Transocean (RIG) Shares Sink After CEO Says Rates Will Not Rise in 3 Years

Shares of Transocean Ltd (RIG) were down -1.24 or -11.78 percent to $9.29 in Tuesday’s premarket after the company’s chief executive said the company would not be able to increase rates until 2018 at the earliest. Transocean stock closed at $10.53, down -0.29 or -2.7 percent in Monday’s regular trading session.

Stock Analysis

Vernier, Switzerland based Transocean Ltd. is the largest offshore drilling contractor in the world.
The company operates a fleet of 135 offshore drilling units including 71 mobile units capable of drilling in ocean depths of up to 10,000 feet. The company has the world’s largest fleet of high specification rigs that include deepwater, ultra-deep water and premium jackup rigs, as well as seven deepwater drill ships. Transocean has offices in 20 countries which include the United States, Canada, Brazil, Switzerland, Scotland, Singapore, Malaysia and Indonesia among others.

The company was implicated in the Deepwater Horizon oil spill in 2010 after one of its rigs exploded in the Gulf of Mexico. Transocean announced last November that its stock would be delisted from the SIX Swiss Stock Exchange due to financial reasons. After the stock’s delisting, which will be effective on March 30th, 2016, it will be removed from the blue chip Swiss Market Index.

In an interview at the Scotia Howard Weil Energy Conference in New Orleans on Monday, Transocean Ltd. Chief Executive Officer Jeremy Thigpen said that, “I think ’16 and ’17 are going to be tough, adding that, “We’re taking the necessary steps to navigate our way through the downturn, but we’re also preparing for that eventual recovery.”

Thigpen joined the company 11 months ago after the resignation of former Chief Executive Steven Newman. According to Thigpen, Transocean will have to wait for at least three years before it can begin charging higher rates. The company is still reeling from the biggest crash in the oil market in recent memory and a glut of vessels the company contracted to build before the market collapsed.

Transocean has led the industry in reducing its fleet, scrapping 24 rigs since the beginning of the oil market crash with plans to retire another eight to ten rigs in the next year to 18 months. Transocean’s fleet currently consists of 61 rigs with 11 more being built.

Thigpen said that he had “no real concerns” with the company’s financial liquidity through the end of 2018. Transocean reported it had $2.3 billion in cash at the end of last year; nevertheless, day rates for leasing the company’s rigs have declined from $300,000 to $600,000 a day to $158,000 to $275,000 currently.

Transocean stock has been pummeled since trading over $170 per share at its peak in November of 2007. Shares hit a new low in February when they traded down to $8.20 on February 20th. Analysts continue bearish on the stock for the most part, with Cowen & Co. in a report released yesterday, the analyst lowered their price target from $12.00 to $9.00 per share, while Citigroup, which has a sell recommendation on the stock, raised its price target to $4.00 per share.

Other News About RIG

Transocean defeats U.S. shareholder appeal over Gulf spill

Court ruled that the plaintiff waited two months too long to sue over proxy statements made in October of 2007.

Transocean Defers Delivery and Payment of Five Rigs to 2020

Company announced the deferment of delivery and payments to Keppel Offshore & Marine's shipyard earlier this month.

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Published on Mar 22, 2016
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2016. Content published with author's permission.

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