Canaccord analyst Alex Brooks weighed in today with a few insights on Transocean LTD (NYSE:RIG), following last week’s fleet status report and the update from Shell on its Burger prospect in the Chukchi Sea.
Brooks wrote, “We now believe it likely that the Polar Pioneer, which is rented to Shell out to June 2017, will be stacked and will go onto a cost-plus contract, reducing Shell’s day-rate but mostly preserving Transocean’s cash flow.”
The analyst continued, “At the new lower level of fleet activity, we now expect all-in operating & maintenance costs to fall to $3.1bn for 16-18E, with the scope for these to drop even further. This would be a c.55% fall compared with the peak in 2011, which underscores how the cost base even for relatively asset-intensive companies in the oil services sector can be adjusted down – at a cost, and over time. The overall impact on our earnings is to cut EPS by $0.28 in 16E and more than $0.50 in 17/18E. We expect losses to begin in 2Q16E and to persist for the foreseeable future.”
In conclusion, “We continue to believe an equity issue is likely, in part because of challenges finding debt capital at reasonable prices, and in part because we believe the current market will offer attractive consolidation opportunities that use Transocean’s extensive organizational capability and customer relationships.”
Brooks reiterated a Sell rating on Transocean shares, with a price target of $9, which reflects a potential downside of -27% from last closing price.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Alex Brooks has a total average return of 32.2% and a 91.7% success rate. Brooks has a 17.0% average return when recommending RIG, and is ranked #368 out of 3759 analysts.