Transocean Likely To Report Another Soft Quarter Due To Declining Contract Backlog, Day Rates

by Trefis Team
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Transocean Limited
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With the continued weakness in the offshore markets, Transocean (NYSE:RIG), the world’s largest offshore drilling company, is likely to post a fairly soft set of financial results for its December quarter and full year 2017 after the market closes on February 20. [1] Although the company’s contract backlog remained weak, the driller received a 22-well contract with Statoil with an estimated duration of 33 months during the fourth quarter. Yet, the company struggled to attract higher average daily rates for its contracts during the quarter, which is expected to result in declining revenues and profits for the company. We have a price estimate of $11 per share for Transocean, higher than its current market price. 

Key Trends Witnessed In 4Q’17

  • Given the extension of the OPEC production cuts until 2018, the WTI crude oil prices rose sharply in December and averaged at around $55 per barrel for the quarter, almost 15% higher than the previous quarter. This led to a rise in the global rig count (oil and gas) during the quarter. However, despite this recovery, Transocean did not see a strong surge in its drilling demand, which is likely to weigh on its top-line for the quarter as well as full year.

  • That said, Transocean’s acquisition of Songa Offshore in the third quarter enabled it to win a 22-well contract for its harsh environment semi-submersible, Transocean Spitsbergen, for a duration of 33 months. This also includes two one-well options to work in the North Sea with Statoil Petroleum ASA. The estimated firm backlog associated with the contract is approximately $286 million and is expected to commence in the third quarter of 2019.
  • Further, Transocean closed the previously announced offering of its $750 million of senior unsecured notes during the quarter, which it intends to repay its outstanding debt and general corporate purposes. This will enable the company to delay the maturity of its long term debt, which will allow it to efficiently manage its cash flows and liquidity.

Do not agree with our forecast? Create your own forecasts for Transocean and its 2017 performance using our interactive platform.

 

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Notes:
  1. Transocean To Announce December Quarter 2017 Results, 24th January 2018, www.deepwater.com []
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