What Will Be Transocean’s Liquidity Position At The End Of 2016?

-70.72%
Downside
6.28
Market
1.84
Trefis
RIG: Transocean logo
RIG
Transocean

Transocean, the world’s largest offshore drilling contractor, has been experiencing a significant drop in its cash flows due to the deteriorating condition of the commodity markets. The impact of the ongoing commodity downturn is so severe that the company decided to discontinue its quarterly dividends in August 2015 and reduced its capital spending budget for 2016 in order to preserve cash flows for the worse times. Thus, it is imperative to analyze what will be the company’s liquidity position in 2016 and whether the company will be able to survive in the current price environment.

We start with Transocean’s cash and cash equivalent at the end of the March quarter of 2016. The company had a cash balance of $2.5 billion, slightly higher than the previous quarter. To this we add the company’s expected operating cash flows for 2016. While the company aims to generate operating cash flows of $2.2-3.2 billion in 2016, we assume a conservative estimate of $2 billion for the company. Further, the company has a revolving facility of $3 billion expiring in 2019. Now, we reduce this by the company’s expected capital expenditure for the year, which is expected to be around $1.4 billion, 27% lower than the previous year. Finally, we subtract the company’s debt obligations of $1.2 billion that are due within the next one year. Thus, we arrive at a positive liquidity position of approximately $5 billion, which should enable the company to survive the ongoing commodity trough at least in 2016.

RIG-Q&A-liquidity

Relevant Articles
  1. How Will Transocean Weather The Lull In The Offshore Rig Market?
  2. How Are Transocean’s Key Metrics Expected To Trend?
  3. Key Takeaways From Transocean’s Q4 Results
  4. What To Watch As Transocean Reports Q4 Results
  5. What’s The Outlook Like For Transocean In 2019?
  6. What’s Transocean’s Outlook Like After Solid Q3?

Have more questions about Transocean (NYSE:RIG)? See the links below:

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Transocean

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research