|Bid||0.00 x 3000|
|Ask||0.00 x 3000|
|Day's Range||13.26 - 13.58|
|52 Week Range||7.20 - 14.34|
|PE Ratio (TTM)||N/A|
|Forward Dividend & Yield||N/A (N/A)|
|1y Target Est||N/A|
U.S. stock futures are rising once again, as Wall Street recovers from another salvo in the U.S./China trade war. Stocks plunged yesterday after President Donald Trump pushed for another $200 billion in fresh tariffs on Chinese imports. Today, Wall Street is more focused on inflation data.
Moody's Investors Service, ("Moody's") assigned a B1 rating to Transocean Pontus Limited's (a wholly owned indirect subsidiary of Transocean, Inc.) proposed new $600 million secured notes due 2025 (Pontus Notes). The Pontus Notes issuance does not change Transocean Inc.'s (Transocean) existing ratings including the B3 Corporate Family Rating (CFR), Ba3 revolving credit facility rating, the ratings on the unsecured notes and the SGL-1 Speculative Grade Liquidity rating.
Analyst Biju Perincheril covers the exploration and production side of the sector, and he cut his rating on Oasis Petroleum to Neutral from Positive, with a $14 price target. The move is part of his pre-earnings look at the oilfield-services industry, as he anticipates that companies will have "more positive commentary on both the offshore-drilling and capital-equipment sectors." As such, he boosted his rating on Transocean for more leverage to the offshore-drilling sector, which he believes is on the upswing after several years of declines.
For drilling stocks like Transocean Ltd (NYSE:RIG), the past few years have shown just how risky the sector can be. RIG stock has dropped 72% in the past five years — and 91% in the last ten. Peers Noble Corporation PLC (NYSE:NE), Ensco PLC (NYSE:ESV), and Diamond Offshore Drilling Inc (NYSE:DO) are also having a tough time.
US crude oil August futures have gained nearly 8.6% since June 25, which we discussed in the previous part of this series. US crude oil prices are near a 3.5-year high. In the week ending June 29, the oil rig count fell by four from the previous week to 858. However, active rigs were just five less than the highest level in more than three years despite the fall. The US oil rig count tends to follow US crude oil prices with a three to six-month lag.
The offshore driller announced it is emerging from Chapter 11, and the market is finally applying a more realistic valuation to its shares. Keep reading to find out what's happening.
Transocean (RIG) is the third-best-performing stock on a YTD (year-to-date) basis among its peers. Transocean is behind Seadrill (SDRL) and Noble (NE). Transocean stock has risen 24.5% YTD (year-to-date) as of June 27. Seadrill and Noble’s YTD returns are 50.7% and 35.8%, respectively.
Last week Transocean (RIG) said it would retire some old rigs, although the company's far from the only oilfield-services company with uncompetitive rigs. At the time, Bernstein's Colin Davies wrote that rigs that came on line before the most recent massive build cycle were obviously outdated. Continuing on that theme today, he writes that by contrast the highest-quality rigs attract "materially higher utilization within a category." Most categories see the best rigs snagging 10% to 20% higher utilization rates, with the effect most pronounced in the jackup market, where the very best rigs are over 80% utilized, "getting to a point where rig rates will begin to inflect." That's in painful contrast to the lower-specification jackups, which are mired in mid-50% utilization and "largely immune to the improving jackup trend.
On June 21, Jefferies raised Transocean’s (RIG) target price to $15 and maintained a “buy” rating for the stock. On June 7, HSBC raised its target price for Transocean (RIG) to $15.20 from $11.80 and maintained a “buy” rating on the stock. On June 5, Bernstein raised its target price to $12 from $11.
On June 27, the EIA (U.S. Energy Information Administration) released its weekly gasoline inventory data. The EIA reported that US gasoline inventories increased by 1.2 MMbbls (million barrels) to 241.2 MMbbls on June 15–22. The inventories also increased by 224,000 barrels or 0.1% from a year ago.
Moody's Investors Service, ("Moody's") assigned a Ba3 rating to Transocean, Inc.'s (Transocean) new $1 billion senior secured revolving credit facility and a B1 rating to Transocean Guardian Limited's (a wholly owned indirect subsidiary of Transocean) proposed senior secured notes due 2024 (Guardian Notes). The proceeds from the notes issuance in combination with Transocean's cash will be used to refinance existing debt secured by Songa Offshore SE's (Songa) Songa Encourage and Songa Enabler.
Shell (RDS.A) committed to the Fram gas field in the North Sea, Baytex Energy (BTE) agreed to buy Raging River Exploration and Petrobras (PBR) lost a wage dispute.
Baker Hughes, a GE Company (BHGE), released its US natural gas rigs report on June 22. Baker Hughes reported that US natural gas rigs fell by six to 188 on June 15–22—the lowest level since March 9. However, the rigs increased by five or ~2.7% year-over-year.
In Week 25, which ended on June 22, Jefferies downgraded one offshore driller and revised the target prices for others.
In the week ending June 22, the oil rig count fell by one from the previous week to 862. Active rigs were still near the highest level in more than three years despite the fall. The US oil rig count tends to follow US crude oil prices with a three to six-month lag.
We discussed analysts’ recommendations in the previous part of this series. Now, we’ll compare analysts’ estimates for five offshore drilling (XLE) companies’ revenues and EBITDA in the second quarter.
Previously in this series, we discussed offshore drilling (OIH) companies’ first-quarter EBITDA. In this part, we’ll discuss their free cash flow profiles. The “free cash flow” is the operating cash flows minus the capital expenditure.
In the first quarter, Transocean’s (RIG) drilling revenues were $664 million—5.5% higher than its revenues of $629 million in the previous quarter and 11.2% lower than its revenues of $748 million in the first quarter of 2017. Transocean was the only company among its peers that saw higher revenues from the fourth quarter. Transocean expects its second-quarter revenues to increase 14% from the first quarter.
Since the downturn started, offshore drilling companies have had a hard time securing contracts. Offshore drilling companies are utilizing their backlogs quicker than they’re replenishing them through new contracts. The decline in the company’s backlog was due to realized revenues during the first quarter, which were partially offset by contract extensions and new contract awards.
ExxonMobil (XOM) is set to collaborate on a pipeline to ease the Permian glut, Chevron (CVX) starts production at second Wheatstone LNG train and Transocean (RIG) will retire four rigs.