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Transocean Inks $830-Million Drilling Contract With Chevron

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Transocean Ltd. (RIG - Free Report) recently announced that it has won a major five-year drilling contract from Chevron Corporation (CVX - Free Report) , which will likely add $830 million to Transocean’s backlog. The amount excludes mobilization and reimbursable charges. Notably, as of Dec 5, the company had a total backlog of $12.2 billion.

The drilling contract is for one of Transocean’s two dynamically positioned ultra-deepwater drillships, which is currently undergoing construction at Singapore’s Jurong shipyard. The drillship is expected to come online in the second half of 2021 and operate in the Gulf of Mexico region. It will be rated for 20,000 pounds-per-square-inch (psi) operations, marking the first ultra-deepwater drillship with such a specification. It is expected to be the “industry’s most capable ultra-deepwater drillship,” whose configuration will comply with Tier III International Maritime Organization emissions standards.

In case of termination of the contract, Transocean will receive compensation for its incremental 20,000 psi subsea investment in the rig. The termination, if occurred after April 2020, will fetch Transocean a “substantial termination fee.”

Transocean has also inked a rig design and construction management contract with Chevron.

Switzerland-based Transocean is one of the largest offshore drilling contractors and leading providers of drilling management services. Last month, the company completed the $2.7-billion acquisition of its smaller rival Ocean Rig UDW, Inc. The move gave Transocean 11 drillships along with two floating semi-submersible rigs.

The company’s fleet now includes 50 offshore drilling units, comprising 32 ultra-deepwater, 14 harsh environment and four mid-water floaters. Moreover, four ultra-deepwater drillships are under construction at present. It also has 33% stake in a harsh environment semisubmersible. This enormous fleet is expected to boost Transocean’s long-term opportunities and help the combined entity to penetrate into deep-and harsh-water markets more effectively.

Price Performance                                                                                                                                                        

Transocean has lost 36.5% in the past year compared with 44.7% collective fall of the industry it belongs to.

Zacks Rank and Stocks to Consider

The company currently carries a Zacks Rank #3 (Hold). Investors interested in the energy sector can opt for some better ranked stocks as given below:

Calgary, Canada-based Gran Tierra Energy Inc. (GTE - Free Report) is an international oil and gas exploration and production company. Its bottom line for 2018 is expected to surge more than 300% year over year. The company delivered a positive average earnings surprise of 24% in the trailing four quarters. The stock currently has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX-based Shell Midstream Partners, L.P. (SHLX - Free Report) is a midstream energy company. For 2019, its bottom line, which has witnessed three upside revisions over the past 60 days, is expected to grow 27.7% year over year. The company currently sports a Zacks Rank #1.

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