Offshore drilling giant Transocean Ltd. (RIG - Analyst Report) recently issued a monthly ‘Fleet Update Summary’ covering the company’s drilling rig status and contract information. As per the report, Transocean secured additional work for four of its mid-water rigs, with three of them getting higher rates.
The company currently has 28 mid-water floaters – capable of drilling in water depths of approximately 300 feet to 4,500 feet – that makes up around 20% of Transocean's revenue.
The Transocean Legend semi-submersible drilling rig has been hired by ConocoPhillips (COP - Analyst Report) to conduct operations offshore Australia until October 2012 at a dayrate of $293,000, down $5,000 from the last contract with Eni SpA (E - Analyst Report) .
Another semi-submersible drilling rig, the GSF Arctic I, will work for Oslo-listed independent explorer Panoro Energy in Brazil from February 2012. The unit – already operating in Brazil – has been snapped up for $270,000 per day, up $20,000 from the current rate.
Transocean’s Sedneth 701 semi-submersible drilling unit, which had a contract offshore Gabon in West Africa till the end of July, will work for French oil major TOTAL SA (TOT - Analyst Report) off Congo for $235,000 per day (up $25,000) for the remainder of 2011.
Lastly, mid-water drilling rig ‘Actinia’ received a three-month extension in Southeast Asia until December at a dayrate of $222,000, up $32,000 from the existing contract for work off Malaysia.
Transocean, which competes with Diamond Offshore (DO - Analyst Report) and Noble Corp (NE - Analyst Report) , currently retains a Zacks #3 Rank, translating into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
Switzerland-based Transocean is the world’s largest offshore drilling contractor and the leading provider of drilling management services worldwide. With its technologically-advanced and versatile offshore drilling fleet, strong backlog and considerable pricing power, the company offers an unmatched level of earnings and cash flow visibility.
However, the Deepwater Horizon incident is bound to create some overhang on the stock because of Transocean’s direct involvement and the ensuing uncertainty regarding the company’s potential liability exposure. The high out-of-service time, together with the expected rise in net debt/reduction of liquidity associated with the planned Aker acquisition, are also near-term setbacks, in our view.
Consequently, we believe that Transocean’s current valuation adequately reflects its fairly balanced risk/reward profile.