Seadrill And Transocean: Complete Fleet Analysis Comparison And Commentary

Jun. 9.14 | About: Transocean Ltd. (RIG)

Summary

Transocean Limited and Seadrill Limited are two top-tier offshore drillers that together control a total of nearly 15% of the rigs contracted worldwide.

A comparative detailed analysis of their fleet is showing their major differences and their obvious strengths and weaknesses.

The day rate bifurcation between the new generation and the older rig types is showing clearly which strategy will offer them a strong future growth.

Introduction.

Seadrill Limited (NYSE:SDRL) and Transocean Limited (NYSE:RIG) are two top-tier offshore drilling companies that are very popular among investors. There are a few others, and we should mention also Noble (NYSE:NE), Ensco (NYSE:ESV), Diamond (NYSE:DO), Atwood (NYSE:ATW), which own a sizable fleet, spread between the floaters and the jackups.

This study will be focusing primarily on the nature and size of the fleet they own now. It is a comparison that I will try to conduct most objectively. Of course, this exercise is difficult because it necessitates special technical skills and knowledge to be able to compare the rig's specifications correctly.

I have been writing many articles about this Industry and covered most of the well-known offshore drilling companies, large and small, that can be traded in the US markets.

This article does not pretend to cover the entire aspects of the valuation process; however, it is a well-documented article that will give an honest look at the company's fleet to a potential new investor. Often, "finance guys" overlook this side which is not really understood, and they rely on financial metrics only, easier to manipulate. It can be very misleading without a wide understanding of each technical part of the offshore drilling Industry.

It is important to look at these two top-tier companies, which are comparable in size, revenues and even strategy to understand the nature of their business model, which is both complicated (financing, associated companies...) and simple at the same time (basically a contracting provider to the big-oil companies.)

Classification.

This subject is important because it will set the day rate and future contracting potential.

Rigzone is given a general classification based on eight main rig types:

  1. Drill barges (48/25.) ESV owns a few of them, however RIG and SDRL are not involved in this type of rig.
  2. Drillships (174/93.)
  3. Inland barges (70/12.) Bay Water drilling LLC owns few, but RIG and SDRL are not involved.
  4. Jackups (654/394.)
  5. Platform rigs (249/136.)
  6. Semi-submersibles (248/171.)
  7. Submersibles (2/0.) Noble Corp. Owns the two rigs and are both cold stacked.
  8. Tender (48/22.) SDRL owns two tenders and one semi-tenders through its 8.2% stake in SanuraKapura.

It is a total of 1,493 rigs in which 853 are actually contracted (57.13%), and the others are either cold stacked, ready stacked, under inspection, undergoing a work over, en route to a new destination or under-construction.

Here is what the two companies own, based on these basic types:

Company

Drilling

RIG

RIG

Cold-Ready Stacked/Insp. /Workover/En route

Under Const.

Drilling

SDRL

SDRL Cold-Ready Stacked/Insp. /Workover/En route Under Const.
Drillships 22 31 0 9 6 18 2 10
Semi-subs 30 50 20 0 15 19 1 3
Jackups 11 17 1 5 21 29 0 8
Tenders 0 0 0 0 3 3 0 0
TOTAL 63 98 18 14 45 69 2 13
Click to enlarge

Note 1: Rigzone is indicating more rigs than the Transocean website due to several cold stacked rigs. Particularly the C kirk Rhein Jr, Falcon 100, Sedco 703, Sedco 709 and Sedneth 701 in semi-submersibles.

Note 2: SDRL has two Drillships, the West Tellus, which is ready stacked (West Africa) and the West Neptune enroute to GOM.

Note 3: SDRL semi-sub, the West Alpha from NADL is currently under Inspection.

According to Rigzone, Transocean Limited and Seadrill Limited's combined fleet contracted represents a total of over 15%, if we add the rigs under-construction already contracted for 2015 to 2017.

Seadrill Associated companies:

  1. Seadrill Partners, LLC (NYSE:SDLP): SDRL owns 39,635,400 shares or 53.2% (Majority holder.) Which represents a gross value of $1.33 billion as of June 4, 2014.
  2. North Atlantic Drilling (NYSE:NADL): SDRL owns 169,663,723 shares or 70.36% (Majority holder.) Which represents a gross value of $1.83 billion as of June 3, 2014.
  3. Archer Ltd. Listed on the Oslo exchange (ARCHER.OS): SDRL owns 231,053,239 shares or about 40% of the company. On February 21, 2014, Archer announced an impairment charge of $430 million, which impaired subsequently SDRL fourth-quarter revenues. SDRL stake in the company represents $385 million as of June 4, 2014.
  4. Sevan Drilling ASA listed on the Oslo exchange (SEVDR.OS): SDRL owns 50.11% of the total company representing a gross value of $162 million as of June 4, 2014. (Trades at 3.25NOK or $0.541)
  5. SapuraKencana Petroleum BHD listed on the Malaysian exchange: SDRL owns 490 million shares of the company representing about 8.2%, which is a gross value of $621 million as of June 4, 2014. ($=3.235 MYR and Sapura trades at 4.10 Myr or $1.267.)
  6. Fintech and SDRL formed the "Seamex" joint venture in February 2014, to acquire, operate and manage jackups drilling rigs and enter long-term charter agreements with Petroleos Mexicanos ("PEMEX".) It involves five jackups in the GOM for six years. I will not include this joint venture in my table.
Associated Co. SDLP NADL Archer Ltd. Sevan Drilling

Sapura

Kencana

The shares owned by SDRL

Million

39.64 169.66 231.05 113 490
% owned 53.2 70.36 39.9 50.11 *8.2
Gross value $ Billion 1.33 1.83 0.385 0.162 0.621
Click to enlarge

* After selling $300 million in shares this quarter.

Total value of SDRL associated companies is $4.33 billion as June 4, 2014. Seamex JV is not included.

Transocean Limited future company spin-off.

The carrying amounts associated with RIG consolidated variable interest entities is $1.178 billion.

Angola Deepwater Drilling Company Limited (ADDCL), a consolidated Cayman Islands company, and Transocean Drilling Services Offshore Inc. (TDSOI), a consolidated British Virgin Islands company, are variable interest entities for which RIG is the primary beneficiary.

RIG intends to create a new entity this quarter:

Caledonia Offshore Drilling Company -During the second half of the year ending December 31, 2014, we intend to pursue the creation of a new entity, to be named Caledonia Offshore Drilling Company ("Caledonia"), comprising eight of our U.K. North Sea Midwater Floaters.

Fleet analysis: Details and comparison of the three main segments.

Note: If you click on the Rig name, you will have The Rigzone specification of the rig picked.

1 - Drillships.

RIG

Rig Name

Year

Built

Contract

End

Day

rate

$K

SDRL

Rig Name

Year

Built

Contract

End

Day rate

$K

Deepwater Asgard 2Q2014 2Q2017 600 West Navigator 2000

9/14

10/14-12/14

589

621

Deepwater Champion 2010 11/15 677 Camburi 2016 Available -
Deepwater Conqueror 2016 4Q16-4Q21 599 Itaunas 2017 Available -
Deepwater Discovery 2000 7/14 461 Sahy 2019 Available -
Deepwater Expedition 1999 11/14 650 West Aquila

4Q

2015

Available -
Deepwater Frontier 1999 8/14 565 West Auriga 2013 10/20 565
Deepwater Invinctus 2014 2Q14-2Q17 595 West Capella 2008 4/17 627.5
Deepwater Millenium 1999

4/15

4/15-4/16

600

611

West Carina

3Q

2015

Available -
Deepwater Navigator 1971 2/16 374 West Dorado

4Q

2015

Available -
Deepwater Pathfinder 1998 4/15 680 West Draco

4Q

2015

Available -
Deepwater Pontus 2016 1Q17-4Q26 519 West Gemini 2010 10/17 456
Deepwater Poseidon 2016 2Q17-2Q27 519 West Jupiter

4Q

2014

12/19 600
Deepwater Proteus 2016 2Q16-2Q26 519 West Libra

4Q

2015

Available -
Deepwater Thalassa 2015 1Q16-4Q21 519 West Neptune

2Q

2014

10/14

10/14-10/17

Mobilization

570

Dhirubhai DW KG1 2009 7/14 510 West Polaris 2008 4/17 627.5
Dhirubhai DW KG2 2010 2/15 510 West Saturn

3Q

2014

Soon to be rented -
Discoverer Americas 2009 3/16 735 West Tellus 2013 7/14 635

Discoverer Clear Leader

2009

9/14

9/14-9/18

571

590

West Vela 2013 11/20 565
Discoverer Deep Seas 2001 11/16 595
Discoverer Enterprise 1999 10/14 615
Discoverer India 2010

9/16

9/15-11/20

528

508

Discoverer Inspiration 2009

3/15

4/15-4/20

527

585

Discoverer Luanda 2010 1/18 470
Discoverer Seven Seas 1976

7/14

7/14-9/14

500

400

Discoverer Spirit 2000 6/14 557
GSF CR Luigs 2000 6/14 580
GSF Explorer 1998 7/14 412
GSF Jack Ryan 2000 7/14 445
Petrobas 10000 2009 8/19 435
Espadon TBN1 2017 Available -
Espadon TBN2 2018 Available -
Click to enlarge

2 - Semi-submersibles.

RIG

Rig

Spec.

Year

Built

Contract

End

Day

rate

$K

SDRL

Rig

Spec.

Year

Built

Contract

End

Day Rate

$K

Actinia Gen 3rd 1982 7/15 190 West Alpha

NADL

Gen 4th-HE

1986

7/16

8/16-7/17 option

537

547

C Kirk Rhein Jr. Gen 2nd 1976 Cold Stacked - West Hercules

NADL

Gen 6th-HE

2008

1/17

1/17-1/18 option

497

497

Cajun Express

Gen 5th

HS

UltraDeep

2000

11/14

11/14-11/15

600

495

West Phoenix

NADL

Gen 6th-HE

2008 10/15 464
DeepWater Nautilus

Gen 5th

HS

UltraDeep

2000 8/17 533 West Rigel

NADL

Gen 6th-HE

2Q

2015

Available -
Development driller III Gen 6th 2009 11/16 428 West Venture

NADL

Gen 5th HE

2000 7/15 441
Falcon 100 Gen 2nd 1974 Ready Stacked - Sevan Brasil Gen 6th 2012 7/18 399
GSF Aleutian Key Gen 2nd 1976 Cold Stacked - Sevan Developer Gen 6th-BE

3Q

2014

Available -
GSF Arctic I Gen 3rd 1983 Cold Stacked - Sevan Driller Gen 6th-BE 2009 5/16 420
GSF Arctic III Gen 3rd 1984 9/14 411 Sevan Louisiana Gen 6th-BE 2013 1/17 505
GSF Celtic Sea Gen 4th 1998 9/14 328 West Aquarius Gen 6th-HE 2009

10/15

10/15-4/17

540

615

GSF Development Driller I Gen 6th 2005 Ready Stacked - West Capricorn Gen 6th-BE 2011

9/17

9/17-8/19 option

496
GSF Development Driller II Gen 6th 2005

Enroute

Black Sea

- West Eclipse Gen 6th-BE 2011

1/15

1/15-1/16 option

1/16/1/17 option

450

455

455

GSF Grand Banks Gen 2nd 1984 9/15 409 West Eminence Gen 6th-HE 2009 7/15 624
GSF Rig 135 Gen 3rd 1983 9/15 365 West Leo Gen 6th-HE 2012 6/18 605
GSF Rig 140 Gen 3rd 1983

9/14

Ready Stacked

260

-

West Mira Gen 6th-HE

1Q

2015

6/15/6/20 590
Henry Goodrich Gen 4th-HE 1985 6/15 346-476 West Orion Gen 5th-BE 2010 7/16 625
J W McLean Gen 2nd 1974 Cold Stacked - West Pegasus Gen 6th-HE 2011

8/14

8/14-8/16

555

MR

Jack Bates Gen 4th-HS 1986 Ready stacked - West Sirius Gen 5th-BE 2008

7/14

7/14-7/19

490

535

M G Hulme Jr. Gen 3rd 1983 Inspection - West Taurus Gen 6th-BE 2008 2/15 657
Paul B Loyd Jr. Gen 4th-HE 1987 3/15 445
Sedco 601 Gen 2nd 1983 Cold Stacked -
Sedco 700 Gen 3rd 1973 Cold stacked -
Sedco 702 Gen 3nd-HS 1973 2/16 461
Sedco 703 Gen 2nd 1974 Cold Stacked -
Sedco 704 Gen 2nd 1974 2/16 374
Sedco 706 Gen 2nd-HS 1976 Inspection -
Sedco 707 Gen 4th-HS 1976 11/14 394
Sedco 709 Gen 2nd 1977 Cold Stacked -
Sedco 710

Gen 3rd-HS

1983 Cold Stacked -
Sedco 711 Gen 3rd 1982

6/14

6/14-10/15

350

366

Sedco 712 Gen 3rd 1983 4/16-10/16 409
Sedco 714 Gen 3rd 1983

Inspection

8/15-2/16

-

445

Sedco Energy

Gen 5th

2000 Ready Stacked -
Sedco Express Gen 5th 2000

4/14

4/14-10/14

600

455

Sedneth 701 Gen 2nd 1973 Cold Stacked -
Sovereign Explorer Gen 3rd-HS 1984 Cold Stacked -
Transocean Amirante Gen 3rd 1981

Ready Stacked

-
Transocean Arctic Gen 4th-HE 1986 1/16 415-519
Transocean Barents Gen 6th-HE 2009

8/14

8/14-8/15

587

587

Transocean Driller Gen 3rd 1991 7/16 264
Transocean John Show Gen 3rd 1982

12/14

12/14-12/15

361

416

Transocean Leader Gen 4th-HE 1987 7/16 264
Transocean Legend Gen 3rd 1983 11/14 425
Transocean Marianas Gen 4th 1998 3/15 370
Transocean Polar Pioneer

Gen 4th-HE

1985 7/14-6/17 620-589
Transocean Prospect Gen 3rd 1983 5/15 396
Transocean Rather Gen 4th-HS 1987 Cold Stacked -
Transocean Searcher Gen 3rd 1983 5/15 396
Transocean Spitzbergen Gen 6th-HE 2009 7/15 547
Transocean Winner Gen 3rd 1983

7/15

7/15-7/16

458

499

Click to enlarge

HS= High Specification. HE= Harsh Environment.

3 - Jackups and other rigs.

RIG

Rig Name

Spec.

Year

Built

Contract

End

Day

rate

$K

SDRL

Rig Name

Spec.

Year

Built

Contract

End

Day Rate

$K

GSF Constellation I

400'/30k'

HS

2003 1/16 150 West Elara

NADL

Heavy-Duty HE

2011 3/17 360
GSF Constellation II

400'/30k'

HS

2004 7/15 165 West Epsilon

NADL

Heavy-Duty HE

1992 12/16 286
GSF Galaxy I

400'/30k'

HS

1991 Workover - West Linus

NADL

Heavy-Duty HE

2014

5/19

5/19-5/21 option

375

375

GSF Galaxy II 400'/30k' 1998

6/14

6/14-1/15

192

221

AOD I

BE

2013

5/16

5/16-5/17 option

180

205

GSF Galaxy III

400'/30k'

HS

1999

5/14

5/14-7/17

226

180

AOD II BE 2013

6/16

6/16-6/17 option

180

205

GSF Magellan

350'/30k'

HS

1992 For sale - AOD III BE 2013

10/16

10/16-10/17 option

180

205

GSF Monarch

350'/30k'

HS

1986

9/14

9/14-3/15

167

169

West Ariel BE 2008

8/14

8/14-8/15

Mob.

220

GSF Andaman

350'/35k'

HS

2013 5/16 145 West Callisto BE 2010

11/15

11/16 option

150

150

GSF Ao Thai 350'/35k'
HS
2013 9/18 135 West Castor BE 2013 5/16 155
GSF Honor 400'/30k' 2011 4/15 153 West Courageous BE 2007

7/14

7/14-5/21

Transit

155.5

RIG TBN1

400'/35k'

KFELS-HS

2016 - - West Cressida BE 2008

8/14

129.5

RIG TBN2

400'/35k'

KFELS-HS

2016 - - West Defender BE 2014

6/14

6/14-6/20

Mob.

155.5

RIG TBN3

400'/35k'

KFELS-HS

2016 - - West Dione

BE

2Q2016 Available
RIG TBN4

400'/35k'

KFELS-HS

2017 - - West Freedom BE 2009

6/14

6/14-12/16

187

225

RIG TBN5

400'/35k'

KFELS-HS

2017 - - West Hyperion BE 4Q2015 Available -
Siam Driller

350'/35k'

HS

2013 3/18 139 West Intrepid BE 2009 6/14-1/21 155.5
Trident VI 220' 1981 Cold stacked - West Leda BE 2010 3/15 165
West Mimas

BE

3Q2016 Available -
West Mischief BE 2010

12/14

12/14-4/15

175

195

West Oberon BE 2013 5/20 171.5
West Prospero BE 2007 5/16 156
West Proteus BE 1Q2015 Available -
West Resolute BE 2008

10/15

10/15-10/16 option

140

140

West Rhea BE 3Q2015 Available -
West Telesto BE 2013

7/14

7/14-10/14

10/14-11/14

11/14-3/15

149.5

157

Mob.

265

West Tethys BE 4Q2015 Available -
West Titan BE 1Q2015 Available -
West Titania BE 2014 6/14-6/20 155.5
West Triton BE 2008

8/15

8/15-8/16 option

145

145

West Tucana

BE

2013

10/14

10/14-11/14

11/14-11/16

167

Mob.

220

West Umbriel

BE

1Q2016 Available -
West Vigilant BE 2008 11/14 167
T15 Tender 2013 7/18 122.72
T16 Tender 2013 8/18 121.27
West Vencedor Semi-Tender 2010 3/15 213.93
Click to enlarge

* The tenders T15 and T16 and the semi-tender Vencedor are owned by Sapura Kencana (SDRL owns 8.2%.)

Analyse per segment:

The Drillships.

Both SDRL and RIG have an excellent, modern and efficient fleet. Only two drillships could be a concern for Transocean: the Deepwater Navigator and Deepwater Seven Seas, which are around 40 years old, and will be probably retired after their respective contract expires.

RIG has nine drillships under-construction, now, and will be the base of an excellent revenue after 2015. The situation is even better for SDRL, with its 10 drillships under-construction, and an overall outstanding ultra-modern fleet. Recently, the West Jupiter secured a contract for six years, at a day rate around $600k, and we are still waiting for the news related to the West Saturn.

Both companies enjoy a day rate averaging nearly $600k.

The semi-submersibles.

This sector is obviously different for RIG, which owns a much older fleet than SDRL's State-of-the-Art fleet. Over 20 rigs are not actually contracted, and many have been cold stacked (12). In this segment, the day rate bifurcation between older rigs and the new 5th, 6th and 7th rig generation is an important consideration for a meaningful comparison.

Rig Generation Total Rig 2 3 4 5 6 Harsh Environment
RIG 50 11 20 10 4 5 5(4),(2)6
SDRL 19 0 0 1 3 15 1(4),7(6)
Click to enlarge

* RIG has 11 rigs cold-stacked, 6 ready-stacked, 3 under-inspection and one "en route."

This segment is definitely a weakness for RIG compared to SDRL which owns an ultra-modern fleet. Recently RIG began to change its fleet strategy and mimic more closely SDRL's strategy, by ordering rigs without already an actual contract signed.

Commentary on recent news.

Transocean's new entity, Caledonia Offshore Drilling Co. representing eight of the Transocean's U.K. North Sea Midwater Floaters, is an interesting development for both RIG and perhaps SDRL.

According to Offshore Energytoday.com

The offshore drilling assets currently contemplated for transfer to Caledonia include the following rigs: Sedco 704, Sedco 711, Sedco 712, Sedco 714, Transocean John Shaw, Transocean Prospect, GSF Arctic III and J.W. McLean.

The Caledonia Offshore drilling will control eight older rigs, with two 2nd rig generation and six 3rd rig generation. The age average for these eight rigs is 34 years, which is very old.

SDRL, through its subsidiary NADL, could be interested in the creation of a joint venture, with Caledonia Offshore Drilling. It may allow SDRL/NADL to allocate those older rigs to Rosneft needs soon, while the company can order and receive new rigs safely. The Rosneft deal represents nine offshore rigs for a total of 35 rig years, due to last until 2022.

Rosneft will take a large stake in NADL (up to 49.99%), however, SDRL will keep a majority stake in NADL. Rosneft may involve NADL in onshore drilling inside Russia as well. SDRL/Archer limited may prevent this hypothesis from happening. However, it was worth mentioning here, as a win-win situation for both SDRL and RIG.

Note: North Atlantic is set to drill two wells in 2014 and 2015, in the Arctic Kara Sea for Rosneft's joint venture with Exxon Mobil Corp. (NYSE:XOM).

The Jackups.

Again, SDRL owns a very modern fleet; however, RIG is not far behind in quality metrics, with five new ultra-modern jackups under construction, now, and only one old jackup cold-stacked; the Trident VI.

It is important to add that RIG's fleet size is still notably smaller than SDRL's fleet, despite the new jackups under construction. I believe the company should focus on expanding more because this market sector is not as weak as the floaters' business.

RIG's decision to build five new High Specification jackups and increase its jackups fleet will offer good potential for future growth.

Conclusion:

RIG and SDRL are definitely among the best in the offshore drilling industry. SDRL's fleet is very modern and ideally adapted to today's market model. However, this clear competitiveness has been only possible by contracting a high-level, long-term debt that RIG does not have.

RIG's fleet lags behind, as we can see above, especially in the semi-submersible rig sector. However, RIG's debt level is lower than SDRL and will allow the company to invest more in modern rigs, while retiring a cumbersome aging fleet. Despite the ongoing financial effect of the Macondo incident, still difficult to interpret adequately, I believe RIG presents a good opportunity for the long run, especially at this stock price level, between 41 to 43.

To illustrate this situation between debt level and fleet modernity, we can analyze and compare the ratio EV/EBITDA of both companies. SDRL's debt level related to its modern fleet is one of the highest in the industry and could be misinterpreted as a negative for growth because real EBITDA will lag behind compared to the future potential EBITDA related to the new rigs, not yet contracted and used.

RIG has a ratio EV/EBITDA 2014 around 7, while SDRL has been just above 9 (Using future 2014 EBITDA forecasted by the company, around $10 million per day,) and even 12+, based on the Q1 2014 alone for SDRL.

YTD chart:

SDRL Chart

SDRL data by YCharts

RIG offers a better value, especially after the huge upside that SDRL experienced these recent weeks. However, both companies should be accumulated for the long-term. RIG and SDRL are a BUY for a long investor's perspective.

Disclosure: The author is long RIG, SDRL. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.