2-cents

Strong Fundamentals and Oil Ties Make Transocean a Great Long-Term Buy

To Chris;
1) If the price of oil drops to X ($80, $60, $40) at what point do RIG's contracted day rates, and thus revenue, adjust per the terms of their contracts? Has anyone analyzed this?
Their contracts are not cancellable. A lesson learnt from previous down turns. Most new contracts have cost escalation clauses meaning costs will be passed to oil companies.

2) If their revenue drops, as the first question ponders, then at what oil price would they be unable to service their debt?
Current backlog is $40.7 billion which will leave almost $10 bn in spare after paying back all debts. You need to worry about what they are going to do with the cash flooding in.

3) Has anyone considered the risks of non-payment or contract abandonment by RIG's customers if oil prices continue to plummet towards historical means?
See No1.
OPEC is defending $100 oil (a level that got passed just this April) whereas Petrobras is contracting all deepwater rigs it can find for the next 10 years. Their projects require $100-$115 oil to be sustainable. Do you think they go ahead if they think oil will be at $80, $60 a barrel?

Transocean: Drilling For Profits

Gaurav,
Be patient! I am a long term holder of offshore drillers. Take Ensco for example, it was on Merrill Lynch's Conviction Sell and was lagging RIG for almost a year, but fundamentals prevailed. It is one of the cheapest with strongest balance sheet amongst drillers. RIG is now dirt cheap considering very solid backlog at $34 billion. The latest June operations report showed considerable jumped in two contract rates.
Be patient. Not many companies have such tail wind.