Key Takeaways From Transocean’s Q4 Results

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Transocean (NYSE:RIG), one of the largest offshore drilling companies, published its Q4 2018 results on Monday, posting a slightly wider than expected net loss. While the company’s contract drilling revenues grew by about 26% to $748 million, driven by its recent acquisitions, its adjusted net loss came in at $171 million. Below we discuss some key takeaways from the company’s results.

We have created an interactive dashboard analysis on the expected outlook for Transocean, which you can use to arrive at your own revenue and EPS estimates for Transocean. We note that we have yet to update our model for 2018 results. You can also see all of our data for Energy Companies here.

Utilization Trends Higher

Transocean’s operating metrics have seen some improvement in recent months. Fleet utilization rates rose from 53% in Q4 2017 to roughly 62% in the last quarter, driven by the company’s fleet modernization initiatives and the closure of the Ocean Rig deal. Revenue efficiency – a measure of how much a rig actually earns while it is contracted against the maximum potential revenues – came in at 96%, up from about 92% in the year-ago quarter. However, average day rates for the fleet continued to trend lower to about $293k, down from around $297k in the year-ago quarter. Rates for ultra-deepwater rigs came in at $337k, down from $440k in the year-ago period, as the company likely worked through contracts that were signed more recently at lower rates. That said, Transocean has noted that day rates for ultra-deepwater drillships were likely to increase through 2019 and 2020.

Backlog Rises On Improving Contracting Activity And Acquisitions

The ultra-deepwater market is recovering, and the company has indicated that final investment decisions (FID) by oil and gas companies in 2019 could increase materially compared to the last year. Although crude oil prices have been volatile, Transocean says that recent cost improvements and reduced cycle times should make offshore projects less risky for consumers. Transocean has made good progress on the contracting front over the last year, securing a total of 37 new floater contracts, roughly double what it booked in 2017. Transocean has been focusing on upgrading its fleet over the last year, and via the acquisitions of Songa Offshore and Ocean Rig, the company added roughly $4.5 billion of high-margin backlog. The company’s total contract backlog stands at $12.2 billion, per its February 2019 Fleet Status report.

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