Credit: Shutterstock photoSummary:
We are maintaining our Neutral recommendation on Transocean shares, despite the dismal commodity pricing scenario, operational issues and high debt. The company offers an unmatched level of earnings and cash flow visibility, given its technologically-advanced and versatile offshore drilling fleet, strong backlog and considerable pricing power. The recent settlement of a host of civil/criminal claims associated with the Deepwater Horizon incident has also eased the overhang on the stock. Nevertheless, we expect Transocean shares to remain soft until oil prices rebound and the company fully works its way through claims related to the BP oil spill.
Overview:
Switzerland-based Transocean, Inc., with the very appropriate NYSE ticker of RIG, is the world's largest offshore drilling contractor and the leading provider of drilling management services worldwide. As of May 15, 2014, the company owned, or had partial ownership interests in, and operated 78 mobile offshore drilling rigs. Transocean s drilling fleet consists of 46 high-specification deepwater floaters, 21 mid-water floaters, and 11 high specification jackups. Additionally, the company had 9 ultra-deepwater drillships and 5 high-specification jackups under construction or under contract to be constructed. Transocean's fleet is considered to be one of the most modern and versatile in the world due to its emphasis on technically demanding segments of the offshore drilling business.
Transocean's fleet can be broadly divided into three distinct groups based on drilling capabilities: high-specification floaters (semi-submersibles and drillships), midwater floaters, and jackup rigs, which accounted for 72%, 18% and 6%, respectively, of its total revenues for 2013. The remaining portion related to other rigs, contract intangible revenues, and revenues derived from drilling management services, integrated services, oil and gas properties etc. Following its merger with GlobalSantaFe in November 2007, Transocean operates in 2 business segments (Contract Drilling Services and Other Operations). The Contract Drilling segment includes floaters, jack-ups and other rigs used in support of offshore drilling activities and offshore support services on a worldwide basis, while the Other segment consists of drilling management services and oil & gas properties.
Transocean's 47 high-specification floaters are specialized offshore drilling units capable of drilling in water depths of 4,500 feet and more. The company's 21 mid-water floaters are capable of drilling in water depths of approximately 300 feet to 4,500 feet, while the jackup rigs are generally suited for water depths of 400 feet or less.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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