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Transocean (RIG) Q1 Earnings and Revenues Beat Estimates

Offshore drilling giant Transocean Ltd. RIG reported adjusted earnings from continuing operations of 1 cent per share, contrary to the Zacks Consensus Estimate for a loss of 8 cents. The outperformance came on the back of the company’s outstanding revenue efficiency (at 97.8%) and lower operating and maintenance expenses.

However, the bottom line deteriorated from the prior-year figure of 69 cents per share. Lower revenues and reduced drilling activity led to weaker results.

For the quarter ended Mar 31, 2017, Transocean reported revenues of $785 million, surpassing the Zacks Consensus Estimate of $735 million. However, revenues declined 41% from the year-ago quarter level of $1,341 million.  

While Transocean’s ultra deepwater floaters contributed of about 64% to total revenue, harsh environment floaters and deepwater floaters accounted for 15% and 4% respectively. The remaining revenues came from other rig activities, customer early termination fees and others.

 

 

Operational Statistics

Transocean made operating profit of $173 million during the quarter compared with $424 million in the year-ago period. The decline primarily reflects lower contract drilling revenues resulting from idle/stacked and sold rigs along with lower dayrates. However, results were partially offset by increased revenues associated with three newbuild ultra-deepwater drillships and improvement in revenues efficiency.

However, net cash provided by operating activities was $184 million as against $631 million the year-ago quarter, reflecting a decline of 71%.

Expenses Break Up

Transocean was able to reduce its operating and maintenance expenses by 48% to $343 million. General and administrative expenses decreased to $39 million in the reported quarter as against $43 million in the prior-year quarter. Lower restructuring costs led to the decline in general and administrative expenses. However depreciation costs of $232 million was 7%higher in the quarter.

Dayrates, Utilization and Contract Backlog

Compared to the first quarter of 2016, dayrates fell 14.5% (from $395,400 to $337,700), unfavorably impacted by declines in deepwater floaters, midwater floaters, harsh environment and high???specification jackups. The decline was partially offset by rise in the dayrates for ultra-deepwater floaters. 

Overall fleet utilization was 43% during the quarter, down from the year-ago utilization rate of 51%. The decline is attributed to the idle and stacked rigs and during shipyard and mobilization periods.

Contract backlog of the company was $10.8 billion as of Apr 2017.

Capital Expenditure & Balance Sheet

Transocean spent $122 million as capital expenditure in the first quarter of 2017, the amount came down sharply by 68% compared to the year-ago quarter. Capex were mainly related toward the newbuild drillships.

As of Mar 31, 2017, Transocean had cash and cash equivalents of $3,093 million. The long-term debt of the company was $6,937 million, leading to a debt capitalization ratio of 30.3%.

Transocean Ltd. Price, Consensus and EPS Surprise

Zacks Rank & Key Picks

Switzerland-based Transocean is the world’s largest offshore drilling contractor and leading provider of drilling management services. The company under Zacks categorized Oil and Gas Drilling  currently carries a zacks Rank #3 (Hold). 

Better-ranked players in the broader energy space include Bellatrix Exploration Ltd BXE, McDermott International, Inc.MDR  and Penn Virginia Corporation PVAC. All the three companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bellatrix reported positive earnings surprise of 58.54% in the trailing four quarters.

McDermott posted positive average earnings surprise of 387.5% in the preceding four quarters.

Penn Virginia posted positive average earnings surprise of 36.67% in the preceding four quarters.

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