Will Transocean Go Bankrupt?

Transocean (RIG) announced third quarter ended September 30, 2015 total revenue of $1.61 billion, down 14 percent sequentially from $1.88 billion in second quarter of 2015 and down 29 percent year-over-year from $2.27 billion in third quarter of 2014.

Transocean declared third quarter of 2015 adjusted net income of $316 million or $0.87 per diluted share, down 23 percent sequentially from $408 million or $1.11 per diluted share in second quarter of 2015 and down 21 percent from $398 million or $1.10 per diluted share in first quarter of 2015.

Declining continuously

The offshore oil drilling company reported continued decline in both its top and bottom lines primarily due to the ongoing weaker global commodity demand and pricing environment, diminishing the company margins and driven by weaker fleet utilization along with a fall in other revenue linked to termination fees being borne by the company for the termination of key agreement during the second quarter of 2015.

Transocean had quarter end total liquidity position of $5.2 billion including, $2.2 billion of cash proceeds and $3.0 billion of the strategic undrawn revolving credit facility and targets $4.0 to $5.0 billion of consolidated liquidity by the fiscal year ending December 31, 2017, in line its commitment to deliver notable company growth amid weaker global commodity demand and pricing environment.

Transocean generated $648 million of operating cash flows, down 51 percent sequentially from $1.31 billion and mainly due to the much needed Macondo-linked insurance gains during the second quarter of 2015.

Backlog status

The upstream company reported contract backlog of $16.9 billion, according to the latest fleet status report that provides robust cash-generation source.
Transocean is also focused on minimizing/re-phasing its capital spending program with continued enhancement in operational performance and ongoing focus on strategic cost management that includes lowered UDW stacking expenses and optimized company structure.

The continued cost minimization initiatives of Transocean by postponing or cancelling the core capital expenditure program while growing its year-over-year backlog is expected to support the company in overcoming and emerging strongly from the current global slowdown and thus, deliver improved shareholder returns over a longer term, going forward.

The offshore drilling company generated weaker sequential top line growth mainly due to poor fleet utilization of 70 percent in the quarter, a sequential decline from 75 percent during the previous quarter. For ultra-deepwater drilling, just 84% of international fleet utilization has been achieved with postponed or canceled un-contracted newly-built deliveries. The worldwide fleet utilization for deepwater, midwater and high-spec jackups has been recorded at 70%, 75% and 76% respectively and driven by slowing drilling activities with inadequate growth prospects, speedily retiring rigs and accelerated decline of dayrates with the intensified oversupply.

Transocean needs to improve fleet utilization with maximum fleet usage at current expenses which is believed to be a key cost minimization effort of the company. However, the future demand and supply imbalance at $50/bbl and $70/bbl of key supplies is estimated to widen and the demand and supply gap is expected to narrow at $90/bbl of key oil supply and growing fuel supply.


Transocean needs to optimize its debt-burdened cash-flow statement with significant total debt of $8.75 billion against weaker total cash position of $2.23 billion only, restricting the company to continue with its daily operations profitably. Hence, Transocean is on the edge and this is not a good thing.
Published on Feb 24, 2016
By Yaggyaseni Mittra

Copyrighted 2020. Content published with author's permission.

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