Transocean Ltd. (RIG)

[eastunder]

Transocean: Be Aggressive?

http://blogs.barrons.com/stockstowatchtoday/2017/03/13/transocean-be-aggressive/?mod=yahoobarrons&ru=yahoo

By Ben Levisohn

On Feb. 25, Barron’s Jack Willoughby recommended buying shares of Transocean, arguing that the offshore driller could gain 35% due to the company’s ability to cut costs, and the potential for higher oil prices.

Oil prices, however, have been falling, which is one reason that Transocean’s shares have dropped 8.7% since the article wasn’t published. But there’s something that Willoughby didn’t mention in the article–the potential for Transocean to do deals that would help continue its post-oil bust transformation. And today, Just such a deal is responsible for Transocean’s shares rising more than 2% after reports emerged late Friday that Transocean was considering selling its fleet of shallow-water rigs, known as jackups, to Borr Drilling. Evercore ISI’s James West and team “would be aggressive buyers of Transocean if this transaction materializes.” They explain why:


We noted in our Recap and Weekly that Borr Drilling was reportedly interested in purchasing Transocean’s jackup fleet. According to Tradewinds, the Norwegian startup is “closing in” on a $1.2 billion deal to acquire a fleet of 15 RIG jackups. The potential transaction would entail Transocean’s entire active fleet of 10 high-specification jack-ups, plus another five newbuilds under construction at Singapore’s Keppel FELS, for a total price of $1.2 billion. Another $1.125 billion is due on the five newbuilds, which would be assumed by Borr Drilling as these rigs have been deferred until 2020. Excluding the $290 million already paid for these newbuilds, the reported purchase price averages to $120 million per jackup and is well above our Bull Case estimate of $96 million and IHS-Petrodata’s $80 million estimate for >=350' IC modern jackups. Half of Transocean’s active jackup fleet is currently stacked while the other half is contracted for 38 rig months (average 7.6 months per rig) for $172 million in backlog (only 1.5% of RIG’s total $11.3 billion).

We would be aggressive buyers of Transocean if this transaction materializes, as it would monetize an under-utilized jackup fleet that averages 13.5 years of age and eliminate a large chunk of future newbuild capex. Although the company previously targeted high spec jackups to be 24% of their 2020 fleet, CEO Jeremy Thigpen has more recently stated the firm’s focus is on ultra-deepwater and harsh environment floaters.

Shares of Transocean have gained 1.9% to $12.49 at 10:34 a.m.