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Here's Why Hold Strategy Is Apt for Transocean Stock Now
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Key Takeaways
RIG stock outperformed most peers despite a 10.9% six-month decline amid industry-wide pressure.
A $7.9B backlog and 95.5% Q1 revenue efficiency highlight strong visibility and operations.
Net loss of $79M and $5.9B debt highlight ongoing profitability and leverage challenges.
Transocean Ltd. (RIG - Free Report) is one of the most well-known players in offshore drilling, focused on operating mobile rigs that help explore oil and gas beneath the ocean floor. The company, which started back in 1926 and is now based in Steinhausen, Switzerland, has built a strong reputation for handling complex drilling jobs, especially in deepwater and tough, remote locations. Its client base includes both global energy giants and government-owned oil companies.
As the energy market evolves, many investors have their eyes on RIG stock, trying to figure out whether it is a smart buy right now. The company has a fair share of strengths, but it also faces a few hurdles, which have been reflected in the stock’s ups and downs.
Analysing 6-Month Price Movement
Image Source: Zacks Investment Research
Although Transocean posted a negative return of 10.9% over the past six months, its performance reflected a smaller loss compared with the broader Oil & Gas Drilling sub-industry, which declined 13.7%. This suggests that while the company's share price fell, it was more resilient than the industry average and most of the peers. For example, RIG’s loss was less severe than Precision Drilling Corporation (PDS - Free Report) , which declined 13.4%, and significantly better than the 43.4% drop posted by Nabors Industries Ltd. (NBR - Free Report) . Additionally, it outperformed Patterson-UTI Energy, Inc. (PTEN - Free Report) , which recorded a loss of 11.2%.
So, is this the right moment to invest in RIG, or would it be wiser to stay on the sidelines for now? Let us explore the main forces behind the stock’s movement and what that might signal for investors.
What Is Working in Transocean’s Favor
Strong Backlog and Revenue Visibility: RIG boasts a robust backlog of $7.9 billion, providing significant revenue visibility over the coming years. The company has secured long-term contracts, including recent extensions like the Transocean Equinox at $540,000 per day through August 2026. This backlog insulates the company from short-term market volatility and ensures steady cash flow. In comparison, peers like Hamilton-based Nabors Industries and Calgary-based Precision Drilling face more exposure to spot-rate fluctuations, which gives RIG’s backlog a relative advantage.
Additionally, management highlighted that 97% of 2025 and 93% of 2026 contracted days are already booked, reducing uncertainty. The backlog is supported by demand in key regions like the U.S. Gulf, Brazil and West Africa.
Positive Industry Outlook and Deepwater Demand: The offshore drilling sector is showing signs of recovery, with deepwater investments projected to climb 40% by 2030. Transocean, being a leader in harsh-environment drilling, stands to benefit greatly, especially as major oil companies like Shell and BP ramp up their focus on high-return deepwater assets. While onshore drillers like Houston, TX-based Patterson-UTI and Precision Drilling may see moderate growth, Transocean is uniquely positioned to capitalize on global ultra-deepwater tenders expected in Brazil, Africa and the Gulf of Mexico in 2025-2026.
Operational Efficiency and Cost Savings: Management expects $100 million in cost savings in 2025, with another $100 million in 2026, resulting from procurement localization and supplier contract optimization. Revenue efficiency reached 95.5% in first-quarter 2025, highlighting operational excellence. Transocean’s ability to reduce costs contrasts with some peers like Nabors Industries, which continue to struggle with margin pressures due to higher maintenance and overhead costs.
Liquidity and Debt Management: Transocean ended first-quarter 2025 with $1.3 billion in liquidity, including $263 million in cash and a $576 million undrawn credit facility. The company repaid $210 million in debt during the quarter, demonstrating a commitment to deleveraging. Management estimates year-end liquidity of $1.45-$1.55 billion, supported by cost savings and operational cash flow. While debt remains high, the focus on reducing leverage improves financial stability.
Geographic Diversification and Contract Wins: Transocean operates globally, with upcoming opportunities in Brazil (Petrobras tenders), West Africa (Exxon, Chevron programs), and Norway. The company highlighted early contract starts (e.g., Transocean Barents and Deepwater Invictus), showcasing operational reliability. Diversification reduces reliance on any single market, mitigating regional risks.
Key Headwinds Faced by Transocean
Net Losses and Negative Earnings: Transocean reported a first-quarter 2025 net loss of $79 million (11 cents per share), caused by higher operating costs and a $34 million non-cash receivable write-off. Adjusted EBITDA declined sequentially to $244 million, with margins dropping to 26.9% from 33.9% in fourth-quarter 2024. Persistent losses raise concerns about profitability, especially if day rates soften or costs rise.
High Debt Burden: The company carries $5.9 billion in long-term debt, with $712 million due within a year. Interest expense was $152 million in the first quarter, consuming a significant portion of operating cash flow ($26 million). While management plans to deleverage, the debt load remains a risk if market conditions deteriorate or refinancing costs rise.
Macroeconomic and Commodity Price Risks: RIG’smanagement acknowledged trade tensions and OPEC volatility as uncertainties that could impact drilling demand. While no contracts have been canceled yet, prolonged oil price weakness or geopolitical disruptions (e.g., Mediterranean tensions) could delay tenders. Transocean’s optimism hinges on stable oil prices above $50 per barrel, which is not guaranteed.
Idle Fleet and Asset Risks: Transocean has cold-stacked rigs (e.g., Discoverer Inspiration) with minimal near-term prospects. Competitors are scrapping older rigs, but Transocean has not taken similar steps, incurring sustaining costs. If demand weakens, these idle assets could become liabilities. The company also faces customer disputes, as seen in the $34 million write-off.
Competitive Day Rate Pressure: Day rates for high-spec rigs have plateaued in the mid $400,000 and competitors like Noble have secured contracts at potentially lower rates. Transocean’s refusal to match aggressive pricing (e.g., Shell tender) may limit near-term contract wins. If idle rigs re-enter the market, pricing power could weaken further.
Final Verdict for RIG Stock
RIG offers several positives, including a solid backlog that ensures revenue visibility, growing demand for deepwater drilling and ongoing operational improvements that are expected to generate $200 million in cost savings by 2026. The company also maintains a strong geographic presence and has taken steps to improve liquidity and reduce debt. However, persistent net losses, a heavy debt burden and exposure to macroeconomic and commodity price risks raise caution.
Additionally, idle rigs and potential pricing pressure could challenge profitability. Given the blend of strengths and risks, investors should wait for a more favorable opportunity to add this Zacks Rank #3 (Hold) stock to their portfolios.
Image: Shutterstock
Here's Why Hold Strategy Is Apt for Transocean Stock Now
Key Takeaways
Transocean Ltd. (RIG - Free Report) is one of the most well-known players in offshore drilling, focused on operating mobile rigs that help explore oil and gas beneath the ocean floor. The company, which started back in 1926 and is now based in Steinhausen, Switzerland, has built a strong reputation for handling complex drilling jobs, especially in deepwater and tough, remote locations. Its client base includes both global energy giants and government-owned oil companies.
As the energy market evolves, many investors have their eyes on RIG stock, trying to figure out whether it is a smart buy right now. The company has a fair share of strengths, but it also faces a few hurdles, which have been reflected in the stock’s ups and downs.
Analysing 6-Month Price Movement
Image Source: Zacks Investment Research
Although Transocean posted a negative return of 10.9% over the past six months, its performance reflected a smaller loss compared with the broader Oil & Gas Drilling sub-industry, which declined 13.7%. This suggests that while the company's share price fell, it was more resilient than the industry average and most of the peers. For example, RIG’s loss was less severe than Precision Drilling Corporation (PDS - Free Report) , which declined 13.4%, and significantly better than the 43.4% drop posted by Nabors Industries Ltd. (NBR - Free Report) . Additionally, it outperformed Patterson-UTI Energy, Inc. (PTEN - Free Report) , which recorded a loss of 11.2%.
So, is this the right moment to invest in RIG, or would it be wiser to stay on the sidelines for now? Let us explore the main forces behind the stock’s movement and what that might signal for investors.
What Is Working in Transocean’s Favor
Strong Backlog and Revenue Visibility: RIG boasts a robust backlog of $7.9 billion, providing significant revenue visibility over the coming years. The company has secured long-term contracts, including recent extensions like the Transocean Equinox at $540,000 per day through August 2026. This backlog insulates the company from short-term market volatility and ensures steady cash flow. In comparison, peers like Hamilton-based Nabors Industries and Calgary-based Precision Drilling face more exposure to spot-rate fluctuations, which gives RIG’s backlog a relative advantage.
Additionally, management highlighted that 97% of 2025 and 93% of 2026 contracted days are already booked, reducing uncertainty. The backlog is supported by demand in key regions like the U.S. Gulf, Brazil and West Africa.
Positive Industry Outlook and Deepwater Demand: The offshore drilling sector is showing signs of recovery, with deepwater investments projected to climb 40% by 2030. Transocean, being a leader in harsh-environment drilling, stands to benefit greatly, especially as major oil companies like Shell and BP ramp up their focus on high-return deepwater assets. While onshore drillers like Houston, TX-based Patterson-UTI and Precision Drilling may see moderate growth, Transocean is uniquely positioned to capitalize on global ultra-deepwater tenders expected in Brazil, Africa and the Gulf of Mexico in 2025-2026.
Operational Efficiency and Cost Savings: Management expects $100 million in cost savings in 2025, with another $100 million in 2026, resulting from procurement localization and supplier contract optimization. Revenue efficiency reached 95.5% in first-quarter 2025, highlighting operational excellence. Transocean’s ability to reduce costs contrasts with some peers like Nabors Industries, which continue to struggle with margin pressures due to higher maintenance and overhead costs.
Liquidity and Debt Management: Transocean ended first-quarter 2025 with $1.3 billion in liquidity, including $263 million in cash and a $576 million undrawn credit facility. The company repaid $210 million in debt during the quarter, demonstrating a commitment to deleveraging. Management estimates year-end liquidity of $1.45-$1.55 billion, supported by cost savings and operational cash flow. While debt remains high, the focus on reducing leverage improves financial stability.
Geographic Diversification and Contract Wins: Transocean operates globally, with upcoming opportunities in Brazil (Petrobras tenders), West Africa (Exxon, Chevron programs), and Norway. The company highlighted early contract starts (e.g., Transocean Barents and Deepwater Invictus), showcasing operational reliability. Diversification reduces reliance on any single market, mitigating regional risks.
Key Headwinds Faced by Transocean
Net Losses and Negative Earnings: Transocean reported a first-quarter 2025 net loss of $79 million (11 cents per share), caused by higher operating costs and a $34 million non-cash receivable write-off. Adjusted EBITDA declined sequentially to $244 million, with margins dropping to 26.9% from 33.9% in fourth-quarter 2024. Persistent losses raise concerns about profitability, especially if day rates soften or costs rise.
High Debt Burden: The company carries $5.9 billion in long-term debt, with $712 million due within a year. Interest expense was $152 million in the first quarter, consuming a significant portion of operating cash flow ($26 million). While management plans to deleverage, the debt load remains a risk if market conditions deteriorate or refinancing costs rise.
Macroeconomic and Commodity Price Risks: RIG’smanagement acknowledged trade tensions and OPEC volatility as uncertainties that could impact drilling demand. While no contracts have been canceled yet, prolonged oil price weakness or geopolitical disruptions (e.g., Mediterranean tensions) could delay tenders. Transocean’s optimism hinges on stable oil prices above $50 per barrel, which is not guaranteed.
Idle Fleet and Asset Risks: Transocean has cold-stacked rigs (e.g., Discoverer Inspiration) with minimal near-term prospects. Competitors are scrapping older rigs, but Transocean has not taken similar steps, incurring sustaining costs. If demand weakens, these idle assets could become liabilities. The company also faces customer disputes, as seen in the $34 million write-off.
Competitive Day Rate Pressure: Day rates for high-spec rigs have plateaued in the mid $400,000 and competitors like Noble have secured contracts at potentially lower rates. Transocean’s refusal to match aggressive pricing (e.g., Shell tender) may limit near-term contract wins. If idle rigs re-enter the market, pricing power could weaken further.
Final Verdict for RIG Stock
RIG offers several positives, including a solid backlog that ensures revenue visibility, growing demand for deepwater drilling and ongoing operational improvements that are expected to generate $200 million in cost savings by 2026. The company also maintains a strong geographic presence and has taken steps to improve liquidity and reduce debt. However, persistent net losses, a heavy debt burden and exposure to macroeconomic and commodity price risks raise caution.
Additionally, idle rigs and potential pricing pressure could challenge profitability. Given the blend of strengths and risks, investors should wait for a more favorable opportunity to add this Zacks Rank #3 (Hold) stock to their portfolios.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.