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Transocean's (RIG) Q2 Earnings Break Even, Revenues Rise Y/Y

Zacks Equity Research

Transocean Ltd. RIG reported break-even earnings for second-quarter 2020. The Zacks Consensus Estimate was pegged at a loss of 27 cents per share. Also, in the year-ago quarter, the company incurred a loss of 34 cents per share. This outperformance reflects improving utilization and higher revenue efficiency.

Meanwhile, the offshore drilling powerhouse generated total revenues of $930 million, beating the Zacks Consensus Estimate of $757 million and also the prior-year figure of $758 million, primarily on proceeds from a legal settlement with a customer.

Segmental Revenue Break-Up

Transocean’s Ultra-deepwater floaters contributed to 68.4% of 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 $636 million and $293 million each, indicating a respective 31% and 16.7% improvement from the year-ago reported figures of $486 million and $251 million, respectively.

Revenue efficiency was 97.2%, higher than 94.4% reported sequentially. The figure, however, declined from the year-ago value of 97.8%.

Dayrates and Utilization

Average dayrate in the quarter fell to $307,800 from the year-ago level of $314,900. The company witnessed weak year-over-year average revenues per day from both Midwater floaters and Harsh environment floaters. Overall, fleet utilization was 66% during the quarter, up from the prior-year utilization rate of 56%.

Backlog

Transocean’s backlog record at $8.9 billion as of July reflects a decline of $2.5 billion from the year-ago figure.

Transocean Ltd. Price, Consensus and EPS Surprise

Transocean Ltd. Price, Consensus and EPS Surprise
Transocean Ltd. Price, Consensus and EPS Surprise

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

Costs, Capex & Balance Sheet

Operating and maintenance costs increased to $525 million from $510 million a year ago. The company spent $46 million as capital investment in the second quarter. Cash provided by operating activities totalled $87 million. The company had cash and cash equivalents worth $1.51 billion on Jun 30, 2020. Long-term debt was $8.48 billion with debt-to-capitalization of 43.6% as of the same date.

Guidance

For the third quarter, the company expects adjusted contract drilling revenues to be $800 million with a revenue efficiency of 95%.

Third-quarter operating and maintenance expense is projected to be approximately $500 million. Further, the company projects its G&A expense for the current quarter to be approximately $45 million.

Meanwhile, capital spending for the third quarter comprising capitalized interest is predicted to be almost $80 million, consisting of roughly $50 million for the newbuild drillships under construction and the remaining $30 million for maintenance. Further, management added that it eliminated certain onshore positions — expecting lower activity for this year and the next — to save $80 million in annual costs.

Zacks Rank & Key Picks

Transocean currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the energy space are Halliburton Company HAL, Core Laboratories NV CLB and Pembina Pipeline Corp PBA, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Transocean Ltd. (RIG) : Free Stock Analysis Report
 
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