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Update: Transocean Idles 3 Rigs And Experiences Dramatic Dayrate Declines
- RIG idled three rigs and announced a meager $83 million in new contracts; floater dayrates dropped significantly.
- Given the pessimism of management, the poor fleet update was no surprise.
- RIG continues to be a short-term avoid, due to the high number of rigs needing to be recontracted.
- Adjusted earnings from continuing operations were $.96 per share, beating analyst estimates by $.13.
- Revenues of $2.27 billion beat estimates by $70 million, but were down year over year by 7.3%.
- EPS under GAAP was negative $6.12, compared to positive $1.50 year over year.
- I expected RIG to post a nasty loss because of impairment charges.
- The huge accounting losses reinforced my view that investors should keep a careful eye on the cash flows.
- Four tiny contracts are added.
- 2015 out-of-service days are down substantially.
- Fourth quarter estimates should move higher.
Transocean LTD's Troubles Started Before The Current Market Slowdown
- Transocean has been struggling with its reputation for some time.
- Transocean's quality of service and customer satisfaction has been in decline for several years.
- Data shows that a falling quality of service has had an effect on the company's stock price.
Update: Important Takeaways From Transocean's Latest Quarter
- My earnings projection for Q3 was spot on, although the revenue estimate was lower than the company delivered.
- Sustaining capex for 2015 is projected to be below most conservative expectations.
- Total costs for 2015 are expected to be lower than what most analysts are currently modeling.
- RIG’s management is focused and determined to make the best of a poor (contracting) hand.
- Market has deteriorated faster and farther than expected; all (contracting) players are impacted.
- Expect moderate dividend cuts in mid-2015 as investment grade rating on debt is priority.
- Write-downs large, but expect impairments . . . soon.
Transocean Ltd. - Complete Fleet Status And Third-Quarter Earning Results
- Transocean Ltd. released its second-quarter results on November 10th. The company beat the street expectation with a net revenue of $352 million and earnings of 0.96/share.
- RIG decided to write-down $2.6 billion in non-cash impairment related to its floaters' asset, and put on hold the Caledonia spin-off, due to a deterioration of the offshore drilling market.
- The company announced that a further impairment could be coming in the fourth-quarter with more rigs going off the market. The deepwater asset class has been primarily targeted.
- RIG is now trading under $30 and offers a good opportunity for the value investors, however, it may be beneficial to wait until the oil price finds a solid support.
Update: Transocean Earnings - There Should Not Be Too Much Focus On The Impairment Charge
- Transocean announced its third-quarter earnings, and recorded an impairment charge due to the loss in the market value of the drilling services business.
- We did not expect the company to record an impairment charge of this magnitude despite the decline in the market and recent sales of older units.
- There might be further write downs in the future, as the company continues to shake up its fleet.
Will Caledonia Offshore Help Transocean's Stock Price?
- Transocean announced that it would not pursue a private placement of shares of Caledonia Offshore Drilling.
- The spinoff would have enabled Transocean to free up cash and remove older rigs from its fleet.
- Caledonia Offshore Drilling will suffer as its rigs roll off contract within the North Sea.
Transocean Is A Survival Bet. Survival Depends On The Flow Of Cash, Not On Earnings
- The problem is more than current capacity, it is also future capacity.
- Most companies in this industry have fallen to the point that investments are simply bets on survival.
- The balance sheet doesn’t look bad yet, but contractual obligations are a challenge to cash flow.
- Net loss of $2.217 billion, or $6.12 per diluted share.
- Over $2.6 billion of non-cash impairment charges.
- I reiterate the thesis that RIG's dividend is unsustainable and likely to be reduced.
Update: Transocean Announces Huge Asset Impairments And Goodwill Write-Downs; Delays Earnings
- RIG announced a $1.97 billion write-down on goodwill and a $788 million asset impairment.
- Previous analysis suggested impairment charges would be forthcoming.
- I continue to believe there are better choices among the underwater drillers.
Transocean LTD Delays The Release Of Third Quarter Results; Here's What You Need To Know
- Transocean LTD has delayed the release of third quarter results.
- The results have be delayed after the company decided to take hefty write-downs.
- The write-downs change the state of the company's balance sheet.
Transocean: World's No. 1 Deep-Underwater Oil Driller Is An Even Deeper Value
- Transocean stock is trading at a 10-year low of around $30 but its rig fleet is worth $44 a share.
- Transocean stands to benefit from an increase in deep-water oil drilling in the coming years.
- Contrarian investment opportunities arise when the improvements lie far out in the distance, not when they’re underway.
- Offshore drillers continue to decline but the sector's biggest investors are not worried.
- Underlying business continue to perform well despite share price weakness.
- Investors with a long-term outlook shouldn't worry.
Update: Transocean Announces Over $600 Million In New Contracts
- RIG's October Fleet Status Report highlights two new contracts.
- The new contracts, while in the normal course of business, were a positive surprise in the current "gloom and doom" environment.
- I continue to see short-term challenges for RIG due to large number of contracts up-for-renewal in coming months.
Transocean Ltd: Fleet Analysis As Of October 15 And Commentary
- Transocean Ltd., released its new fleet status on October 15 with some good surprises when considering the weak market and depressed oil price.
- Transocean Ltd., and the whole offshore driller industry have entered a bearish cycle due to the sudden drop of the price of oil.
- Transocean is a solid company with a strong backlog which will shield the company against this momentarily weakness. I believe RIG presents a good opportunity at this price.
This Beaten Down Driller Offers A Short-Term Opportunity
- Since mid-July the S&P 500 is down 3.5%, the energy sector 17.7%, and oil services stocks 24.1%.
- Transocean is down 35.5% over the same time, and is now oversold.
- A short-term rebound plus a juicy dividend creates an alpha opportunity.
Wed, Nov. 19, 2:47 PM
- Transocean (RIG -1.6%) is lower after issuing its November fleet status report, which shows three floaters now idle and foreshadowing a wave of additional ready stackings if it does not start signing contracts soon.
- The Discoverer Enterprise was awarded a one-well contract extension in the Gulf of Mexico at a dayrate of $399K vs. a prior dayrate of $615K, and the Cajun Express was awarded a one-well contract extension in Senegal at a dayrate of $487K vs. a prior dayrate of $596K.
- Six rigs are rolling off contracts from now until the end of the year, and analysts assume their contracts will be renewed at a lower rate once they roll off; should the rigs not become renewed, further downward revisions to estimates would seem likely.
Mon, Nov. 17, 3:59 PM
- In the wake of Halliburton's (NYSE:HAL) $34.6B offer for Baker Hughes (NYSE:BHI), it appears the next hot sector for M&A action is energy: More consolidation is likely, given the weakness for stocks in the oilfield services subsector, low interest rates, and as a drop in demand for oil increases cutthroat pricing competition.
- Speculation is running rampant as investors try to figure out who is next in an industry that is sure to undergo some more consolidation; some names identified as possible candidates include Kodiak Oil and Gas (NYSE:KOG), Marathon Oil (NYSE:MRO), Northern Oil and Gas (NYSEMKT:NOG), Anadarko Petroleum (NYSE:APC), Pioneer Natural Resources (NYSE:PXD).
- GE could go after National Oilwell Varco (NYSE:NOV) to show it is serious about the energy industry after last year’s purchase of pumpmaker Lufkin, Royal Bank of Canada says, and Oppenheimer says even BP could be an acquisition candidate.
- But Morgan Stanley does not see offshore drillers getting in on the action, as larger players like Diamond Offshore (NYSE:DO), Transocean (NYSE:RIG) and Seadrill (NYSE:SDRL) are still addressing dividend concerns while smaller companies such as Atwood Oceanics (NYSE:ATW) and Pacific Drilling (NYSE:PACD) still trade close to replacement value.
Thu, Nov. 13, 3:20 PM
- U.S. crude oil prices break below $75/bbl for the first time in more than three years, brushing aside an IEA report showing a surprise 1.735M barrel inventory drawdown as well as remarks by the Saudi oil minister dismissing talk of an oil price war among producers.
- West Texas crude settled today at $74.21/bbl, -3.9% and breaking below an important support level; during the past three years, futures have tested but not broken through that level three times.
- Brent crude recently was trading below $78, -3%.
- Global oil majors are all lower: COP -1.9%, BP -1.4%, CVX -1.4%, XOM -1.1%, TOT -0.9%, RDS.A -0.7%.
- Oil services companies and offshore drillers suffer even sharper drops: SDRL -4.4%, SLB -4.2%, HAL -3.9%, BHI -3.9%, RIG -3.8%, DO -3.5%, NBL -2.9%.
- ETFs: USO, XLE, OIL, UCO, ERX, VDE, OIH, SCO, XOP, ERY, DIG, BNO, UGA, DTO, DBO, DUG, XES, IYE, IEO, CRUD, IXC, IEZ, PXE, USL, UWTI, IPW, FENY, PXJ, UHN, DWTI, DNO, RYE, FXN, SZO, GNAT, OLO, DDG, FILL, OLEM, TWTI
Mon, Nov. 10, 3:58 PM
- Transocean (RIG -1.4%) warned in today's earnings conference call that it likely will shut down or retire more of its drilling rigs, and may be forced to make writedowns beyond the $2.8B writedown announced Friday, as falling oil prices exacerbate a glut in deepwater rig equipment.
- “Assets that we have in our fleet that are cold-stacked and have been cold- stacked for any period of time are likely candidates for retirement,” CEO Steve Newman said, adding that “if we conclude that there’s very little likelihood of that asset ever returning in an economic way to compete in the marketplace, then we’re likely to take the decision to scrap it.”
- Newman says the offshore oil industry has gone into a “cyclical downturn” as a result of the fall in crude prices, but “the industry has been through these downturns before, and Transocean is well positioned to manage through this one.”
Mon, Nov. 10, 7:49 AM
- Transocean (NYSE:RIG) +2.1% premarket after releasing Q3 results which showed operating earnings beating analyst estimates.
- RIG's unadjusted Q3 loss totaled $2.2B, or $6.12/share, after taking one-time charges of $2.57B related to the value of its fleet, which was pre-announced on Friday; in the year-ago quarter, RIG earned a profit of $546M.
- Revenues fell to $2.27B from $2.45B in the year-earlier period, attributed to an increase in out-of-service time for its rigs as well as higher operating and maintenance expenses.
- Fleet utilization was 75%, vs. 78% a year ago; fleet revenue efficiency was 92.6% vs. 95.0% in Q2, while revenue efficiency on ultra-deepwater rigs was 91.6% vs. 94.0%.
- Says it will not proceed with the private placement of shares of Caledonia Offshore Drilling.
Mon, Nov. 10, 5:55 AM
Sun, Nov. 9, 5:30 PM
Fri, Nov. 7, 5:24 PM
- The damage to Transocean's (NYSE:RIG) share price was only moderate after the provider of offshore drilling services said it was delaying release of its Q3 earnings until Nov. 10 and taking nearly $2.8B in charges, and most peers gained on the day.
- Canaccord analysts note RIG has 12 rigs in the deepwater group, with three already idle without any future contracts, three are fully booked through 2015, but the remaining six look likely to go idle for much of 2015, and options on two of the six are not expected to be exercised.
- Yet even as it foresees sharply lower Q3 earnings and EBITDA, the firm maintains its $20 stock price target as the writedowns, which are entirely non-cash charges, will have only a small impact on bottom-line numbers.
Fri, Nov. 7, 9:14 AM
- Gainers: MITK +29%. RMTI +27%. RPRX +24%. SHLD +22%. CNET +15%. NETE +11%. PGNX +10%. ZNGA +9%. APT +9%. KING +9%. KING +9%. KGC +8%. TKMR +7%. AGIO +7%. BEBE +5%.
- Losers: SLXP -35%. MDRX -20%. CTIC -19%. ICPT -19%. UBNT -17%. ANF -13%. ANET -11%. ORBC -10%. AVNR -7%. FSLR -7%. PLNR -6%. NDLS -6%. RIG -5%. DVA -5%. NADL -5%.
Fri, Nov. 7, 7:15 AM
- Transocean (NYSE:RIG) -7.9% premarket after announcing it is delaying the release of its Q3 results after saying earnings would include impairment charges totaling $2.76B.
- RIG says it will take a $1.97B non-cash charge related to goodwill and another $788M on the value of its rigs due to reflect a weaker market outlook and a recent decline in day rates and utilization for the asset class.
- Earnings had been set for release this morning; RIG does not say when they will be issued.
Wed, Nov. 5, 3:31 PM
- Rowan (RDC +4.4%) leads offshore drillers higher after easily beating Q3 earnings estimates and forecasting revenues to rise in 2015 despite its own predictions for a soft rig market next year; it certainly doesn't hurt that oil prices are higher today.
- FBR Capital says it likes RDC as both a near-term idea on a sentiment snap-back and as a longer-term investment opportunity for patient investors; the firm believes the risk in RDC is mitigated by the company's fully locked-up ultra-deepwater newbuild fleet, whose contract starts account for the entirety of net earnings growth it foresees from 2014 to 2016, as well as concentrated exposure to high-spec jackups, which make up 93% of 2015 jackup earnings and should see fundamentals hold up better than the other classes.
- Also: RIG +5.2%, SDRL +4.5%, ESV +3.6%, DO +5.7%, NE +5.4%, ATW +2%.
Tue, Nov. 4, 1:45 PM
- November is just two days old, but offshore drillers Transocean (RIG -4.7%), Seadrill (SDRL -7.2%), Diamond Offshore (DO -3.6%), Atwood Oceanics (ATW -2.6%) and Noble Corp. (NE -5.2%) are down more than 8% so far this month.
- The Zephirin Group thinks plunging oil prices are already beginning to impact demand for offshore drilling platforms, and the current dayrate range for ultra-deepwater drillships of mid $400-500/day is not helping the outlook.
- The latest piece of evidence of the weakness is ATW's six-month postponement of the delivery of two drillships under construction, which Zephirin expects will cost the company an additional $40M-$45M per rig.
- The firm also foresees a high possibility that the 2015-16 market and contract renewals rates could shift below expectations when energy companies start announcing 2015 capex budgets late this year.
Mon, Nov. 3, 2:58 PM
- Offshore drillers are broadly lower after Atwood Oceanics (ATW -5.2%) discloses in its latest fleet status report that it is delaying two deliveries in its fleet, and Diamond Offshore (DO -4.7%) is downgraded to Strong Sell from Sell at Nordea.
- The damage is minimal at Ensco (ESV -0.9%), however, as Johnson Rice analysts offer positive commentary on the "top-tier producer" after ESV's Q3 results displayed impressive operational execution while management made several positive moves during the quarter to improve the company’s financial flexibility.
- While management continues to expect further floater utilization and dayrate challenges through 2015, the jackup market was described as a potential near-term offset to floater headwinds as ESV cited record backlog within the jackup fleet and expected incremental Middle East jackup demand in H1 2015.
- Also: Caledonia deal not likely to held Transocean (RIG -2.8%) shareholders, analyst says.
- Also: RDC -2.8%, SDRL -3.1%, NE -1.1%, PACD -2.4%.
Mon, Nov. 3, 12:59 PM
- Transocean's (RIG -1.3%) plan to raise money for its Caledonia Offshore Drilling subsidiary through stock and debt offerings to buy some non-essential rigs from its parent company could be good for the company but not the stock, Credit Suisse says.
- The parent company, at least in theory, should trade up after getting rid of some non-core assets and the spinoff becomes a beta play, but the firm says it is a bull market strategy in the midst of a bear market in the offshore drilling industry.
- In a bear market, companies with lower-end rigs trade at a discount, Credit Suisse says, pointing to Awilco (OTCPK:AWLCF), Fred Olsen Energy (OTC:FOEAF) and Paragon Offshore (NYSE:PGN), which trade at an average multiple of 3.3x 2015 EBITDA vs. RIG's 6.3x.
Thu, Oct. 23, 3:46 PM
- Diamond Offshore's (DO +5.5%) better than expected Q3 results is providing a lift across the offshore drilling sector today: RIG +3.8%, ESV +4.1%, RDC +2.6%, SDRL +1.9%, PKD +3.6%, HP +3.1%, ATW -0.5%.
- It was a trifecta of good news for DO: Its operating profit of $0.97/share easily topped Wall Street consensus for $0.79, it announced a special dividend of $0.75/share, and a positive fleet status update included two new rigs that had found work with Hess and Petrobras extending contracts on three rigs for three years.
- However, Cowen’s J.B. Lowe is cautious, noting that while that the $400K dayrates with Hess give DO a solid backlog though a soft time in the market, "they represent a new low in leading-edge newbuild ultra-deepwater floaters in this part of the cycle.”
Mon, Oct. 20, 6:14 PM
- Seadrill (NYSE:SDRL) was downgraded to Neutral/High Risk from Buy today at Citigroup, which cited a combination of disappointing exploration, further investment decision delays and increased oil price uncertainty as leading to a 10% reduction in its medium-term rig demand forecast.
- Citi believes the decline, combined with significant supply added in 2015, likely will extend the current market weakness into 2016, which could materially affect SDRL’s ability to sign and thus finance the next wave of its newbuilds; it also sees increased risk of dividend cuts to maintain the leverage ratio within covenants.
- SDRL finished flat today but most offshore drillers rose even as the firm lowered its growth estimates across the sector to reflect a slowdown in investment: ATW +3.4%, HP +3.3%, RDC +3.2%, DO +2%, RIG +1.8%, NE +1.7%, PACD +1.2%, ESV +1%.
RIG vs. ETF Alternatives
Transocean Ltd is an international provider of offshore contract drilling services for oil and gas wells. The Company has two operating segments; contract drilling services and drilling management services.
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