a corporation. More companies are placing assets into partnerships, allowing them to maintain control while taking advantage of the tax-sheltered structure.
An MLP works best when it has assets with a lot of contract backlog, Ralls. Having signed one of its four ultra-deepwater rigs so far, the company wouldn’t have enough vessels to put into a partnership today, he said.
“We are interested,” Ralls said. “We’re just not going to be pioneers on MLPs.”
Rowan, which has shallow-water rigs from the U.S. Gulf of Mexico to Southeast Asia, will let another company prove the effectiveness of the structure first, he said.
Transocean Ltd., the world’s largest offshore rig contractor, is “quite seriously” studying whether to put three ultra-deepwater rigs into a partnership, Chief Financial Officer Esa Ikaeheimonen told analysts and investors on a March 4 conference call. Ikaeheimonen worked at Norway’s Seadrill Ltd. when that company put some of its rigs into a partnership last year.
Ralls, who will be retiring as chief executive officer in mid-2014, said he’s “personally skeptical” how well drilling rigs work for an MLP.
“The jury’s still out on the efficacy of the Seadrill” partnership, Ralls said. “When you look at the way their stock trades, it’s not clear they’ve improved that.”