Transocean Beats on Q3 Earnings, Revs

Zacks

Offshore drilling giant, Transocean Ltd. (RIG), reported better-than-expected third-quarter 2013 earnings, supported by improved rig utilization.

Earnings per share (excluding special items) came in at $1.37, comfortably surpassing the Zacks Consensus Estimate of $1.06.

However, the figure decreased 2.1% from the year-ago adjusted profit of $1.40 per share. Elevated operating and maintenance costs dampened the result.

Revenues

Total quarterly revenue of $2,558.0 million came ahead of the Zacks Consensus Estimate of $2,481.0 million. Moreover, revenues were up 5.2% from $2,431.0 million reported in the year-ago period. Increased average dayrates from high-specification floaters, high-spec jackups and midwater floaters aided the results.  

Transocean's high-spec floaters contributed approximately 71.2% to the total revenue, while mid-water floaters and high-spec jackup rigs accounted for 16.4% and 6.1%, respectively. The remaining revenues came from other rig activities, integrated services and others.

Operating Statistics

Transocean posted operating income of $742.0 million during the quarter, down 8.5% from $811.0 million in third-quarter 2012.

Total operating and maintenance expenses increased 12.9% to $1,491.0 million.

Dayrates & Utilization

Total average dayrates have increased to $392,400 in the reported quarter as compared to $376,200 in the third quarter of 2012. The improvement can be attributed to higher dayrates from all classes of contracted rigs.

Overall fleet utilization was 83%, up from the year-ago utilization rate of 80%.

Capital Expenditure & Balance Sheet

Capital expenditures during the quarter totaled $450.0 million.

As of Sep 30, 2013, Transocean had cash and cash equivalents of $3,559.0 million and long-term debt of $10,388.0 million (representing a debt-to-capitalization ratio of approximately 39.0%).     

Agreement

In a separate press release, Transocean reported that it has entered into a deal with Keppel FELS Limited.

Per the agreement, Keppel will manufacture five Super B 400 Bigfoot Class jackup drilling rigs at its shipyard. Transocean anticipated total cost to be roughly $1.2 billion.

Transocean expects the delivery of the first rig by the first quarter of 2016, while the rest of the four rigs will be delivered at an interval of four months.  

Zacks Rating

Transocean generates a substantial portion of its total revenue and earnings from international markets, exposing itself to risks associated with global operations.

Moreover, while Transocean has settled a host of civil/criminal claims associated with the 2010 Deepwater Horizon rig disaster, it can still be held responsible for certain punitive damages and required to pay compensation.

Transocean currently retains a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at better performing oil and gas drilling firms like Ocean Rig UDW Inc. (ORIG), Helmerich & Payne Inc. (HP) and Tesco Corporation (TESO) that offer value. Ocean Rig sports a Zacks Rank #1 (Strong Buy) while Helmerich & Payne and Tesco carry a Zacks Rank #2 (Buy).

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