Transocean LTD (NYSE:RIG) reported net income attributable to controlling interest of $342 million, $0.93 per diluted share, for the three months ended June 30, 2015. Second quarter 2015 results included net unfavorable items of $66 million, $0.18 per diluted share, as follows:

  • $653 million, $1.79 per diluted share, associated with an impairment of the Midwater Floater asset group due primarily to the deterioration of the market outlook for this rig class;
  • $144 million, $0.39 per diluted share, primarily related to impairment of assets held for sale; and
  • $11 million, $0.03 per diluted share, in costs related to one-time termination benefits.

These net unfavorable items were partially offset by:

  • $735 million, $2.02 per diluted share, associated with Macondo-related settlement agreements and insurance recoveries; and
  • $7 million, $0.01 per diluted share, associated with the gain on disposal of assets and other miscellaneous items.

After consideration of these net unfavorable items, second quarter 2015 adjusted net income was $408 million, or $1.11 per diluted share.

For the three months ended June 30, 2014, the company reported both net income attributable to controlling interest and adjusted net income of $587 million, or $1.61 per diluted share.

Revenues for the three months ended June 30, 2015 decreased $159 million sequentially to $1.884 billion due primarily to lower utilization partly offset by higher revenue efficiency.

Excluding $788 million ($735 million after taxes) in net favorable items associated with Macondo-related insurance proceeds, reimbursement of legal fees, crew claims and other contingent liability adjustments, operating and maintenance expenses were $985 million. This compares with $1.084 billion in the prior quarter. The decrease of $99 million was due primarily to reduced activity mainly related to rig retirements, stacked and idle rigs, and the company’s ongoing cost reduction initiatives.

General and administrative expenses decreased $2 million to $44 million from the prior quarter.

Depreciation expense decreased $42 million sequentially to $249 million due to rig retirements and the impairment of the Deepwater Floater asset group.

Transocean’s second quarter 2015 Effective Tax Rate(4) was 10.3 percent, compared with (21.6) percent in the previous quarter. The increase was due mainly to the Macondo-related settlements. Transocean’s Annual Effective Tax Rate for the second quarter of 2015 was 16.9 percent, down from 25.8 percent in the prior quarter. The decrease was due to the overall level of adjusted pre-tax income. Second quarter income tax expense also included a tax benefit of $23 million, $0.06 per diluted share, to reflect the decrease in the Annual Effective Tax Rate to 21.6 percent for the six months ended June 30, 2015 from 25.8 percent for the three months ended March 31, 2015.

Interest expense, net of amounts capitalized, was $120 million in the second quarter, compared with $116 million in the previous quarter. Interest income was $6 million, unchanged from the prior quarter. Capitalized interest was $29 million, compared with $26 million in the first quarter of 2015.

Cash flows from operating activities increased $785 million from the first quarter of 2015 to $1.311 billion due mainly to the Macondo-related settlements.

Fleet-wide capital expenditures were $195 million, including costs associated with the company’s newbuild program. Capital expenditures were $201 million in the first quarter of 2015.

“Despite the challenging market conditions, Transocean delivered strong operating results and underlying cash flow in the period due to exceptional revenue efficiency and a relentless emphasis on cost management,” said President and Chief Executive Officer, Jeremy Thigpen. “Although this is a full team effort, I particularly commend our operations teams and crews for their hard work and dedication to maximizing uptime on our rigs. In addition, I remind all of our stakeholders of our commitment to the continuous improvement of our business, which includes taking the necessary steps to ensure that we have the right rig fleet to compete effectively in all market conditions.” (Original Source)

Shares of Transocean LTD surged 3.19% following the earnings release. RIG has a 1-year high of $39.69 and a 1-year low of $12.08. The stock’s 50-day moving average is $14.95 and its 200-day moving average is $16.68.

On the ratings front, Transocean has been the subject of a number of recent research reports. In a report issued on July 10, Clarkson analyst Jeff Spittel downgraded RIG to Sell, with a price target of $10, which implies a downside of 19.0% from current levels. Separately, on June 25, Canaccord Genuity’s Alex Brooks maintained a Sell rating on the stock and has a price target of $10.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Jeff Spittel and Alex Brooks have a total average return of 14.0% and 29.2% respectively. Spittel has a success rate of 70.0% and is ranked #1276 out of 3724 analysts, while Brooks has a success rate of 100.0% and is ranked #689.

Transocean Ltd is an international provider of offshore contract drilling services for oil and gas wells. The Company has two operating segments; contract drilling services and drilling management services.