Why Did Transocean’s Stock Price Rise 15% In A Single Trading Day?

-70.58%
Downside
6.25
Market
1.84
Trefis
RIG: Transocean logo
RIG
Transocean

The slump in the commodity markets that began in mid-2014 has deteriorated the market value of a majority of the companies in the oil and gas value chain. The plunge in commodity prices led to a sluggish drilling demand, as oil and gas majors across the globe reduced their exploration and drilling spending to weather the downturn. This further resulted in pricing pressure for large drilling contractors such as Transocean, as oil and gas companies started looking for cost-efficient rigs to optimize production from their existing wells. As a result, the Swiss company witnessed a sharp decline in its contract backlog, as well as average dayrates. Due to this, the world’s largest offshore drilling contractor experienced a 75% drop in its stock price over the last two years.

While the outlook for commodity markets has been bearish, crude oil prices have rebounded over the last couple of months due to a number of factors, such as oil supply disruption in Canada, Nigeria, Libya, and Venezuela, and strong demand for oil from the Asian markets. In consequence, crude oil prices have recovered almost 35% since the beginning of the year, and are currently trading at a little over $50 per barrel. Further, for the second time in 2016, the US Oil Rig Count has increased, reassuring investor confidence in the recovery of the commodity markets. As a result, the stock of oilfield services companies, like Transocean, have gained momentum. Apart from this, a key factor for improvement in Transocean’s stock was the recent contracts that the company won in the Asian and Latin American markets. While the length and the average dayrates of these contracts are not very attractive, the market is viewing this as a sign of resilience, causing Transocean’s stock to go up by almost 15% in a single trading day.

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While the improvement in crude oil prices and rig count can be seen as a sign of rebound in the commodity markets, it might be too early to know if  this recovery is sustainable.

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

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