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Transocean (RIG) Q3 Loss Narrower Than Expected, Sales Beat

Zacks Equity Research

Transocean Ltd. RIG posted third-quarter 2019 adjusted loss of 38 cents a share, narrower than the Zacks Consensus Estimated loss of 40 cents. Strong revenues from the Ultra-Deepwater and Harsh Environment floaters together with higher dayrates led to this outperformance. However, the bottom line came in against the year-ago earnings of 6 cents due to higher shipyard costs and lower fleet utilization.

Meanwhile, the offshore drilling powerhouse generated total revenues of $784 million, beating the Zacks Consensus Estimate of $780 million. But the top line declined 3.9% from the prior-year figure of $816 million.

Segmental Revenue Break-Up

Transocean’s Ultra-deepwater floaters contributed about 63.01% to total contract drilling revenues while Harsh Environment floaters and Midwater floaters accounted for the remainder. In the quarter under review, revenues from Ultra-Deepwater and Harsh Environment floaters totalled $494 million and $281 million, respectively.

Revenue efficiency was 97%, marginally lower than the second-quarter level. The figure reflected an increase from the year-ago number of 95%.

Dayrates and Utilization

On an encouraging note, average dayrate in the quarter under review rose to $314,500 from the year-ago level of $295,000 owing to an uptick in activity in the Asia Pacific, Brazil and GoM. The company witnessed year-over-year higher average revenue per day from midwater floaters. Overall fleet utilization was 58% during the quarter, down from the prior-year utilization rate of 65%.

Backlog

Transocean’s backlog, which was recorded at $10.8 billion as of October, reflects a decline of $700 million from the year-ago figure. In the third quarter, the company added approximately $130 million to its backlog.

Costs, Capex & Balance Sheet

Transocean’s costs and expenses rose 17.71% year over year to $804 million. Operating and maintenance costs also increased to $547 million from $447 million a year ago. Transocean spent $121 million on capital expenditure in the third quarter. Cash provided by operating activities totalled $91 million, inducing a negative free cash flow of $30 million. The company had cash and cash equivalents of $1.9 billion on Sep 30, 2019. Long-term debt was $9 billion with a debt-to-capitalization ratio of 43.08% as of the same date.

Transocean Ltd. Price, Consensus and EPS Surprise

Transocean Ltd. Price, Consensus and EPS Surprise

Transocean Ltd. price-consensus-eps-surprise-chart | Transocean Ltd. Quote

Guidance

For the fourth quarter, the company expects its adjusted contract drilling revenues to be roughly $825 million. Meanwhile, capital expenses for maintenance are anticipated to be $106 million.

Full-year operating and maintenance costs are predicted to be around $2.1 billion.  Further, the company projects its G&A expense in the range of $175-$185 million.

Zacks Rank & Key Picks

Transocean has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Subsea 7 SA, Inc. SUBCY, Phillips 66 PSX and Sunoco LP SUN, each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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