DALLAS, TX -- November 11th, 2022 -- Independence Contract Drilling, Inc (NASDAQ: ICD): Stonegate Capital Partners initiates coverage on Independence Contract Drilling, Inc. The full report can be accessed by clicking on the following link: https://stonegateinc.com/reports/ICD_Initiation.pdf
Independence Contract Drilling, Inc. (“ICD”) provides land-based contract drilling services for oil and natural gas producers in the United States. The Company constructs, owns, and operates a fleet of pad-optimal ShaleDriller rigs in the Permian Basin, the Haynesville Shale, and the Eagle Ford Shale. Its fleet consists of 24 rigs. Its business depends on the level of exploration and production activity by oil and natural gas companies operating in the United States, particularly the regions where it markets its contract drilling services. Independence Contract Drilling, Inc. was incorporated in 2011 and is headquartered in Houston, Texas.
- Increasing Market Share: ICD has been securing shorter-term pad-to-pad contracts as day rates have continued to strengthen, in particular for the 300 series rigs, and is increasing its market share among the limited 300 series contract drilling players.
- 200 to 300 Series Conversion: This initiative has important strategic ramifications for ICD, not only from a margin generation point of view but also with respect to ICD's market positioning moving forward. We believe that the industry is in the early phase of a multiyear up upcycle in U.S. land drilling.
- Tight Super Spec Rigs Supply: The super-spec rig supply is extremely tight and offers ICD an opportunity to reactivate rigs into this market and expand their customer base.
- Well Positioned in an Improving Market: ICD's market positioning moving forward is strong given they are still in the early innings of a multiyear up upcycle in the U.S. land drilling industry. With strengthening dayrates, improved pricing, higher rig penetration, additional fleet capacity, an expanded customer base, and accelerated oil and gas exploration demand, ICD is closing the gap in margins with other listed peers.
- Free Cash Flow Generation: ICD is poised to generate significant free cash flow that can be utilized in a variety of ways. Due to ICDs capital structure they have the flexibility to use their free cash flow generation to pay down debt or reactivate rigs without negatively impacting other portions of their business.
- Well Regarded Within Industry: ICD has received multiple awards as an industry-leading service provider. The Company has established a solid reputation from its customer base, allowing them to further expand their presence within their target markets.
- ESG Focus: ICD’s marketed fleet is 100% dual fuel and hi-line power capable & allows Omni directional walking which reduces operational footprints and environmental impacts.
- Valuation – We believe the proper way to value ICD is through an EV/EBITDA multiple. As can be seen in Exhibit 13, ICD is trading at 2.2x estimated EV/Forward EBITDA compared to the average of 5.3x. Given ICD’s recent strength, encouraging guidance, and improving margins, we would apply only a small discount to the comparable companies. Using an EV/EBITDA multiple range of 4.5x to 5.5x, with a midpoint of 5x resulting in a valuation of $6.01 to $8.06 respectively, with a midpoint of $7.04.
Stonegate Capital Partners is a Dallas-based corporate advisory firm dedicated to serving the specialized needs of small-cap public companies. Since our inception, our mission has been to find innovative, undervalued public companies for our network of leading institutional investors who seek high-quality investment opportunities.