Transocean Ltd. (RIG)

[eastunder]

June 3, 2016, 1:06 P.M. ET

Transocean: Good News, Bad News on Rig Win

By Ben Levisohn

The good news: Transocean (RIG) outbid its competitors for a drilling project off India’s coast. The bad news: Its rate was so low it will actually reduce earnings forecasts. RBC’s Kurt Hallead and Benjamin Owens explain:

Bloomberg

The event: Upstream reported that Transocean was the lowest bidder on an ONGC floater tender to drill off India’s east coast. The publication said that Transocean offered a dayrate of $127k/day for one semi-submersible rig for a 730-day drilling operation. Channel checks indicate Transocean tendered the Jack Bates semisubmersible. The Jack Bates rolled off its prior contract in Australia in May.

Impact: We are currently forecasting a rate of $175k/d for the Bates. If the India contract is finalized at $127k/day, we think it would reduce EPS by $0.03-$0.04 on an annualized basis. Recent fixtures for similarly equipped semi-submersible rigs in the region have been between $101k-$158k/day.

Our view: RIG continues to execute well, with the focus on revenue efficiency bearing fruit over the last several quarters. However, we believe Transocean shares have limited upside until the market gains more confidence in the supply/demand outlook for floating rigs in 2017-18. Currently, fundamentals continue to weaken for floating rigs, and it remains unclear where dayrates and utilization may bottom.