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Pre-Market Most Active for Dec 24, 2014 : RIG, GPRO, SNN, ARCP, FB, SMFG, ACHN, BAC, FCAU, TVIX, CRH, GILDat Nasdaq.com (Wed, 8:39AM)
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Recent Bounce In Transocean Doesn't Mean Anything Yet
- Big players like Carl Icahn are suffering just as much as the small guys like me as we continue to hold Transocean.
- Though oil rises on some days, a rising tide doesn't lift all boats as oil exploration companies suffer against say refiners or pipeline operators.
- Transocean recently announced that it is getting rid of seven rigs from its fleet with probably a few more on the horizon.
Update: Transocean's December Fleet Status Report Highlights Dayrate Declines
- RIG managed to secure a new contract - the dayrate reflects the current buyers market.
- The tough contracting and increasing number of idle rigs was previously anticipated.
- Continue to believe RIG faces significant short-term challenges.
Update: Transocean's December Fleet Update Has A Few Surprises
- DD1 is contracted after being idle since early 2014.
- Deepwater Pathfinder's contract has been repudiated by ENI.
- KG1 contract start is being pushed out another month.
Transocean Ltd. - Complete Fleet Analysis As Of December 18 And Commentary
- Transocean Ltd, released its fleet status on December 18. I noticed four new contracts or extensions, and an effort to retire and scrap a total of eleven aging rigs.
- Transocean is adding a total of $453 million in new contracts which is quite remarkable in this extremely challenging environment. RIG announced that it will impair seven rigs in Q4.
- RIG has lost over 60% of its value since January 2014 and presents an opportunity if oil price can find some support again.
Transocean LTD Scraps More Rigs, Warns Of Further Writedowns
- Transocean's latest fleet update was full of bad news.
- The company is failing to find customers for its rigs.
- The company has started to scrap units and is warning of further writedowns.
Transocean Default Risk Falls And Bond Trading Volume Tops The Charts
- The Transocean one-year default probability dropped 3.49% today but remains very high at 15.30%.
- Transocean was the most heavily traded bond issuer in the U.S. corporate bond market on December 16.
- Ranked by the ratio of credit spread to matched maturity default probability, the seven most heavily traded Transocean bonds rank in the bottom 16 of the 197 bonds ranked.
- RIG is the second worst underwater driller by most metrics, including debt yield.
- Recently investment grade, RIG is now junk reflecting heightened risk.
- Expect dividend cuts or suspension even with the Icahn "put".
- RIG is neither the safest driller, nor the industry participant with the greatest upside potential.
- Transocean offers a current dividend yield of 16.1%, which is not sustainable considering the current market conditions.
- The company's rig contract status for 2015 is weak and it will impact cash flow and the potential to pay dividends.
- $3.3 billion of capital expenditure coming in the next two years will further stress the balance sheet. Dividend suspension can provide some relief.
- Near-term oil price recovery outlook getting bleak with Saudi Arabia cutting its selling price.
- Given the 64% drop in RIG over the past year, valuation is getting more compelling.
- With low contract coverage though, EBITDA will decline through 2016.
- Don't expect the dividend to be there as management may cut it to maintain liquidity.
- With its large liquidity position, RIG can survive the downturn, and long-term investors should consider adding a small position.
- Replacement cost and DCF values are both above current prices.
- This particular model's DCF value assumptions may prove to be too harsh.
- Sensitivities to various parameters can be used to arrive at your own DCF values.
Transocean Risk Jumps And Bond Trading Volume Tops The Charts
- We labeled Transcean bonds "high risk, low return" on July 15, 2014. Default probabilities have jumped to 9.96% at one year since then and bond trading volume has skyrocketed.
- The firm was the most heavily traded issuer in the U.S. bond market on December 2, and three of its individual bond issues were the most heavily traded.
- When we rank the 270 most heavily traded bond issues by "best value," Transocean has six bonds ranked among the 12 worst.
- Seadrill and Transocean are attractive value investments.
- The drillers are trading at a discount to their net asset value.
- How reliable is the net asset value and will it fall further before recovering?
- The offshore drilling complex reminds me of Wile E. Coyote, where he gets knocked to the ground, only to get up just to get knocked down again.
- Now that Seadrill has taken the initial step to cut the dividend, I wouldn't be surprised to see Transocean following in its footsteps.
- The fundamentals and financials have deteriorated so significantly that I will not be stepping in to buy this falling knife.
Transocean Ltd. - New Fleet Analysis As Of November 18 And Commentary
- Transocean Ltd. released its fleet status on November 18. Few changes (four small contracts) as expected, and 2015 out-of-service days reduced significantly.
- The offshore drilling industry has been particularly affected by the recent drop in oil price, which reduced significantly the contracts available and put strong pressure on day-rate.
- This painful bearish cycle has particularly affected Transocean's older rigs. Many older rigs are being retired and cold stacked now, especially the mid-water class.
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.
Tue, Dec. 23, 5:42 PM
- Three of the five worst performers in the S&P 500 this year are offshore rig contractors Transocean (NYSE:RIG), Noble Corp. (NYSE:NE) and Ensco (NYSE:ESV) - plus non-S&P company Hercules Offshore (NASDAQ:HERO), the largest provider of shallow-water rigs in the Gulf of Mexico, has plunged 84% YTD - and analysts say next year may be worse with “grievous” cuts coming for exploration plans.
- Earnings for the world’s five biggest offshore rig contractors are expected to fall an average of 18%, and only Seadrill (NYSE:SDRL) is seen increasing profit in 2015, since 75% of its rigs are backed by contracts next year, highest among the five.
- To preserve cash, rig owners already have begun scrapping older rigs to balance supply and demand; Bloomberg says ~140 older rigs would need to be culled to make way for new vessels scheduled for delivery by 2020, double the number scrapped in the previous six years.
- If the industry is to return to a healthy state, older rigs will have to be scrapped, not spun off into separate companies as has been the case, SDRL CEO Per Wullf says.
Fri, Dec. 19, 5:25 PM
- Transocean (NYSE:RIG) shares finished sharply higher today (+7.9%), but it’s hard to ignore the largely negative December fleet status report that came out late yesterday.
- In lowering his stock price target to $17 from $20, Cowen analyst J.B. Lowe said RIG secured one attractive contract this month, not enough to fill much needed ultra-deepwater floater availability; while RIG was able to put two idle floaters back to work, it had four additional rigs go idle, including one where the customer canceled the contract.
- Lowe believes falling oil prices will put increased strain on dayrates and utilization during 2015.
- Most offshore drilling service contractors racked up strong gains today as crude oil prices rebounded: NE +9.5%, ESV +9.5%, RDC +5.9%, DO +0.5%, ATW +7.1%, PACD +14%.
Fri, Dec. 19, 11:44 AM
- Transocean (RIG +4.6%) discloses that it plans to scrap seven of its older, lower-quality deepwater and midwater vessels, and adds that it may not be finished getting rid of parts of its fleet, even as oil prices and demand for offshore rigs have fallen.
- RIG says it expects to take a related $100M-$140M charge in Q4.
- RIG's decision to put the rigs up for sale comes after a string of vessel retirements and a $2.76B writedown of the company’s asset value in November.
- Most offshore drilling service contractors are higher: ESV +5.1%, RDC +1.7%, DO +0.8%, ATW +3.1%, PACD +8.4%, but SDRL -4.3%.
Fri, Dec. 19, 10:37 AM
- Even some of Wall Street's big boys are taking a beating in the oil sector: Carl Icahn’s holdings of Talisman Energy (NYSE:TLM) have tumbled $230M since late August, and John Paulson’s firm had one of its largest losses of the year on a bet that big oil companies would buy smaller ones.
- Before TLM agreed to be bought by Repsol, which boosted TLM shares, Icahn's losses stood at more than $540M as recently as Dec. 11, and he still will have lost ~$290M at the deal price; Icahn also holds stakes in hard-hit Chesapeake Energy (NYSE:CHK) and Transocean (NYSE:RIG).
- Paulson was the biggest shareholder in Whiting Petroleum (NYSE:WLL) and Oasis Petroleum (NYSE:OAS) at the end of Q3, but his strategy could yet pay off, as many analysts expect consolidation in the energy sector as lower oil prices pressure smaller firms.
- Also caught flat-footed by the oil price pullback was Prosperity Capital’s Mattias Westman, a longtime investor in Russia whose firm has lost more than $1B this year, in part on stakes in Russian energy companies Gazprom (OTCPK:OGZPY) and Lukoil (OTCPK:LUKOY, OTC:LUKOF).
Mon, Dec. 8, 7:05 PM
- "Not much else bad can happen" to Seadrill (NYSE:SDRL), Credit Suisse analyst Gregory Lewis said this morning in maintaining his Neutral rating while edging his target price lower to $15 - 6x the firm's 2016 EBITDA estimate, a discount to the peer average but warranted given SDRL’s above average leverage (~56% and rising) and no dividend.
- However, a lawsuit was filed today in U.S. District Court citing "materially false or misleading statements with respect [SDRL’s] commitment and ability to continuing to pay a dividend to the exclusion of other opportunities and needs for the same capital.”
- Oilfield service companies and contractors, whose revenues depend on drilling activity, fell today in reaction to continually declining crude oil prices and ConocoPhillips' reduced capex guidance: SDRL -6.1%, SDLP -5.8%, NADL -17.9%, RIG -4.9%, RIGP -3%, ESV -7.2%, RDC -3.7%, PACD -6.8%, OIH -4.5%, but DO +1.3%.
Wed, Dec. 3, 2:53 PM
- Offshore drillers are rising modestly today after suffering a beating this year, but Jefferies cautions against seeing a buying opportunity in the beleaguered group.
- The firm says neither fundamentals nor valuation paint a compelling enough picture of the group; "more importantly, current softness masks the evolution of deepwater drilling to where specifications matter."
- Transocean (RIG +1.6%), which Jefferies says has the biggest contracting challenges both near-term and in the longer-run given a disproportionate mix of older UDW/UK floaters, is the least favorite name, while the firm sees relative value in Atwood Oceanics (ATW +0.7%) and Rowan (RDC +1.2%).
- Among other offshore drillers: DO +3.1%, PACD +3.1%, ESV +1%, NE -0.7%, SDRL -0.7%.
Tue, Dec. 2, 2:48 PM
- Energy stocks (XLE +1.4%) are posting the day's largest gains among S&P sectors, rebounding from recent losses even as Nymex crude oil fell another $2.05 to $66.97/bbl.
- Refiners Marathon Petroleum (MPC +4%) and Valero (VLO +4.1%) and pipeline operator Williams Cos. (WMB +1.5%) are among the top gainers, while losers include most oil services companies such as Halliburton (HAL -2.2%) and rig operator Transocean (RIG -3.7%).
- Anadarko Petroleum (APC +1.6%), Cimarex Energy (XEC +1%), Devon Energy (DVN +0.7%), EOG Resources (EOG +3.8%) and Marathon Oil (MRO +3.5%) were selected top “safe haven” picks for analysts at Tudor Pickering Holt, which said they are “liquid names with high-quality assets and healthy balance sheets."
Mon, Dec. 1, 3:19 PM
- A bit late, Guggenheim analyst Darren Gacicia downgrades Seadrill (SDRL -5.5%), Transocean (RIG -4.5%) and Diamond Offshore (DO +3.3%) to Neutral from Buy, finally admitting that downward pressure on oil prices and a potential for capital markets to become shy to fund newbuild deliveries has undercut the tenets of his previous bull thesis.
- SDRL and RIG remain the most levered to deteriorating offshore market conditions, he says, believing SDRL shares may also suffer from an ownership transition from income to value investors and RIG perhaps sharing the same fate, with a 2015 dividend cut likely amid the potential for further asset writedowns.
- At DO, Gacicia sees risk of a dividend cut, rig retirements and deteriorating offshore market fundamentals as negative near-term catalysts; the firm also downgrades Seventy Seven Energy (SSE -16.2%), Cameron (CAM -2.8%), Frank's International (FI -0.1%) and FMC Tech (FTI -0.1%).
- In the space, the analyst prefers drillers with high-quality assets, solid contract coverage and a lack of funding needs, such as Noble Corp. (NE -0.2%) - which also has a buyback catalyst - Atwood Oceanics (ATW -0.1%) and Pacific Drilling (PACD -3.7%).
Mon, Dec. 1, 12:21 PM
- Oil prices are rebounding, with both WTI and Brent crude up ~2%, but only a handful of energy stocks are rising.
- Exxon Mobil (XOM +1.4%) and Chevron (CVX +1.3%) are both up more than 1%, but the vast majority of energy stocks - led by Denbury Resources (DNR -8.9%), Newfield Exploration (NFX -7.6%) and Goodrich Petroleum (GDP -22.3%) - are seeing heavy selling.
- The SPDR Energy Select Sector ETF (XLE -1.2%) is lower despite gains in XOM and CVX, XLE’s two most heavily weighted stocks, as 38 of its 43 equity components trade lower; the ETF has now lost 7.5% since OPEC sent oil prices plunging by agreeing last Thursday not to cut production.
- Among XLE’s most actively traded components, Kinder Morgan (KMI -3.3%), Halliburton (HAL -3.4%), Transocean (RIG -6.1%) and Schlumberger (SLB -2.1%) are sharply lower.
- Other big decliners include BBEP -17.8%, SD -12.1%, SN -13%, CWEI -8.8%, CPE -14.6%, EXXI -18.9%, LRE -22.8%, REI -16.9%, SSE -15.3%.
- Other ETFs: ERX, VDE, OIH, XOP, ERY, DIG, DUG, IYE, XES, IEO, IEZ, PXE, FENY, PXJ, RYE, FXN, DDG
Fri, Nov. 28, 9:17 AM| 13 Comments
Fri, Nov. 28, 7:48 AM
- The oil market will need to balance via slower U.S. shale growth and OPEC cuts at some later date (their next meeting is on June 5), says Goldman's Brian Singer, maintaining his team's WTI oil price outlook of $70-$75 per barrel for next year.
- Among the energy sub-sectors, refiners and pipelines continue as favorites, and five of Goldman's eleven energy and utilities stocks on the Americas Conviction Buy list are from midstream/refining: KMI, MWE, PAGP, TRGP, TSO (all are lower premarket on oil's tumble).
- Not buyers of oil services and E&P names, Goldman nevertheless does have favorites in these areas: CRR, BAS, RIG.
Thu, Nov. 27, 5:11 AM
- Oil/energy and consumer-goods underperformers lead the way.
- Total return takes into account all distributions.
- Table of S&P 500's biggest total-return losers YTD
Wed, Nov. 26, 10:42 AM
- Seadrill (SDRL -19.2%) shares are plunging after the drilling contractor suspended dividend payments due to "significant deterioration" in the broader markets, and North Atlantic Drilling (NADL -13.8%) suspends its dividend because of the delay of its agreement with Rosneft as well as the weaker market.
- The move is slamming the entire sector, and Wells Fargo says that although SDRL is the first driller to cut its dividend, Diamond Offshore (DO -8.3%) and Transocean (RIG -4.7%) will "ultimately have to follow suit."
- Also: SDLP -6.6%, ESV -4.8%, ATW -4.3%, RDC -3.3%, NE -3.2%, PACD -6.5%, ORIG -2.7%, HP -1.1%, RIGP -2.5%.
- ETF: OIH
Tue, Nov. 25, 2:46 PM
- "Not surprisingly, billionaires reduced their energy allocations (NYSEARCA:XLE) during Q3," says Direxion, unveiling the quarterly rebalance for the iBillionaire Index (which serves as the benchmark for the IBLN ETF). Attention was instead shifted to healthcare (NYSEARCA:XLV) and materials (NYSEARCA:XLB), with companies like Humana (NYSE:HUM) and Monsanto (NYSE:MON).
- Also added to the index: TMO, GM, FB, CBS, GOOG, MAS, APD, DAL, NOV, WHR, THC, ABBV.
- Dropped from the index: AIG, MCK, CTSH, MSI, RIG, CI, APC, GPS, MSFT, CMCSA, NFLX, MHFI, WMB, ICE.
- Outlying sectors: Consumer Discretionary (NYSEARCA:XLY) makes up 23.33% of the iBillionaire Index vs. 11.68% for the S&P 500, and Industrials (NYSEARCA:XLI) and financials (NYSEARCA:XLF) make up just 6.67% each of the index vs. 10.44 and 16.30 of the S&P 500, respectively. Consumer Staples (NYSEARCA:XLP) have zero representation in the index vs. 9.7% in the S&P 500.
- Previously: Direxion launched an ETF with iBillionaire today
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.
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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