($RIG) Transocean’s Earnings Results Disappoint The Street

February 25th, 2010

Transocean, Inc. (RIG) – the world’s largest offshore driller – reported weak fourth quarter results, pulled down by lower rig utilization on the back of waning demand. Earnings per share, excluding one-time items, came in at $2.21, well below the Zacks Consensus Estimate of $2.55 and the year-ago level of $2.35.

Revenue

Total quarterly revenues of $2.7 billion missed the Zacks Consensus Estimate by 3.6%. It was down 16.4% year-over-year and 3.2% sequentially, mainly attributable to stacking of rigs and reduced revenue efficiency, only partially offset by the commencement of operations of three new drillships and improvements in floater dayrates.

Transocean’s high-spec floaters contributed approximately 54.7% to total revenue, while mid-water floaters and jack-up rigs accounted for 19.7% and 18.6% of the total, respectively. The remaining revenue came from other rig activities, integrated services, and others.

Operating Statistics

During the quarter, the company’s operating income totaled $1.0 billion, up 4.8% sequentially. Operating and maintenance expenses were $1.3 billion, down 7.2% sequentially, primarily reflecting the favorable impact of litigation settlement expenses and cost benefits resulting from the stacking of rigs, somewhat offset by the increased shipyard project costs Incorporatedreases in maintenance projects, and commencement of newbuild operations.

Dayrates & Utilization

Average dayrates increased 4.2% sequentially to $295,700, as high-spec floater dayrates gained 4.1% and high-spec jackup dayrates were up 8.8%.

Compared to the fourth quarter of 2008, dayrates rose 17.6% (from $251,500 to $295,700). All types of rigs apart from mid-water floaters and standard jackups experienced increased dayrates. High-spec floater dayrates were up 15.0%, while high-spec jackups increased 3.6%.

Overall fleet utilization was 69% during the quarter, compared to 75% in the prior quarter and 90% in the year-ago quarter.

Backlog

As of Dec. 31, 2009, Transocean’s contracted backlog was $31.2 billion, down from $32.7 billion at the end of the preceding quarter. The decrease is a result of depressed demand for the jackups, mid-water and moored deepwater units on the back of uncertain commodity prices. As per more recent figures of Feb 2, 2010, the backlog further fell to $30.4 billion.

Capital Expenditure & Balance Sheet

Capital expenditures during the quarter totaled $857 million versus $540 million in the previous quarter, with the change primarily related to the timing of shipyard payments for newbuilds. As of Dec 31, 2009, Transocean had cash in hand of $1.1 billion, debt of approximately $11.7 billion, and total debt-to-capitalization ratio at approximately 36.3%.

2010 Guidance

For 2010, Transocean is guiding towards capital expenditures of approximately $1.3 billion, of which $850 million will go towards the construction of newbuild rigs. The remaining $450 million has been allocated to contractually required upgrades and sustaining capital expenses. The company expects its operating and maintenance costs between $5 billion and $5.4 billion, while G&A expenses are likely to be in the $230 – $240 million range.

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($RIG) Transocean’s Earnings Results Disappoint The Street

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($RIG) Transocean’s Earnings Results Disappoint The Street

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