Back to top

Image: Bigstock

Transocean Calls Off Korea's Samsung Twin-Drillship Contract

Read MoreHide Full Article

Transocean Ltd. (RIG - Free Report) recently announced that two of its indirect wholly-owned subsidiaries will cancel the deliveries of two drillships from Korean builder Samsung Heavy Industries in 2019 and 2020.

The newbuild drillships, namely Ocean Rig Santorini and Ocean Rig Crete were supposed to be delivered to Transocean in 2019 and 2020. Following the relinquishment of interests in the vessels — currently under construction at Geoje shipyard — Transocean’s units will not make further payments for the seventh generation ultra-deepwater drillship contracts to Samsung Heavy Industries.

Rig Cancellations to Save Cost

In December 2018, Transocean snapped up a deal with smaller rival Ocean Rig UDW for a consideration of $2.7-billion. While the acquisition strengthened the company’s portfolio, expanding its fleet size and quality in the process, the same even affected its finances. The transaction also resulted in stock issuance and debt addition along with cash reduction. Notably, Transocean’s long-term debt deteriorated to $9.4 billion as of Jun 30, 2019 from $7.1 billion in 2017.

Had Transocean received the consignment of its two newbuilds, it would have incurred a huge expense of $1.1 billion comprising payments to SHI as well as transportation and raw material costs. Therefore, upon this contract’s withdrawal, the company will be able to save a huge chunk from its future costs. Moreover, the construction-based contracts are not guaranteed by the parent entity or any of its wholly-owned subsidiaries.

Company Profile: A Brief

Switzerland-based Transocean is the world’s largest offshore drilling contractor and a leading provider of drilling management services. The company provides rigs on a contractual basis to explore and develop oil and gas. Transocean offers offshore drilling rigs, equipment, services and manpower (with particular emphasis on ultra-deepwater and harsh environment drilling services) to exploration and production companies worldwide.

Zacks Rank & Key Picks

Transocean carries a Zacks Rank #3 (Hold). Better-ranked players in the energy space include BP Midstream Partners (BPMP - Free Report) , Dril-Quip, Inc. (DRQ - Free Report) and TC Pipelines, LP (TCP - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BP Midstream’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters.

Dril-Quip earnings beat the Zacks Consensus Estimate in three of the previous four quarters.

TC Pipelines earnings beat the Zacks Consensus Estimate in three of the last four quarters.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.

This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.

See their latest picks free >>