Transocean 3Q’17 Earnings To Drop As Offshore Markets Continue To Remain Weak

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Transocean

Given the continued weakness in the offshore markets, Transocean (NYSE:RIG), the world’s largest offshore drilling company, is likely to post a weak set of financial results for its September quarter of 2017 after the market closes on 1st November 2017((Transocean To Announce September Quarter 2017 Results, 12th October 2017, www.deepwater.com)). Although the company’s contract backlog continued to be weak in the third quarter, the acquisition of Songa Offshore is likely to add $4.1 billion (extending up to 2024) to the company’s existing backlog. The deal will also enable the company to expand its presence in the North Sea, which is one of the coveted offshore markets.

We have a price estimate of $11 per share for Transocean, which is 6% higher than its current market price. We will revise our price shortly, based on the third quarter earnings results and company guidance.

See Our Complete Analysis For Transocean Here

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Key Trends Witnessed In 3Q’17

  • Transocean announced its plans to acquire Songa Offshore for a total consideration of $3.4 billion. The deal will not only expand the company’s existing contract backlog by $4.1 billion, but will also boost the company’s existing fleet by adding seven rigs to it. Further, the deal will enhance the company’s presence in the North Sea, which had declined over the last couple of years after it scrapped eight rigs in the region. Since the North Sea has become one of the most desirable offshore markets, an improved presence in the region will be an upside for Transocean in the long term.

  • During the quarter, the Swiss company was awarded a two-year contract plus three one-year priced options with a subsidiary of BHP Billiton. The backlog associated with the firm contract is roughly $106 million, and the contract is expected to commence in the second quarter of 2018. This contract will contribute to the company’s dwindling backlog.

  • Transocean also announced its intent to retire five of its ultra-deepwater floaters and a deepwater floater in the coming months. These rigs, which were previously cold stacked, will now be classified as held for sale until these are sold. This move will partially offset the impact of new rigs added to the company’s fleet from the Songa deal. Also, the company expects to recognize an impairment charge of around $1.4 billion relating to these rigs in the third quarter, which is likely to weigh on its bottom line.

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