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Transocean (RIG) Beats Q3 Earnings Amid Industry Downturn

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Offshore drilling giant Transocean Ltd. (RIG - Free Report) reported stronger-than-expected third-quarter 2016 results, buoyed by solid revenue efficiency and cost control initiatives. Results were also aided by contribution from its newbuild, ultra-deepwater drillship Deepwater Proteus. In particular, the company achieved another quarter of outstanding revenue efficiency at 100.7%, up from 95% in the first quarter.

Earnings per share (excluding special items) came in at 25 cents, significantly ahead of the Zacks Consensus Estimate of 14 cents.

However, the bottom line decreased from the year-ago adjusted earnings of 87 cents per share amid reduced activity and lower dayrates.

Total quarterly revenues of $903 million were down 44% year over year but surpassed the Zacks Consensus Estimate of $872 million.

Transocean’s high-spec floaters contributed about 80% to total revenue, while mid-water floaters and high specification jackups accounted for 10% and 7% of the total, respectively. The remaining revenue came from other rig activities, integrated services and others.

 

Operating Statistics

Transocean – which has seen a number of rig contract cancellations this year from clients including Murphy Oil Corp. (MUR - Free Report) and ExxonMobil Corp. (XOM - Free Report) – earned operating profit of $225 million during the quarter, compared to $445 million in the year-ago period. The decline primarily reflects sharply lower contract drilling revenues.

However, Transocean was able to reduce its operating and maintenance expenses by an impressive 54% to $404 million. The cost discipline, coupled with lower capital expenditure, enabled the Zacks Rank #3 (Hold) company to generate $440 million in cash flow from operating activities. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

TRANSOCEAN LTD Price, Consensus and EPS Surprise

 

TRANSOCEAN LTD Price, Consensus and EPS Surprise | TRANSOCEAN LTD Quote

Dayrates and Utilization

Compared to the third quarter of 2015, dayrates fell 14% (from $385,300 to $330,900), unfavorably impacted by declines in all types of rigs except ultra-deepwater floaters.

Overall fleet utilization was 49% during the quarter, down from the year-ago utilization rate of 70%.

Capital Expenditure & Balance Sheet

While Transocean spend $940 million as capital expenditure in the third quarter of 2015, the amount came down sharply to just $246 million during the three months under review. Lion’s share of this $246 million went toward the final payment on the newbuild Deepwater Conquerer. The ultra-deepwater rig is set for a five-year contract with energy major Chevron Corp. (CVX - Free Report) .  

As of Sep 30, 2016, Transocean had cash and cash equivalents of $2,534 million and long-term debt of $7,191 million (representing a debt-to-capitalization ratio of approximately 31.8%).

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