Transocean’s 2Q’17 Results Were A Mixed Bag; Outlook For 2017 Remains Weak
Transocean (NYSE:RIG), the world’s largest offshore drilling company, reported a mixed set of June quarter financial numbers on 2nd August 2017((Transocean Announces June Quarter 2017 Results, 2nd August 2017, www.deepwater.com)). While the company exceeded the revenue expectations by a small margin, its profitability dropped due to lower dayrates and weaker rig utilization during the quarter, missing the earnings estimate by a fair margin. Transocean foresees a tough 2017, as the offshore drilling markets are likely to remain subdued through the year due to the uncertainty in the commodity markets.
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Key Takeaways of 2Q’17 Results
- Transocean’s contract backlog stood at $10.2 billion at the end of the June quarter, 26% lower compared to the same quarter of last year, while its revenue efficiency grew by 1% during the quarter. Also, the company’s average dayrate during the quarter stood at $329,900, which was 6% down from the year ago quarter. Consequently, the offshore driller’s 2Q’17 revenue dropped to $751 million, 20% lower than the previous year.
- The company’s operating and maintenance expenses reduced to $333 million from $343 million in the year ago quarter, due to ongoing cost control initiatives and a favorable adjustment to value added taxes, partially offset by reactivation costs related to some rigs. Further, the company realized tax benefit of $37 million during the quarter, as opposed to a tax charge of $18 million in the same quarter of 2016. Yet, the company reported an adjusted earnings of only $1 million compared to $4 million in the same period last year.
- Transocean managed to bring down its long term debt from $7.7 billion at the end of December quarter of 2016 to $6.5 billion at the end of the latest quarter. Lower debt obligations will reduce the company’s interest expense, and boost its margins going forward.
- Given the volatility in the commodity markets, the Swiss company restricted its capital spending to $258 million in the first half of the year, as opposed to $826 spent in the same period last year. This will enable the company to preserve its dwindling cash flows and utilize them to enhance its capital structure.
- The company managed to win some new contracts in the quarter, which are likely to result in the reactivation of some of its idle and cold-stacked rigs. This comes as a good news for the company since it is considered difficult to find new contracts for such kinds of rigs.
- That said, the average dayrates at which these new contracts have been awarded is much lower compared to the rates that were offered earlier. Thus, even though the company has managed to find work for its idle rigs, it will have to restrict its costs and/or improve its operational efficiency in order to sustain its margins in the forthcoming quarters.
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