How Are Transocean’s Key Metrics Expected To Trend?

Transocean (NYSE:RIG), the largest offshore driller, faced significant headwinds over the last 4 years as the downturn in the oil market reduced demand for high-cost, long-lifecycle offshore projects.  Over the last several quarters, the company has been upgrading its fleet to focus on the more lucrative harsh-environment and high-specification ultra-deepwater rigs, via the acquisition of Songa Offshore and Ocean Rig.  While contracting activity has improved in the ultra-deepwater space, with about 66 rigs working in May, up from about 57 at the end of last year per Bassoe Offshore, the pricing environment has remained subdued as the market remains oversupplied. In this analysis, we take a look at how Transocean’s key operating metrics are expected to trend in the near-term and how it could impact the company’s bottom line.

View our interactive dashboard analysis on How Are Transocean’s Key Metrics Expected To Trend? You can modify the key drivers to arrive at your own estimates for the company’s revenues and earnings.

Effective Annual Rig Count

• Transocean’s effective annual rig count represents the average number of rigs that are functioning over the year.
• The metric fell from around 80 in 2014 to about 47 in 2018, as the company scrapped older and less capable rigs, while focusing on newer drillships and harsh-environment rigs.
• We expect the metric to trend higher over the next few years, driven by the company’s recent acquisitions.

Utilization rates

• The utilization rate represents the total number of revenue earning days as a percentage of the total number of days in the period for the company’s fleet.
• Utilization levels dropped sharply between 2014 and 2016, driven by the downturn in the offshore markets following the oil price decline.
• However, Transocean has been focusing on bolstering and upgrading its fleet to make it more competitive under current market conditions.

Average daily revenues

• Day rates represent the revenues earned by Transocean each day on a rig under-utilization.
• The metric declined from about $410k to $296k between 2014 and 2018, as the company executed on lower-priced contracts that it signed in an oversupplied market.
• While Transocean expects the pricing environment to pick up in the interim, progress has been somewhat slow thus far. For instance, the company recently contracted its Ocean Rig Corcovado drillship at a day rate of ~ $195k and the Mykonos drillship at a day rate of ~ $215k.

Estimating Total Revenues

Estimating Adjusted Net Income 

• We expect net margins to recover and turn positive by 2021, aided by cost-cutting and potentially higher day rates.
• However, the company’s mounting interest expenses and re-activation costs for rigs could keep it from achieving profitability in the near-term.

What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs

For CFOs and Finance Teams | Product, R&D, and Marketing Teams

More Trefis Data

Like our charts? Explore example interactive dashboards and create your own.