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Analyst Blog

Recently, offshore drilling giant Transocean Ltd. (RIG - Analyst Report) issued a monthly ‘Fleet Update Summary’ covering the company’s drilling rig status and contract information.

Per the report, the company’s drillship Deepwater Expedition received a two-year contract from an undisclosed customer. The contract will be executable from December 2012 at an initial dayrate of $650,000.

Another drillship – Discoverer Seven Seas – won a three-well contract (approximately 180 days) from Eni SpA (E - Analyst Report) to operate in offshore Indonesia. The rig is expected to work at a current dayrate of $445,000, against a prior dayrate of $295,000.

Transocean’s midwater floater GSF Arctic III received a three-month extension of its existing contract and will operate in the U.K. sector of the North Sea. The rig was contracted by Nexen Inc. at a dayrate of $315,000, higher than the previous dayrate of $280,000.

However, two jackups Transocean Shelf Explorer and Transocean Nordic has been put up for sale, and hence will no longer be a part of the company’s fleet.

Leading offshore drilling contractor and the provider of drilling management services globally, Transocean’s current contract drilling fleet comprises 50 high-specification deepwater floaters, 25 midwater floaters, 9 high-specification jackups, 47 standard jackups and one swamp barge in support of offshore drilling activities across the globe.

We are maintaining our long-term Neutral recommendation on the stock. Transocean currently retains a Zacks #3 Rank, translating into a short-term Hold rating.

We believe that given a technologically-advanced and versatile offshore drilling fleet, strong backlog and considerable pricing power, Transocean will offer strong earnings and cash flow visibility

Additionally, Transocean recently won a favorable court verdict in the Deepwater Horizon rig disaster. According to a federal judge in Louisiana, the company is not liable for some of the cleanup expense that could have run into tens of billions of dollars. We believe the court’s ruling will remove at least some overhang from the company’s future

However, we apprehend that operational issues – such as the decline in utilization rates and high operating costs – along with high debt level will likely continue to weigh down the stock.

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