Transocean's (RIG) Q3 Earnings & Revenues Beat Estimates

Offshore drilling major Transocean Ltd. (NYSE:RIG) reported better-than-expected third-quarter 2017 results, buoyed by solid revenue efficiency, higher utilization and lower costs. This quarter, the company achieved revenue efficiency of 97.1%. The company is on track to achieve its ambitious target of an impressive revenue efficiency of 95% through 2019.

Moreover, fleet utilization improved 8%. Transocean also managed to lower its operating costs further.

Transocean’s earnings per share — after adjusting for impairment associated with the retirement of six floaters, acquisition costs regarding Songa Offshore, and other items — in the quarter were 16 cents. The Zacks Consensus Estimate had predicted a loss of 4 cents per share. However, the bottom line decreased from year-ago adjusted earnings of 25 cents per share due to lower dayrates.

Total quarterly revenues of $808 million were down 10.5% year over year on lower dayrates but surpassed the Zacks Consensus Estimate of $704 million.

Transocean’s high-specification floaters contributed about 88.3% to total contract drilling revenues, while deepwater floaters, midwater floaters, high-specification jackups and others accounted for the remainder.

Costs

Thanks to the aggressive cost reduction programs, Transocean was able to reduce its operating and maintenance expenses by an impressive 21% to $323 million year over year. The cost discipline, coupled with lower capital expenditure, enabled the company to generate $384 million in cash flow from operating activities, up from last quarter’s $319 million but down from the year-ago quarter’s $440 million.

Dayrates and Utilization

Compared with the third quarter of 2016, dayrates fell 3.9% (from $332,100 to $319,000), unfavorably impacted by declines in all types of rigs barring high-specification jackups.

Overall fleet utilization was 52% during the quarter, up from the year-ago utilization rate of 49%.

Capital Expenditure & Balance Sheet

While Transocean had spent $246 million as capital expenditure in the third quarter of 2016, the amount came down sharply to just $128 million in the quarter under review. The lion’s share of this was spent on the newbuild program.

As of Sep 30, 2017, Transocean had cash and cash equivalents of $2,717 million. Long-term debt of the company was $6,501 million with a debt to capitalization ratio of 33.7%.

About the Company

Switzerland-based Transocean is one of the world’s largest offshore drilling contractors and leading providers of drilling management services. Its drilling fleet consists of 40 high-specification deepwater floaters, six mid-water floaters, and 10 high specification jackups. Transocean's fleet is considered one of the most modern and versatile in the world due to its emphasis on technically demanding segments of the offshore drilling business.

Price Performance

Transocean has gained 30.7% in the third quarter of 2017 compared with 8% growth of its industry.

Zacks Rank and Stocks to Consider

Transocean has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the oil and energy sector are Braskem S.A. (NYSE:BAK) , Par Pacific Holdings, Inc. (NYSE:PARR) and Northern Oil and Gas, Inc. (NYSE:NOG) . Braskem and Par Pacific sport a Zacks Rank #1 (Strong Buy), while Northern Oil and Gas has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Braskem’s 2017 earnings are expected to grow 12.1% year over year. The company delivered a positive earnings surprise of 68.5% in the second quarter of 2017.

Par Pacific’s sales for the third quarter of 2017 are expected to increase 28.5% year over year. The company delivered an average positive earnings surprise of 195.3% in the last four quarters.

Northern Oil and Gas’s sales for the third quarter of 2017 are expected to increase 9.6% year over year. The company delivered an average positive earnings surprise of 66.7% in the last four quarters.

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