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Transocean LTD (NYSE:RIG) Reports Lower Utilization Rate for Its Deepwater Rigs

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The biggest offshore drilling company, Transocean LTD (NYSE:RIG), released its third quarter’s financial reports on November 9, 2014. The company posted quite low numbers for that respective quarter, which was an indication to the fact that the Transocean was seeing relatively weak numbers in the under-water rig business.

The revenues of Transocean LTD (NYSE:RIG) dropped by 7.5 percent on yearly basis and reached $2.27 billion due to the lower rates of utilization.  As far as the net income of the company is concerned, the figures declined by 29 percent and reached to $352 million. The net loss of Transocean was reported to be $2.217 billion on the basis of GAAP; this loss resulted due to low business outlook in the asset group of its under-water rig and a $2.76 billion write-down.

According to the estimates of market researchers, the company will see an increase in its stock prices, as Trefis currently has a price target of $33 on Transocean’s stocks. This target price is 10 percent higher than the current price of the stocks.

The company saw a decline of 75 percent in its utilization rates for the third quarter. This rate was lower than the rate that prevailed in the company on the same quarter a year back. Transocean had a utilization rate of 83 percent during the last year and a rate of 78 percent for the second quarter of the year 2014.

These rates indicate to the performance on the company as it is a percentage of the number of days the company had remained operating.  The profitability of drilling companies depends a lot on this metric as it reflects on their operating leverage.

The rig market, specifically the deepwater rig, had seen a heavy investment in the previous years and now the industry has an oversupply of drillers.  The deep water rigs are expected to increase to 160 by the end of the year 2015 whereas the demand – including the possible future contracts and the existing contracts- is predicted to stay at 140 rigs.

Such a surplus of rigs has become a problem for Transocean LTD (NYSE:RIG) since the operators have become more cautious as to what rig they operate or deploy. Since the rigs of Transocean are outdated and are not as sophisticated as that of its competitors, the company is in a trouble.

Bloomberg recently reported that the company has around 4 deep water rigs that are not operating right now, for all its contracts have either been delayed or cancelled.

Recently, Statoil has suspended the operations of one of the Transocean’s rigs.

Transocean LTD (NYSE:RIG) must update its rigs if it wants to compete with SeaDrill or any of its other competitors. As for the stocks of the company, Transocean, on the last trading day of November 11, 2014, started its stocks with a value of $29.20 and closed with a total value of $28.72, after gaining the peak value of $29.39.

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