Transocean: Ready for a Blowout

Transocean (RIG) announced first quarter ended March 31, 2016 total revenue of $1.34 billion, down 28 percent sequentially from $1.85 billion in fourth quarter of 2015 and down 34 percent year-over-year from $2.04 billion in first quarter of 2015.

Transocean declared first quarter of 2016 adjusted net income of $254 million, or $0.69 per diluted share as compared to adjusted net income of $615 million, $1.68 per diluted share during the fourth quarter of 2015 and adjusted net income of $398 million or $1.10 per diluted share during the first quarter of 2015.

The offshore contract energy drilling company reported continued sequential and year-over-year decline in both its top and bottom lines primarily due to the ongoing weaker global commodity demand and pricing environment, eating into the company’s key margins while restricting it to expand the core operations.

Impressive growth  

Transocean delivered excellent Ultra-Deepwater revenue efficiency averaged approximately 95% during 2014 and 2015 with ongoing progress achieved from currently active efforts including focused operational excellence.
Further, the company is constantly focused on margin enhancement through superior operating techniques somewhat offset by the declining market conditions.

The Deepwater oil and gas drilling services provider is consistently enhancing equipment uptime and reliability through approximately 75% drop in BOP-linked downtime, maintaining non-productive time of below 2% and delivering superior overall performance by strategically collaborating with other key OEMs coupled with focused growth efforts towards other major equipment. Transocean’s notable operational excellence is further visible in its continued ability to deliver 26.6 actual drilling days, lesser than the authorized 34 AFE days.

Despite the ongoing tough global operating environment, Transocean is continuing to deliver superior operational performance by minimizing the number of drilling days, reducing BOP non-productive time while notably enhancing the average revenue efficiency and equipment uptime and reliability.

Impressive moves

Transocean is continuing to enhance the overall fleet mix and quality through expanding the year-over-year number of active Ultra-Deepwater floaters from just 15% in the 2009 fleet to nearly 47% in the existing fleet and to about 55% in the 2020 estimated fleet. The key development efforts include 25 old rigs already eliminated from the fleet and 11 key rigs currently under-construction. The projected fleet for 2020 comprises of 5 UDW 20k psi capable rigs, 8 UDW moored & DP capable rigs and 11 UDW dual BOP rigs. Going forward, Transocean is focused on proactively managing liquidity and capital structure while delivering highly efficient and safest drilling services. Further, the company is keen on producing robust operating results by streamlining all the key elements of its business, generating superior revenue efficiency and attractive uptime coupled with developing strategic customer relationships. Also, global fleet repositioning and focusing on high-grade operations are targeted towards fast industry recovery.

The worldwide market conditions seem extremely challenging with Transocean focused on preserving enough liquidity to continue with its daily operations profitably. The cost-optimization steps include cutting of the O&G development programs amid weaker oil prices, lowered E&P budgets sanctioned for 2016 and growths in 2017 budgets considering the prospective oil prices stability and expansion.

The visible transition of Transocean towards Ultra-Deepwater rigs from presently low to mid-water exploration activities is believed to increase the company’s exploration expenditures while positioning it strongly for sustainable long-term growth once the international commodity demand and pricing conditions recover completely.


Overall, the investors are advised to “Hold” their position in Transocean Ltd. Considering the company’s projected solid long-term growth prospects and currently weaker financial position with significant total debt of $8.45 billion against weaker total cash position of $2.57 billion only, restricting the company to continue with its daily operations profitably. The PEG ratio of -0.20 signifies no growth but decline. However, the profit margin of 25.21% seems attractive.
Published on Jun 22, 2016
By Subhen Mittra

Copyrighted 2020. Content published with author's permission.

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