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Transocean Posted Negative Returns, but Beat Industry Average

Alex Chamberlin

Which Oilfield Service Companies Are Shining amid Energy Gloom?

Four OFS companies

In this series, we’ll compare four US oilfield services and equipment (or OFS) companies: Transocean (RIG), Ensco (ESV), Oceaneering International (OII), and Oil States International (OIS). The market capitalizations of these companies do not exceed $6 billion but are larger than $1.5 billion.

OFS companies assist exploration and production (or E&P) companies at various stages across the entire process of searching and producing oil and gas. This can range from the analysis of exploration wells all the way to the equipment used in lifting and transporting the energy produced from these wells.

Returns analysis

Transocean has done better than its peers since January 1, 2015. The company provides offshore contract drilling services for oil and gas wells. Since January 1, its stock has returned a negative 15%. RIG makes up 3.9% of the Market Vectors Oil Services ETF (OIH). In the past one year, OIH has returned negative 16%. OIH is an ETF that tracks an index of 25 listed OFS companies.

Oceaneering International provides engineered services and products to offshore energy producers. Its products and services include remotely operated vehicles (or ROVs) and specialty subsea oilfield products. OII also performs oilfield hardware installation and inspection, maintenance, and repair services. OII returned a negative ~24% year-to-date.

Oil States International provides specialty offshore equipment and well site services to the upstream energy companies. It has onshore and offshore operations in the US and around the world. Since January 1, its stock has returned a negative ~39%. Ensco, an offshore contract driller for oil and gas wells, has returned a negative ~41%. OII, OIS, and ESV have underperformed OIH year-to-date.

Why did returns vary?

The slump in the US rig count, which started in October 2014, has negatively affected the OFS sector. Investment cuts by upstream companies have reduced OFS companies’ revenues. Reports from Barclays Research and Deloitte University Press suggest further exploration and spending cuts of 20% to 30% globally in 2015 and 2016, compared to 2014.

Some of the OFS companies in the group have more diversified operations than others. Many companies in the contract drilling business recorded lower day rates and lower utilization of their floater assets. Day rate is what the rig contractor receives from an upstream energy company for operating a drilling rig.

Next, we’ll compare the 3Q15 changes in these companies’ revenues.

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