Sell Transocean (RIG)
Sometimes it doesn’t pay to be the biggest.
If you’re the biggest company in the market and control capacity in your industry, that’s a license to print money when supply for your product is tight. When supply runs ahead of demand, however, the pressure is on to support prices across your industry by reducing your capacity.
This is the story for Saudi Arabia, the swing producer in OPEC (Organization of Petroleum Exporting Countries). For Potash of Saskatchewan (POT) in potash fertilizer, and for Transocean (RIG) in the offshore drilling industry.
Transocean’s 139 drilling rigs give the company by far the biggest offshore drilling fleet. And that’s a huge advantage when supply is tight in the industry and Transocean can ride the ever-higher day rates for rigs to higher and higher profits.
Right now size isn’t exactly a blessing because Transocean’s huge fleet covers all the segments of the offshore drilling market.
Some segments are doing just great: deep and ultra-deep rigs are still in short-supply, even with the drilling moratorium in the Gulf of Mexico after the BP-Transocean-Halliburton Macondo disaster. Day-rates have pushed back over $600,000 and contracts have stretched out to 10 years or more.
But 65 of Transocean’s 139 rigs are jack-up rigs and the jack-up market is very, very, very soft. Read more
Update Transocean (RIG)
Transocean (RIG) is the owner of Deepwater Horizon, the drilling rig that caught fire on April 20 and eventually sank in the Gulf of Mexico with the loss of 11 workers. Those workers are still missing but presumed dead. Oil continues to leak from the well 4,500 feet below the surface.
Today, April 27, the U.S. Coast Guard will try to set some of the huge spill on fire as a way to reduce the danger to the Louisiana coast and the Gulf of Mexico.
I by no means want to say that this human and ecological disaster should be measured in dollars and cents, but let’s face it, the cost of this tragedy is what will drive the price of Transocean shares in the short-term.
The rig that was destroyed was one of Transocean’s most advanced rigs. Replacing it will cost about $700 million. Most of that–$560 million, according to Transocean–will be covered by insurance. The rig was set to begin a new three-year contract with BP (BP), the owner of the well, in September at a rate of $497,000 a day. At the current day rate of $500,000, lost revenue on the remaining five months of the rig’s contract to BP is close to $75 million. That’s equal to less than 1% of 2009 annual revenue for Transocean.
The Deepwater Horizon won a safety award from the U.S. Minerals Management Service in 2009 and the agency didn’t find any safety violations during three safety inspections this year. That, of course, doesn’t preclude law suits from the families of the missing workers.
The biggest unknown is the size of the bill for the ocean cleanup work and for any possible damage to coastal areas with their valuable mix of beaches, oyster beds, and wildlife refuges. Read more
Update Transocean (RIG)
I’m filing this update from the beach. I’m on vacation the week of March 29 to April 2. Unless the sun stops shining here in the Bahamas (or the kids decide to hire themselves out on a fishing boat), I don’t anticipate filing more than once a day for this week. JubakPicks.com will go back to its normal schedule on Monday April 5.
Update Transocean (RIG)
Shares of Transocean (RIG) were up 3.8% as of 2:00 p.m. ET today, March 31, on news that President Barack Obama has proposed permitting exploration in the Atlantic Ocean from Delaware to Florida and in the Gulf of Mexico 125 miles off the west coast of Florida if Congress lifts its moratorium on drilling in the area.
Very little is expected to happen very quickly. An area 50 miles off the coast of Virginia would be opened up for immediate exploration. Further south areas would be opened for study with a decision on drilling pushed off into 2013.
And all this is just a proposal by the Obama administration anyway.
But even if this is all just words now, they’re important words. Read more
Update Transocean (RIG)
Have you got the patience to hold this one for the turn in the off-shore drilling market?
It’s clear that many investors in Transocean (RIG) don’t. The stock was down 5.5% for the day (February 24) after the company yet again pushed out the recovery for its deep-water and mid-water drilling rigs when it reported fourth quarter 2009 results.
For the quarter the company reported earnings of $2.24 a share and revenues of $2.55 billion. Given all the one-time items in the quarter (such as a $48 million charge related to taxes and the GlobalSantaFe merger), it’s not clear to me how the reported $2.24 compares to Wall Street’s projection of $2.56 in earnings. What is clear is that revenues, which fell 10% from the fourth quarter of 2008, came up short of the Wall Street consensus by about $280 million.
But I think it’s the conference call that did the real damage to shares on the 24th. Read more
Update Transocean (RIG)
No real surprises in the third quarter earnings reported by Transocean (RIG) on November 4.
The company continued to stack jack-up rigs as that segment of the offshore drilling market showed continued weakness. Deep water activity continued to heat up in the waters off Brazil but that wasn’t enough to offset the decline in the shallow and mid-water markets.
For the quarter Transocean reported earnings of $2.19 a share, down from $3.30 in the third quarter of 2008. Revenue dropped to $2.82 billion from $3.19 billion.
Earnings per share, excluding one-time items, were 2 cents a share above the Wall Street consensus.
Those drops in earnings and revenue were clearly forecast in Transocean’s fleet report in the days before the earnings release. Read more
