A Real Options Approach to the Valuation of Offshore Drilling Contractors: The Case of Maersk Drilling A/S

Gintare Butaviciute

Student thesis: Master thesis

Abstract

The thesis carries dualistic purpose. First of all, it attempts to estimate the intrinsic value of Maersk Drilling A/S by applying extended net present value approach anticipated by Steward (1984). Secondly, it argues and proves that ENPV is more distinguish valuation model and provides higher objectivity when valuing drilling contractors. The thesis has both practical and theoretical scope; however, the emphasis is on practical application. Chapter 3 and 4 introduces reader to offshore drilling contractors’ market and Maersk Drilling A/S. The extensive and market and company analysis is performed by using publicly available historical data as well as by using analytical approach in order to derive to assumptions needed for further practical application of the valuation techniques. The analysis is followed by practical application of DCF model in chapter 5, where the author estimates the intrinsic value of the company and judges the objectivity of the outcome. Consequently, ROV approach is applied showing the underlying value premium created by the company’s managerial flexibility in strategic decision making. The conclusion of the thesis is that the stock price of Maersk Drilling A/S (DRLCO) is currently undervalued and has an upside potential of 146.22 DKK, where 123.59 DKK is the upside derived from DCF valuation and 22.63 DKK from the option premium. The results are extensively based on theoretical assumption of Maersk Drilling abounding their floater fleet.

EducationsMSc in Finance and Investments, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2020
Number of pages85