Transocean Ltd. – New Fleet Analysis As Of November 18 And Commentary (RIG)

November 24, 2014 Posted by admin

Transocean Ltd. (NYSE:RIG)

Picture: UDW Discoverer Deep Seas

Complete fleet status as of November 18, 2014.

Link: Fleet status November 18, 2014.

  1. Rigs under construction.
  1. High-specification floaters: Ultra-deepwater.
  1. High-specification floaters: Deepwater.
  1. High-specification semi-submersible: Harsh environment.
  1. Mid-water floaters.

(1) Part of Caledonia Offshore potential separation.

CEO, Steve Newman, has stated that despite the large impairment this quarter, the company is likely to cold stack more rigs in the future:

With respect to our non-core floater fleet, we intend to scrap certain cold-stacked rigs, recognizing their limited potential to re-enter the market. The company will continue to assess the competitiveness of non-core assets on a case-by-case basis and we are likely to retire additional rigs.

6 – High specification Jackups.

Fleet analysis snapshot.

1 – Rig fleet per category:

2 – Rigs’ status excluding newbuilds.

*Transocean Spitsbergen has been suspended by Statoil at 25% day-rate for the remaining of 2014.


Transocean Ltd. released its fleet status on November 18, 2014. It is showing a weak contract environment, due to an unrelenting drop in oil price that has triggered a broad sell-off the last few months. Brent spot price is trading now under $80 a barrel, and many so-called analysts are predicting even lower price for 2015, amplifying the bearish sentiment.

The fear of a possible total collapse of the oil price is driving a negative momentum on the oil industry in general. Not one sector has been sparred until now (offshore drillers, onshore, EP).

It reminds me of the huge drop in gold price that came all of a sudden and totally brought the gold mining industry to a near-bankruptcy situation, the same industry that enjoyed a multi-year bullish trend since 2000.

Of course, it is hard to compare these two commodities, and oil is more predictable because it is what basically drives our modern world economy.

RIG is now trading around $25.50 or basically 35% lower than three months ago.

(click to enlarge)

It is a huge haircut that I find somewhat exaggerated considering that the company is still doing fine despite some evident pressure on future revenues, due to an accelerated pace of older rigs idle, especially in the mid-water class with related pressure on day-rates.

An example on day-rate pressure can be seen with the UDW Discoverer Enterprise (1999) in the Gulf of Mexico, which got a short contract at $399k, down from the $615k. Recently, Diamond Offshore (NYSE:DO) contracted two of its UDWs in the Gulf for $400k (Hess). The day-rate bifurcation is accelerating, especially in the Gulf of Mexico, and the fourth and fifth generation rigs are experiencing harsh competition and day-rate pressure.

It reminds me of the huge drop in the gold price that came all of a sudden and brought the gold mining industry to a near-bankruptcy state, the same industry that enjoyed a multi-year unprecedented bullish trend until 2013. Of course, it is hard to compare these two commodities, and oil is more predictable and is basically what drives our economy. It is hard to bet against oil for a long period of time.

Our global economy cannot survive without oil, and we need more and more of this black gold. IAE is predicting that the demand for oil in Q4 2015 will be $94.69 Mb/d or another 1.5% higher than the actual demand.

Production is now at 93.62 Mb/d, and is about to retreat after a potential increase during Q1 2015.

Already, per the IAE, OPEC production in October is down 150Kb/d, and with a lower oil price, now under $80, it will affect the total production even more in my opinion; we already experience a reduced production forecast from different locations other than OPEC (North Sea, the shale…).

I believe we are close to reach a bottom for the price of oil, and the next OPEC meeting in Vienna will confirm that production will be reduced despite dissension among its 12 members. It would be surprising if nothing is done after such a steep drop in price.

It will take some time before we will see oil trading decisively up again, however, a support will finally shape up and the bearish momentum will lose its grip around mid-2015. Offshore drillers will be the first to get some relief in my opinion.

An article on Rigzone today attracted particularly my attention. It resumes precisely what I am thinking. Statoil is indicating some new contracts before Christmas which could be a potential positive for RIG.

Statoil expects to give the final go ahead for a smaller, fast-track development before Christmas and sees three to five fast-track projects in coming years, with a further investment decision in 2015, Ivar Aasheim said on Wednesday…

“Everything has a limit, so if the oil price goes down to $60 (per barrel), then it will be very difficult to get an investment decision for these projects,” Aasheim told Reuters on the sidelines of a conference.

“But going into 2015, we’re looking at launching more fast-track projects,” Aasheim said. “We could easily have three, four, five fast-track projects in 2015, ’16 and ’17.”

Disclosure: The author is long RIG. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. (More…)

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