In its Q3 2023 earnings call, offshore drilling contractor Transocean Ltd (NYSE:RIG). reported adjusted EBITDA of $162 million on contract drilling revenues of $721 million and a net loss of $220 million. The company also announced an incremental backlog of $745 million, bringing the total to $9.4 billion. Transocean highlighted its strategy of fleet upgrades and longer contract durations for securing market-leading day rates and discussed the global demand for deepwater rigs. Preliminary expectations for full-year 2024 were also provided, with more specific guidance to be given in their year-end call in February 2024.
Key takeaways from the call include:
- Recent contract awards and extensions in India, the U.S. Gulf of Mexico, and Brazil.
- Expectation of offshore deepwater drilling recovery to continue.
- Anticipated requirement of a rig for ENI (BIT:ENI)'s follow-on development in Indonesia.
- Expectation for PTTEP and PETRONAS to come to market for an ultra-deepwater drillship in 2024.
- Projected full-year 2024 revenue to be between $3.7 billion and $3.9 billion.
- Guidance of approximately $3.8 billion, with about 90% being contracted revenue.
- The company's strategy of evaluating each rig and opportunity for maximizing returns.
- Expectation of more fixtures made by major operators for multiple years and higher-spec rigs in the near term.
Transocean executives discussed the current rig availability in the market and the decision to delay project start times beyond 2024. They expect around 20 of their rigs to have more than 2 years' outlook by the end of the year or in Q1 of the next year. The company's CapEx for next year includes contract prep of $10 million and a lighter year for SPSs on older rigs. The executives expressed confidence in the long-term market outlook and expect capacity reactivation to be delayed. They also mentioned Westwood Energy's projection of 100% utilization in late 2024 and 104-105% utilization in 2026.
During the call, CEO Jeremy Thigpen discussed the discipline among drillers in the market, citing an example in Brazil where assets already on the market were chosen over newbuild rigs. He emphasized that they are not in a hurry to reactivate rigs and will only do so when it makes economic sense and they have a justified contract. Thigpen indicated that long-term contracts are being sought at acceptable day rates, and not only seventh-gen rigs but also sixth-gen rigs are attractive for such deals.
In response to a question about the timeline for the absorption of 6 remaining drillships that are not owned by the company, Thigpen referred to a recent article by Westwood Energy, projecting utilization reaching 100% in late 2024 or 2025, with 104% or 105% utilization in 2026. Thigpen suggested that by 2025, all active rigs would be sold out, most stranded assets would be deployed or contracted for future deployment, and the focus would shift to bringing out stacked assets.
InvestingPro Insights
Drawing from InvestingPro's real-time data and expert tips, Transocean Ltd. (RIG) currently operates with a significant debt burden and has been experiencing a slowdown in revenue growth, as per InvestingPro Tips. The company's stock is in oversold territory, and it has fared poorly over the last month.
Despite these challenges, Transocean Ltd. has shown a high return over the past year, with the year-to-date price total return standing at a robust 45.18%. The company's one-year price total return is even more impressive at 79.89%, according to InvestingPro Data.
In terms of financial metrics, Transocean Ltd. has a market capitalization of $5180M USD and a negative P/E Ratio of -4.18, reflecting the company's lack of profitability over the last twelve months. The company's revenue for the last twelve months as of Q2 2023 amounted to $2675M USD, showcasing a growth of 5.94%.
InvestingPro's Fair Value for Transocean Ltd. stands at $4.58 USD, which is lower than the company's previous closing price of $6.63 USD.
InvestingPro provides many more tips and real-time data metrics for companies like Transocean Ltd., which can be incredibly beneficial for investors looking to make informed decisions.
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