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Transocean Stands Out Amid Still Soft Landscape

Nov. 02, 2017 6:14 PM ETTransocean Ltd. (RIG)8 Comments


  • Transocean could be one of the biggest winners to come out of the long and slowly unwinding crude oil bear cycle.
  • The Street might have failed to fully account for Transocean's impressive October FSR in its estimates.
  • I believe investors looking to dip their toes in these still-turbulent waters may want to give RIG some consideration.

Transocean (NYSE:RIG) provided further evidence that it can be one of the biggest winners to come out of the long and slowly unwinding crude oil bear cycle.

The company delivered an all-around beat on Wednesday, with revenues of $808 million growing a solid 8% sequentially and beating consensus estimates by a wide margin of over $100 million. The company looked solid on operating metrics, as every single rig type and class, from UDW to high-spec jackups, saw a sequential improvement in utilization - very meaningful in some cases. The results were partially hinted at when Transocean delivered an impressive (relative to the downcycle) fleet status update in October that was well covered by Seeking Alpha contributor Fun Trading. But the strength was possibly not fully factored into Street's estimates for the quarter.

Credit: Offshore Energy Today

Not surprisingly, however, and consistent with what peers have been reporting, dayrates continued to deteriorate. Only the much smaller portfolio of two JUs still in operation (the others having been sold to Borr Drilling) did not experience a sequential dip in pricing. I believe this metric will prove to be crucial in gauging when the offshore drilling space might be able to declare the downcycle over - not in the immediate future, in my opinion.

Non-GAAP gross profits improved as drilling expenses came down after the jackup disposition. With opex under control and decreasing sequentially, a trademark of Transocean's tight cost management practices, op margins improved substantially by nearly eight percentage points. All accounted for (revenues up, drilling and other operating expenses down), I estimate that the company's operations (i.e. excluding items below the op profit line) contributed a solid 19 cent quarter-on-quarter increase to EPS.

Source: DM Martins Research, using data from company reports

My thoughts on the offshore drilling space and RIG

This article was written by

DM Martins Research profile picture
Tracking Economic Inflection Points To Guide Your Asset Allocation Strategy

Daniel Martins is a Napa, California-based analyst and founder of independent research firm DM Martins Research. The firm's work is centered around building more efficient, easily replicable portfolios that are properly risk-balanced for growth with less downside risk.

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Daniel is the founder and portfolio manager at DM Martins Capital Management LLC. He is a former equity research professional at FBR Capital Markets and Telsey Advisory in New York City and finance analyst at macro hedge fund Bridgewater Associates, where he developed most of his investment management skills earlier in his career. Daniel is also an equity research instructor for Wall Street Prep.

He holds an MBA in Financial Instruments and Markets from New York University's Stern School of Business.

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On Seeking Alpha, DM Martins Research partners with EPB Macro Research, and has collaborated with Risk Research, Inc.

DM Martins Research also manages a small team of writers and editors who publish content on several TheStreet.com channels, including Apple Maven (thestreet.com/apple) and Wall Street Memes (thestreet.com/memestocks).

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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