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- Transocean is mathematically and technically undervalued by several measures.
- The market has priced Transocean as if oil we trading in the 33 dollar range.
- Based off of historical averages of P/S Transocean could trade nearly 100 percent higher even after a 1 billion dollar revenue loss and the addition of 7.5 million shares.
- The current RSI of 23.88 is lower than it was immediately following the Macondo catastrophe in 2008.
Update: Transocean Reports Only 2 New Wells In January Fleet Status Update
- RIG added a measly $24 million to backlog and announced the scrapping of another rig (12 in total).
- As expected, another month of poor contracting, laying bare RIG's near-term weakness.
- RIG continues to be an avoid in the short-term due to relatively high multiple, poor contracting, impending dividend cut/elimination and upcoming (formal) debt downgrade.
Transocean Fleet Update Has Nothing Exciting To Offer
- I expect downside for Transocean to continue with the latest fleet status update having no positives to offer.
- The latest fleet report shows an increasing number of rigs going idle, cold stacked or classified as "asset held for sale".
- I expect oil prices to remain around current levels in 1H15 and this will make re-contracting of several rigs in 1H15 difficult.
- I expect Transocean's credit metrics to worsen in the coming quarters on idle rigs, lower day rate, EBITDA margin compression, lower cash flows and a $1.3 billion 2015 Capex.
Transocean Ltd. - Complete Fleet Analysis As Of Jan. 16 And Commentary
- Transocean Ltd, released its fleet status on January 16. I noticed two new contracts, and 3 more idle rigs. Planned out service is lower. Two more rigs cold stacked.
- Transocean is adding a total of $24 million in new contracts, which is quite low; however, it was expected in this extremely challenging environment.
- RIG has lost about 50% the last three months, and will be struggling at least the two first quarter of 2015. The dividend may be at risk?
Notable Omissions From Transocean's January FSR's Press Release
- January fleet status report press release only mentions two small contracts.
- There were actually a couple of notable existing contract extensions.
- Revenue for Q4 is tracking at $2.14 billion.
7 Reasons Income Investors Should Consider Transocean
- Transocean and Seadrill are both down by similar amounts, even though Transocean did not cut its dividend.
- Share price drop justified on lower energy prices, but the sell-off is now excessive.
- Seven reasons for buying and holding Transocean presented.
Update: Transocean Debt To Be Downgraded To Junk By Both Moody's And S&P
- Both major credit agencies have placed RIG on credit watch, the waiting room for a formal downgrade to junk.
- In a December article, I noted that the market had already downgraded the Company's debt.
- There continue to be better choices within the sector than this poorly contracted driller.
- Oil rig company Transocean touts a 16.4% dividend. This is clearly unsustainable in light of collapsing crude oil prices.
- Despite rumors that Transocean might completely cut its dividend in Q12015, there is one major reason why this will not happen.
- However, Transocean still remains a troubled company that those of the faint of heart should stay away from.
- Value investors with an iron stomach should consider purchasing Transocean shares after a potential dividend cut or suspension.
- Dividend suspension looks certain for Transocean when the company declares its fourth quarter results.
- The December fleet update and a 2015 order backlog of $6.2 billion point to significantly lower cash flow in 2015 as compared to 2014.
- I expect Transocean to decline further in the coming months even when the stock trades at an TTM EV/EBITDA of 3.59.
I'm Not Even Thinking About Catching The Falling Knife That Is Transocean
- 2015 earnings estimates have been slashed by another 8% just in the past month!
- If net income doesn't improve the next time the company reports I fear the dividend is going to get slashed.
- There are definitely better offshore drillers to be in if you absolutely need to be in one.
- Although there are a few pluses with Transocean, we believe investors would do well to explore for profits elsewhere.
- The company has a history of poor returns on assets and equity, and the cheap price doesn't make up for the income volatility.
- About seven years ago, the company took on a huge amount of debt--and has never looked back. This causes us some concern.
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.
Sat, Jan. 24, 8:25 AM
- In a low-yield world, the newly launched iBillionaire High Dividend Index - which tracks the trading moves of 25 investing-savvy billionaire investors such as Stanley Druckenmiller, James Dinan and Nelson Peltz - actually lives up to its name with a dividend yield of 5.34%.
- At 24%, the index has a high allocation of energy shares, including OXY, TRP, CNP, COP, BP, ATLS, CVI, WMB, APL, RIG and ARP.
- Also worth noting is that the index contains some high-yielding mortgage REITs, an area most investors hate right now but where billionaires seem to find value; examples are NRF, AGNC and CIM.
- No mutual fund or ETF tracks this index, but it offers a fishing pond of income investment ideas to research further.
- The top 20 holdings: TLM, CVC, GM, TIME, AEE, D, STAY, KMI, TROX, EXC, STNG, PPL, IRM, PFE, KKR, KAR, F, MIC, LO, ABBV.
Mon, Jan. 12, 12:48 PM
- Goldman Sachs lowers target prices for several offshore drillers as it cuts its crude oil price outlook, although it still rates Atwood Oceanics (ATW -3.3%) a Buy.
- The firm expects offshore driller stocks to struggle with a supply/demand imbalance driven by the 62 newbuild floaters and 113 jackups coming to the market through 2016 (24% and 28%, respectively, of the working rig count), on top of weak demand, and sees demand curtailed as projects are delayed, resulting in declining utilization for offshore rigs and lower earnings for the majority of offshore drillers as rigs rolling off contracts could struggle to find contracts.
- ATW is Goldman's lone Buy-rated name due to high contract coverage, a young rig fleet and favorable valuation; Sell-rated Transocean (RIG -4.6%) and Diamond Offshore (DO -4.9%) have high rig availability, exposure to aging assets, potential for asset writedowns, and risks to their current dividend payments.
Fri, Jan. 9, 6:12 PM
- The 5th U.S. Circuit Court of Appeals in New Orleans refuses to reconsider its 2014 ruling that BP cannot avoid federal penalties for the 2010 Gulf of Mexico oil spill by blaming another company's failed equipment.
- BP and minority partner Anadarko (NYSE:APC) had argued they should not face federal Clean Water Act penalties because the oil leaked not from the Macondo well but from the broken underwater riser that had connected the well to the Deepwater Horizon rig owned by Transocean (NYSE:RIG).
Thu, Jan. 8, 10:56 AM
- Transocean (RIG +0.2%) is the top investment pick at Zephirin Group, which cites its expectations for the offshore drilling services company to consistently continue to deliver much stronger free cash flow than competitors such as Sell-rated Seadrill (SDRL +1.7%) and Diamond Offshore (DO -0.8%).
- The firm says it is "an incredible slight" for Moody’s to consider a downgrade of RIG debt now or through 2017, as "the backlog that is due in 2015 is ~$5.8B and $13.4B thereafter, which in our opinion fully covered the company’s debt payment."
Tue, Jan. 6, 3:49 PM
- Offshore drillers have tanked in the past six months - Transocean (RIG -1.4%) has plunged 74%, Ensco (ESV -0.3%) has skidded 49%, Noble Corp. (NE -1.2%) lost 46% and Rowan (RDC +0.3%) is off 25% - but the group looks like just another value trap, according to analysts at Societe Generale.
- Sticking to its outlook for depressed offshore driller multiples, the firm is concerned that another leg down in dayrates remains, and that the lower spending outlook for 2015 will have more tangible ramifications for the shorter cycle jack-up market.
- However, the firm upgrades hard-hit Ensco to Buy from Hold; even with reduced dayrate assumptions, ESV appears to be in the best financial shape and should be able to meet its upcoming debt maturities, and even increase its dividend modestly in 2016 if it chooses to do so.
Tue, Jan. 6, 2:53 PM
- Moody's says it is placing Transocean's (RIG -1.9%) Baa3 rating on review for downgrade to reflect the company's large capital commitments and the rating agency's expectation for a significant increase in leverage at the start of an apparently long industry down-cycle.
- Moody's sees the increased likelihood of deteriorating financial metrics more than offsetting the reduced risk of additional Macondo payouts and the possibility of large distributions to stockholders; also, the potential for debt-financed drop-downs of some of RIG's best assets to Transocean Partners (NYSE:RIGP) could result in structural subordination issues for creditors at the parent level.
Mon, Jan. 5, 12:18 PM
- Energy stocks severely underperform the broader market, with the sector -4.2% vs. the S&P 500's -1.4%, as U.S. oil prices briefly slip below $50/bbl for the first time since April 2009; Nymex crude recently was -4.4% at $50.37, while Brent crude -5.9% at $53.08.
- Among the day's biggest losers: DNR -9%, RIG -7.6%, NBR -4.8%, CHK -5.9%, SDRL -9.1%, SD -12.3%, NOV -5.9%, PSX -6.2%, APA -5.9%, DVN -4.4%, EOG -6%, SU -5.2%, OXY -4.2%, APC -8.7%, PWE -9%, ECA -5.5%, MRO -5.3%.
- Global oil majors, which have been seen as less vulnerable to falling oil prices, are posting big losses: XOM -2.7%, COP -4.5%, CVX -3.8%, BP -5.8%, RDS.A -4.6%, TOT -6.5%.
- ETFs: USO, XLE, OIL, UCO, ERX, VDE, OIH, SCO, XOP, ERY, FCG, DIG, PBW, BNO, GASL, DTO, DBO, DUG, IYE, XES, IEO, QCLN, IEZ, UWTI, PXE, USL, PXI, FENY, DWTI, PXJ, DNO, PSCE, RYE, SZO, PUW, FXN, OLO, DDG, HECO, TWTI, OLEM
Thu, Jan. 1, 2:19 AM
- Dow: INTC +41%; UNH +35%; HD +28%; CSCO +25%; MSFT +25%.
- S&P 500: LUV +125%; EA +106%; EW +95%; AGN +92%; AVGO +91%.
- Nasdaq: AAL +112%; EA +106%; AVGO +91%; GMCR +78%; ILMN +68%.
Dec. 23, 2014, 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.
Dec. 19, 2014, 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%.
Dec. 19, 2014, 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%.
Dec. 19, 2014, 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).
Dec. 8, 2014, 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%.
Dec. 3, 2014, 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%.
Dec. 2, 2014, 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."
Dec. 1, 2014, 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%).
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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