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Offshore drilling giant Transocean Ltd. (RIG - Analyst Report) reported mixed third quarter 2012 results, reflecting better utilization levels and controlled operating costs, partially offset by a dip in average daily revenue in midwater floaters.

Earnings per share, excluding special items, came in at $1.37; significantly ahead of the Zacks Consensus Estimate of 76 cents and the year-ago adjusted profit of 11 cents.

Revenue

Total quarterly revenues of $2,440.0 million failed to meet the Zacks Consensus Estimate of $2,524.0. However, comparing year over year, revenue was up 22.6% mainly attributable to better efficiency on high-spec floaters.

Transocean’s high-spec floaters contributed approximately 72% to total revenue, while mid-water floaters and jack-up rigs accounted for 17% and 5% of the total, respectively. The remaining revenue came from other rig activities, integrated services and others.

Operating Statistics

Transocean posted operating income of $803.0 million, during the quarter, compared to a profit of $298.0 million in the year-ago period. Total operating and maintenance expenses decreased slightly to $1,687.0 million due to a drop in costs.

Dayrates & Utilization

Compared to the third quarter of 2011, dayrates moved up 2.9% (to $298,300 from $289,800), favorably impacted by improved dayrates among high-spec floaters and jack-ups.

Overall fleet utilization was 73% during the reported quarter, up from the year-ago utilization rate of 58%.

Capital Expenditure & Balance Sheet

Capital expenditures during the quarter, totaled $201 million, of which the lion’s share went to Transocean’s contract drilling services segment. As of September 30, 2012, Transocean had cash/cash equivalents of $6,001.0 million and long-term debt of approximately $11,211.0 million (representing a debt-to-capitalization ratio of approximately 42.4%).

Rating & Recommendation

Transocean currently has a Zacks #3 Rank (Neutral rating) in the short run, supported by a long-term Neutral recommendation on the shares.

Switzerland-based Transocean is the world’s largest offshore drilling contractor and the leading provider of drilling management services worldwide. The company has business contracts with oil firms such as Eni SpA (E - Analyst Report), Total SA (TOT - Analyst Report) and Royal Dutch Shell plc (RDS.A - Analyst Report).

We believe that Transocean is the industry leader in deep sea drilling with its state-of-the-art mobile offshore drilling fleet that can function in most challenging environments across the globe. However, operational issues such as fluctuating dayrates and inflationary cost conditions along with the company’s high debt have kept us on the sidelines.
 

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