Offshore drilling giant, Transocean Ltd. (RIG - Analyst Report) reported mixed first-quarter 2013 earnings.
Earnings per share (excluding special items) came in at 93 cents, ahead of the year-ago adjusted profit of 75 cents, reflecting better utilization of rig.
However, the earnings per share figure failed to beat the Zacks Consensus Estimate of $1.01 owing to a significant increase in operating cost.
Total quarterly revenue of $2,197.0 million fell short of the Zacks Consensus Estimate of $2,369.0 million. However, comparing year over year, revenues were up 4.1% mainly attributed to higher average dayrates from high-spec jackups and midwater floaters.
Transocean's high-spec floaters contributed approximately 72.1% to the total revenue, while mid-water floaters and high-spec jackup rigs accounted for 19.5% and 5.6% of the total, respectively. The remaining revenues came from other rig activities, integrated services and others.
Transocean posted operating income of $473.0 million during the quarter compared with an income of $371.0 million in the year-ago period. Total operating and maintenance expenses increased 10.7% to $1,375.0 million.
Dayrates & Utilization
Total average dayrates have increased to $361,200 in this quarter as compared to $358,100 in the first quarter of 2012. The increase is favored by the 45.4% and 14.4% increase in dayrates for high-spec jackups and midwater floaters partially offset by 4.2% decrease in dayrates for ultra-deepwater floaters.
Overall fleet utilization was 80%, up from the year-ago utilization rate of 74%.
Capital Expenditure & Balance Sheet
Capital expenditures during the quarter totaled $488.0 million.
As of Mar 31, 2013, Transocean had cash and cash equivalents of $3,689.0 million and long-term debt of $10,804.0 million (representing a debt-to-capitalization ratio of approximately 40.3%).
Transocean currently retains a Zacks Rank #3 (Hold).
With less oil being discovered on land and companies having to dig deeper to get to their reserves, Transocean is poised to benefit from a market that has a robust multi-year demand trend, given its technologically advanced and versatile drilling fleet.
In particular, Transocean is the industry leader in deep sea drilling. The company’s state-of-the-art mobile offshore drilling fleets worldwide can function in most challenging environments, such as the North Sea.
However, the introduction of new and more stringent regulations due to the oil spill will likely make deepwater drilling activity prohibitively expensive for exploration and production companies, making many projects less profitable. This could reduce the demand for deepwater drilling.
Meanwhile, there are other energy firms that offer value and are worth buying now. These include EPL Oil & Gas Inc. , InterOil Corporation (IOC - Snapshot Report) and SemGroup Corporation (SEMG - Snapshot Report). All three firms sport a Zacks Rank #1 (Strong Buy).