Canaccord analyst Alex Brooks came out today with a cautious stance on shares of Transocean LTD (NYSE:RIG), after the company issued a comprehensive Fleet Status Report for August, which provides the current status of and contract information for the company’s entire fleet of offshore drilling rigs. The analyst reiterated a Sell rating on Transocean shares, with a price target of $10, which implies a downside of 21% from current levels.

Brooks wrote, “We have used this month’s fleet status report from Transocean to back out rig asset value from the current value of the equity and debt. Although the debt is trading at substantial discounts to face value, the overall capital value of Transocean including committed yard instalments is still nearly $14.7 billion – of which the equity in RIG makes up about one-third. The conclusion is interesting: Transocean’s capital value currently implies that a brand new, state-of-the-art deepwater rig is worth c.$180m.”

“Whilst this is little problem for Transocean, with its long debt term and large cash pile, there are numerous rig companies large and small where loans have been made on the assumption that rig asset values are substantially in excess of $500m. This does not currently appear to be the case, and raises the obvious question of what is likely to happen with those loans,” the analyst continued.

Bottom line: “We continue to believe that the most likely outcome for large parts of the offshore drilling industry is insolvency. The larger companies – Transocean amongst them – may have the opportunity to pick up assets at attractive prices, and the cash pile that Transocean is building up should enable those opportunities. We nevertheless believe that the decline in Transocean’s EBITDA in 16/17E makes a capital raise highly likely.”

According to, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Alex Brooks has a total average return of 33.9% and a 100.0% success rate. Brooks has a 20.7% average return when recommending RIG, and is ranked #452 out of 3737 analysts.

Out of the 18 analysts polled by TipRanks, 3 rate Transocean LTD stock a Buy, 3 rate the stock a Hold and 12 recommend Sell. With a return potential of 46.7%, the stock’s consensus target price stands at $18.50.

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