On Tuesday, Transocean (NYSE:RIG) received a reaffirmation of its Buy rating and $12.00 price target by BTIG. The firm's analyst highlighted the recent contract extension for the Deepwater Asgard drillship as a positive development. The one-year extension in the U.S. Gulf of Mexico (GoM) commands a daily rate of approximately $504,000. Additionally, the contract includes a lump sum payment of around $11 million, effectively raising the overall daily rate to about $534,000.
The extended contract is anticipated to contribute roughly $130 million in EBITDA for Transocean. This agreement follows a series of three short-term contracts, each averaging about three months, with day rates close to $500,000. The analyst noted that this sets a new benchmark for high-end drillship day rates over a one-year term, now surpassing $500,000.
The analyst also pointed out that more spot jobs are expected to be booked in the U.S. GoM for later in the year and into 2025, which could lead to an increase in leading-edge day rates in the region.
However, it was mentioned that near-term awarded multi-year contracts, based on bids from the previous year, are likely to be priced between $450,000 and $475,000. The market may have to wait for contracts with start dates in the second half of 2025 and into 2026 to see multi-year contracts fixed above the $500,000 mark.
The Deepwater Asgard's new contract is set to commence this June, with the customer opting to pay a premium for a high-end drillship. This move by the customer reflects the value placed on having such advanced drilling capabilities available for immediate start.
Transocean's recent contract developments are indicative of the current market dynamics in the offshore drilling industry, particularly in the U.S. Gulf of Mexico. The firm's analysis suggests a positive outlook for the industry, with day rates expected to climb as new contracts are bid and awarded.
InvestingPro Insights
Transocean's recent contract extension for its Deepwater Asgard drillship is a testament to the company's ability to secure high-value contracts in a competitive market. According to InvestingPro data, Transocean has a market capitalization of $5.28 billion and has seen a revenue growth of nearly 10% over the last twelve months as of Q4 2023. Despite the company's significant debt burden, as noted in one of the InvestingPro Tips, the revenue growth indicates a robust demand for its services.
InvestingPro Tips also highlight that Transocean's stock has experienced strong returns over the last month, with a 25.15% increase. This aligns with the positive developments mentioned in the BTIG analyst report. However, analysts have revised their earnings downwards for the upcoming period, and the stock is currently considered to be in overbought territory according to the Relative Strength Index (RSI).
For investors looking for more in-depth analysis, there are additional InvestingPro Tips available that could provide further insights into Transocean's financial health and market position. To access these tips and make more informed investment decisions, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at https://www.investing.com/pro/RIG.
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