Vantage Drilling (NYSE:VTG) Has Limited Downside with Force Majeure

The declaration of force majeure for its Sapphire Driller contract won't have much downside for Vantage Drilling (NYSE:VTG), with the worst case scenario probably being $0.08 a share.

FBR noted, "Last night (Tuesday), Vantage announced that its customer for the Sapphire Driller declared force majeure on the contract due to political unrest in Côte d'Ivoire. While this last-minute declaration will modestly impact Vantage’s near-tern earnings and cash flow, it does not place the company in any financial jeopardy nor does it impact their earnings power. Our bottom line analysis is that this event should not prove material to investor perception of VTG, and that any impact on the stock today should be temporary and represents a buying opportunity for investors seeking to accumulate the shares.

"The worst case impact is a loss of $0.08 per share of discounted cash flows if the force majeure contract provisions do not provide for any cost recovery and the rig is idle for the next six months. In fact, the contract in question is priced at a rate ($20,000 per day) below the current market for this class of rig, ($135,000 to $150,000). We do not expect the rig to be idle for the six-month duration of the canceled contract. It is a premium jackup rig that should find work in fairly short order, likely at a higher rate."

FBR Capital reiterates an "Outperform" on Vantage Drilling Co, which closed at $2.05, the same as the prior close.