Transocean To Retire Six Deepwater Floaters From Its Fleet

Offshore driller Transocean Ltd. (NYSE:RIG) recently announced that it will retire six of its cold stacked floaters. The company expressed its desire to put the rigs up for sale, which can be recycled to be more environment-friendly.

Details

The rigs selected for retirement include a deepwater floater, Transocean Marianas and five ultra-deepwater floaters namely Cajun Express, Deepwater Pathfinder, GSF Jack Ryan, Sedco Energy and Sedco Express. Following the move, Transocean is expected to incur an impairment cost of around $1.4 billion in the third quarter of 2017.

Reason

The retirement of the six deepwater floaters is in line with the company’s strategy of increasing its fleet quality. The removal of old and less competitive rigs will make way for new high-specification assets, making the company’s operations more technically capable. It will provide Transocean’s fleet a competitive advantage. Also, reactivation cost for most of the cold-stacked rigs is high and will face tough competition from the new-build rigs due to the technological gap. Transocean has four ultra-deepwater drillships under construction. Transocean’s recent purchase of Songa, a Norwegian company and top service provider of Statoil (OL:STL) ASA (NYSE:STO) , may have led the company to take the step. Songa’s complementary assets and strong fleet quality will strengthen Transocean’s portfolio.

We would like to remind investors that the company currently has 38 mobile offshore drilling units. Although the move may create a short-term headwind, most analysts believe that it will not affect the company in the long term.

Transocean also divested 15 jack-up drilling rigs to the Norwegian offshore drilling contractor Borr Drilling in July.

About the Company

Switzerland-based Transocean is one of the world’s largest offshore drilling contractors and leading providers of drilling management services. Transocean's fleet is considered one of the most modern and versatile in the industry it belongs to due to its emphasis on technically demanding segments of the offshore drilling business. Its fleet can be broadly divided into three distinct groups based on drilling capabilities: high-specification floaters (semi-submersibles and drill ships), mid-water floaters, and jack-up rigs. The remaining sales come from other rigs, contract intangible revenues, and revenues derived from drilling management services, integrated services, oil and gas properties etc.

However, Transocean’s top line continues to remain under pressure. Like other players in the offshore rig leasing industry, Transocean's revenues have been dropping over the past few years as its old contracts have expired. Due to this, the company has either had to stack those rigs or accept much lower dayrates resulting in a decline in revenues. Continued pressure on commodity prices is the primarily reason for decrease in revenues. While the company is undertaking cost savings initiatives to boost its top line, it will take some time to witness a rebound.

Example of other companies from the same space – following a tough fate – is Seadrill Limited (NYSE:SDRL) . It recently filed for bankruptcy. Also, just a few days ago, Transocean noted that a unit of integrated energy company, Chevron Corporation (NYSE:CVX) terminated a drilling contract early.

4 Stocks to Watch after the Massive Equifax (NYSE:EFX) Hack

Cybersecurity stocks spiked on recent news of a data breach affecting 143 million Americans. But which stocks are the best buy candidates right now? And what does the future hold for the cybersecurity industry?

Equifax is just the most recent victim. Computer hacking and identity theft are more common than ever. Zacks has just released Cybersecurity! An Investor’s Guide to inform Zacks.com readers about this $170 billion/year space. More importantly, it highlights 4 cybersecurity picks with strong profit potential.

Get the new Investing Guide now>>