Offshore driller Transocean (NYSE:RIG) reported a quarterly loss of $163 million in Q2 despite posting a 10% increase in sequential revenues and higher utilization levels because of a $750 million charge related to the Gulf of Mexico incident.  The company’s fleet utilization rate jumped from 61% to 66% in Q2 2012, indicating a strong revival in offshore exploration, but a looming suspension of operations in Brazil might weigh on the company’s results over the next few months.  A revival of exploration in the Gulf of Mexico and strong activity in the North Sea and in offshore Africa are expected to result in strong growth for Transocean’s business.
We have a $58 price estimate for Transocean, which is at a 20% premium to its current market price. We have updated our forecasts for the utilization rates, growth in average day rates, and terminal growth values for the company’s periods.
Transocean’s revenues increased by over 11% to $2.58 billion in Q2 mainly because of lower shipyard days for the company’s fleet.  The utilization rates increased to 66% for the period, indicating strength in the offshore drilling industry. Offshore exploration is expected to see strong growth in the future with exploration activity picking up in the Gulf of Mexico where the government recently concluded a successful round of lease sales. A moratorium on deepwater drilling in the Gulf after the 2010 Macondo spill resulted in a major drop in global offshore activity. Offshore exploration is also picking up in Africa, where a number of significant oil and gas discoveries have been made recently.
Despite strong fundamentals, Transocean’s operations could be hit by a Brazilian court’s order to suspend the company’s activity in the country. The August 1st ruling asked Transocean to halt operations in Brazil in 30 days or face fines up to $250 million.  The offshore driller has about 10 platforms in Brazil, working for clients such as Chevron and Petrobras. In case the order is upheld, Transocean’s operations could face a significant hit.Notes:
- Transocean Ltd. Reports Second Quarter 2012 Results, Transocean [↩] [↩]
- Brazil court orders suspension of Chevron, Transocean operations, Reuters [↩] [↩]