Transocean - Murphy Oil Terminates The Discoverer Deep Seas And Will Pay Termination Fees.

| About: Transocean Ltd. (RIG)

Summary

Murphy Oil Terminates The Discoverer Deep Seas, 295-day earlier and will pay a lump-sum of approximately $170 million.

The actual rig utilization is now 58% (36 rigs are still working only).

It is hard to stay optimistic for the entire oil industry, which seems to fall in a deep recession. However, I am still confident that Transocean will survive.

Source: Rigzone - Drillship Discoverer Deep Seas - 2001

Transocean Ltd. (NYSE:RIG)

Today, February 8, 2016, Transocean announced the following:

Murphy Exploration & Production Company - USA, a subsidiary of Murphy Oil Corporation, has elected to terminate the contract for the ultra-deepwater drillship Discoverer Deep Seas. The rig`s contract was scheduled to end in November 2016. Transocean will be compensated for the early termination through a lump-sum payment that includes adjustments for operating costs.

The drillship Discoverer Deep Seas was built in 2001, and was supposed to work for Murphy Oil until November 2016, at a day rate of $604k/d in the Gulf of Mexico.

I estimated an early termination of 295-day and a backlog remaining of $178 million. Transocean will probably get a lump-sum of approximately $170 million.

Because, the company is not releasing the monthly fleet status anymore, it is difficult to keep track of what is going on? However, I made an attempt below, and updated the FSR based on what I know since October 2015.

1 - On December 7, 2015:

Statoil elected to terminate the contract for the UDW Discoverer Americas. The contract was scheduled to end in March 2016 at a day rate of $590k/d. Transocean will receive an early termination payment, fully compensating the company as provided for in the contract. I estimated the fee at approximately $55 million.

2 - On December 7, 2015:

The harsh-environment semi-submersible Henry Goodrich was awarded a two year contract with Husky Oil Operations Limited offshore Canada at a day rate of $275,000 per day.

3 - On December 28, 2015:

Shell has elected to terminate the contract for the harsh environment semi-submersible Polar Pioneer prior to its expiration in January 2017, after terminating the Noble Discoverer early December.

4 - On January 7, 2015:

On January 25, 2016, Vaalco Energy announced that it began demobilizing the Constellation II rig operated by Transocean and negotiate early termination fee of approximately $30 million.

5 - A few more rigs rolled off contract recently: Sedco 711, Sedco 702, Dhirrubai KG2, Navigator etc.

This article is an update to my preceding article on Transocean (NYSE:RIG), published on November 6, 2015, regarding the September fleet status.

Complete Fleet Status as of October 26, 2015 (Complement added after the news on February 8, 2016).

To view the most recent fleet status, click here.

1. Rigs Under Construction

# RIG K feet Delivery Contract End

Day Rate

K $

Location
Ultra-deepwater Drillships
1 Deepwater Proteus 12/40 Scheduled delivery 12/15 Q2/16-Q2/26 519

[Shell]

TBA

2 Deepwater Pontus 12/40

Q1/18

Q4/17-Q4/27

519

[Shell]

TBA

3 Deepwater Poseidon 12/40

Q2/18

Q1/18-Q1/28

519

[Shell]

TBA

4 Deepwater Conqueror 12/40 Q4/16 Q4/16-Q4/21 599

[Chevron]

US GOM

5 JSPL Ultra-deep Espadon TBN 1 12/40 2Q'19 Available - -
6 JSPL Ultra-deep Espadon TBN 2 12/40 1Q'20 Available - -
High-specification Jackups
1 Transocean Cepheus ("1") 400/35 1Q2018 Available -
2 Transocean Cassiopeia ("1") 400/35 3Q2018 Available -
3

Transocean

Centaurus ("1")

400/35 1Q2019 Available -
4 Transocean Cetus ("1") 400/35 3Q2019 Available -
5

Transocean

Circinus ("1")

400/35 1Q2020 Available -
Click to enlarge

("1") -- The first of five newbuild high-specification jackups contracted to Keppel FELS Limited's shipyard in Singapore is expected to
be delivered from the shipyard in the first quarter of 2018, and the remaining four jackups will be delivered at approximately six-month intervals thereafter.

2. High-Specification Floaters: Ultra-Deepwater

High-specification Floaters

Ultra-deepwater Rigs

7,500'/12,000'-30,000'/40,000'

Ship or Semi

Contract

End

Current

Day Rate

K $

Operator

Location

Day-off

1

Deepwater Thalassa

2015

Ship

12/25

519

[Shell]

US GoM
2

Deepwater Asgard

2014

Ship

6/17

(6/17-6/18 option)

623

(530)

[Chevron]

US GOM

3

Deepwater Invictus

2014

Ship 3/17

600

+48k mob.

[BHP Billiton] US US GOM
4

Discoverer Champion

2011

Ship

1/16?

Still drilling

395

[ExxonMobil] US GOM

8 x 1m option at $395/d

5

Discoverer Clear Leader

2009

Ship

Owned by Transocean Partners LLC 49%

10/18

581

[Chevron] US GOM

6

Discoverer Inspiration

2010

Ship

Owned by Transocean Partners LLC 49%

3/20

585

[Chevron] US GOM

7

Dhirubhai DW KG1

2009

Ship 12/17 397

[Petrobras] Brazil

(14d)1Q'16

(16d)2Q'16

8

Discoverer India

2010

Ship

9/16

9/16-1/21

528

508

[Reliance] US GOM

[Reliance] India

(16d) 2Q'15

11

Petrobras 10000

2009

Ship 8/19 419

[Petrobras] Brazil

(10d)4Q'16

12

Deepwater Millenium

1999

Ship

4/16

584

593

[Woodside]

Korea

Myanmar

13

Cajun Express

2001

Semi

Still drilling

(12/15-2/16 option)

Depending on rig performance

(495)

[CNR]

Ivory coast

14

Deepwater Nautilus

2000

Semi 8/17 531

[Shell]

US GOM

(10d)4Q'15

15

Discoverer Luanda

2010

Ship 1/18 487

[BP]

Angola

16

GSF Development Driller I

2005

Semi

1/17

(7/15-2/16 option)

371

(371)

(Exxon Mobil) Angola

17

Development Driller III

2009

Semi

Owned by Transocean Partners LLC 49%

11/16 422

[BP]

US GOM

Click to enlarge

3. High-Specification Floaters: Deepwater

High-specification floaters: Deepwater (12)

4,500-7,200'/25,000'

Ship or Semi

Contract

End

Current

Day Rate

K $

Location
1

Sedco 706

1976/1994/

2008

Semi Extended 747 days to 10/18 275

[Petrobras] Brazil

2

Jack Bates

1997

Semi

2/16 drilling

(2/16-11/16 Option)

370

(370)

[Inpex]

Australia

Australia

Click to enlarge

4. High-Specification Semi-Submersibles: Harsh Environment

High-specification floaters: Harsh environment (7)

1,500'-10,000'/25,000'-30,000'

Contract

End

Current

Day Rate

K $

Location
1

Transocean Leader

Location: North Sea

1997 - SemiSub

4 G

5/18

5/18-5/19

335

305

[Enquest] UKNS

2

Paul B. Loyd,JR

Location: North Sea1990 - SemiSub

4 G

3/16

3/16-9/16

9/16-3/17

3/17-6/17

(6/17-9/17 Option (446)

(9/17-3/18 Option (454)

(3/18-6/18 Option (460)

435

442

449

455

-

-

-

-

[BP]

UKNS

3

Transocean Arctic

Location: North Sea

1986 - SemiSub

3/16

OMV contract transfered to the Spitsbergen

382

-

-

-

[Wintershall]

Norway

5

Transocean Spitsbergen

2010 - SemiSub

3/16

471

[OMV]

NNS

6

Henry Goodrich

1985-2007 SemiSub

Cold stacked since 9/15

2Q'16-2Q'18

275 (~50K for mobilization)

[Husky Oil]

Canada

Click to enlarge

5. Midwater Floaters

Midwater floater: (21)

1,000'-3,600'/25,000'

Year built Ship or Semi

Contract

End

Current

Day Rate

K $

Location
1 Transocean Driller 1991 Semi

Will be terminated on 6/30/16

256 [Petrobras] Brazil
2 Sedco 712 1983 Semi

4/16

4/16-10/16

403

409

[Talisman]

UKNS

3 Sedco 714 1997 Semi

3/16

421

[Total]

UKNS

4 Transocean Winner 1983 Semi

7/16

498

[Marathon] Norway

5 Sedco 704 1993 Semi

4/16

219

[Maersk]

UKNS

Click to enlarge

6. High-Specification Jackups

High-specification Jackup: (11)

350'/400'-30,000'/35,000'

Year built

Contract

End

Current

Day Rate

K $

Location
1 GSF Constellation I 2003

3/16-12/16

104

[Total] Indonesia

[Bunduq]

UAE

2 GSF Galaxy I 2001

5/16

5/16-11/16

11/16-5/17

5/17-5/18 Option

5/18-5/19 Option

223

227

230

-

-

-

[Total]

UKNS

3

Transocean Honor

2012

4/16

194

[Chevron] Angola

4 Transocean Andaman 2013

5/16

5/16-5/17

5/17-5/18 option

150

115

110

[Chevron] Thailand

5 Transocean Siam Driller 2013

3/18

140

[Chevron] Thailand

6 Transocean Ao Thai 2013 10/18 139

[Chevron] Thailand

(3d)3Q'16

Click to enlarge

7 - Stacked and Idle Rigs

Name Year built

Contract

End

Location
Cold stacked rigs
1 Discoverer Spirit 2000 3/15 Trinidad and Tobago
2 GSF Jack Ryan 2000 3/15 Trinidad and Tobago
3 Deepwater Discovery 2000 3/15 North Atlantic
4 Deepwater Pathfinder 1998 3/15 Trinidad and Tobago
5 GSF C.R Luigs 2000 6/15 Trinidad and Tobago
6 GSF Galaxy III 1999 7/15 Denmark
7 GSF Monarch 1986 7/15 North Atlantic
8 Discoverer Enterprise 1999 9/15 US GOM
9 Sedco Energy 2001 9/15 Canari Islands
10 Sedco Express 2001 9/15 Cameroon
11 Transocean Searcher 1988 9/15 NS
12 Transocean Prospect 1992 9/15 UK
13 GSF Galaxy II 1998 9/15 UK
Idle Rigs
1 Deepwater Frontier 1999 1/15 Riau Archipelago
2 M.G Hulme Jr. 1996 4/15 English Channel
3 Transocean Marianas 1979-1998 5/15 South Africa
4 Actinia 1982 8/15 India
5

Transocean Barents

2009 9/15 NS
6 GSF Rig 140 1983 9/15 India
7 GSF Grand Banks 1984 10/15 Canada
8

Polar Pioneer

1985 12/15 Canada
9 Discoverer Americas 2009 12/15 North Sea
10 Dhirubhai DW KG2 2010 1/16 Asia
11 GSF Constellation II 2004 1/16 Gabon
12 Transocean John Shaw 1982 1/16 North Sea
13 Deepwater Navigator 2000 1/16 Brazil
14 Sedco 711 1982 1/16 North Sea
15 Sedco 702 2007 2/16 Nigeria
16 GSF Development Driller II 2005 1/16 North Sea
17 Discoverer Deep Seas 2001 2/16 GoM
Rig held for sale
1 GSF Rig 135 1983/3G 8/15 Nigeria
Click to enlarge

Fleet Analysis Snapshot

Table 1 - Rig fleet per category (minus recent scrapped rigs or held for sale):

Total UDW

Deepwater

semi-subs

HE Deepwater Semi-subs. Midwaters Jackups
Number of Rigs 62 28 6 6 12 10
Newbuild rigs 11 6 - - -

5

Total 73 34 6 6 13 15
Click to enlarge

Note: GSF Rig 135 is not included.

Table 2: Rig status, excluding newbuilds:

Idle/Ready-stacked

/Inspection

/Out of service

Stacked Working Rig Total
HS UltraDeepwaters 3 8 17 28
HS Deepwaters 2 2 2 6
HS Semi-submersibles 0 0 6 6
Midwater floaters 6 1 5 12
HS Jackups 2 2 6 10
Total 13 13 36 62
Click to enlarge

Commentary:

Transocean released the termination news today, and I decided to update the FSR at the same time, due to the fact that Transocean is not releasing a monthly FSR anymore, which is a problem. I have reported most of the new events that happened since December last year. However, I may have missed something and I apologize in advance.

The actual rig utilization is now 58% (36 rigs are still working).

This new termination is another sign of weakness for the offshore drillers segment, and the oil industry in general. We should expect more of the same until at least mid-2016. The deepwater segment in the Gulf of Mexico has been hit particularly hard recently, and the situation seems to worsen as I speak. I am expecting more early termination these coming months -- Noble (NYSE:NE) and Rowan (NYSE:RDC) are negotiating three UDW with Freeport-McMoRan (NYSE:FCX), right now, and the rigs are "waiting on location".

Murphy Oil will compensate Transocean for the backlog loss that I estimated at about $178 million, this is a big relief. I estimate the lump-sum of approximately $170 million, and the drillship will be certainly cold stacked.

It is hard to stay optimistic, right now, for the entire oil industry, which seems to fall in a deep recession. The question is whether or not oil prices will recover soon enough to restart some new tendering activity in mid-2017? Hard to answer this question, especially, with oil at $30 a barrel and a total ongoing collapse of the industry.

However, I am still confident that Transocean will be among the survivors, and I am still holding my long position.

Disclosure: I am/we are long RIG.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.