Transocean’s (NYSE: RIG) breakout in the last month after months in the $9 - $10 range should not go unnoticed. The company reported first-quarter results on April 30 that did not lead to a selloff. Prospects could be getting better for the deep-water driller.
Transocean lost $0.48 a share as revenues fell again, by 15.4%, to $664 million. In the quarter, drilling revenue improved sequentially from last quarter but this is due to the addition of semi-submersibles through its Songa Offshore acquisition. Still, this deal adds $3.7 billion in contract backlog, with an incredibly big $12.5 billion backlog overall as of April 2018.
Balance Sheet
Transocean’s debt levels are high but manageable at a 0.59 times LT debt/equity. The old rigs in the fleet are not a big concern for investors having a long-term horizon. As oil prices improve, customers will order more drilling activity, pressuring day rates higher and eventually adding profits for Transocean.
Outlook
Looking ahead, RIG stock could feel the pressure from a lack of profits. The company expects to lose money for the rest of 2018. It must also retire more obsolete rigs, which leads to an impairment charge. The bottom line is that oil prices will dictate RIG stock price movements.
Seadrill is out of the picture but when it emerges, it will return to the market with $5 billion in debt. RIG stock is a better choice for investors in the UDW space.
Disclosure: I own shares in RIG
