Transocean LTD (NYSE:RIG) reported net income attributable to controlling interest of $229 million, $0.62 per diluted share, for the three months ended September 30, 2016. Third quarter 2016 results included net favorable items of $136 million, $0.37 per diluted share, as follows:
- $110 million, $0.30 per diluted share, in gains on early debt retirements;
- $38 million, $0.10 per diluted share, in discrete tax benefits; and
- $3 million, $0.01 per diluted share, associated with a gain on rig sales.
These net favorable items were partially offset by:
- $11 million, $0.03 per diluted share, related to the loss on impairment of assets; and
- $4 million, $0.01 per diluted share, in restructuring charges primarily related to employee severance.
After consideration of these net favorable items, third quarter 2016 adjusted net income was $93 million, or $0.25 per diluted share.
For the three months ended September 30, 2015, the company reported a net income attributable to controlling interest of $321 million, or $0.88 per diluted share. Third quarter 2015 included net favorable items of $5 million, or $0.01 per diluted share. After consideration of these net favorable items, adjusted net income was $316 million, or $0.87 per diluted share.
Revenues for the three months ended September 30, 2016, decreased $40 million sequentially to $903 million due primarily to reduced activity associated with rig retirements partly offset by higher revenue efficiency. The company’s average revenue efficiency was 100.7 percent, compared with 96.5 percent in the second quarter of 2016. Additionally, third quarter 2016 was favorably impacted by the full quarter’s contribution from the newbuild, ultra-deepwater drillship Deepwater Proteus. The floater commenced operations on its 10 year contract in May 2016.
Operating and maintenance expense was $404 million, down from $500 million in the previous quarter. The decrease was due largely to lower costs associated with stacked rigs and rig retirements, and lower personnel expense related to the company’s continuing cost management initiatives. These decreases were partly offset by $21 million related to the grounding, salvage and preparation for recycling of the Transocean Winner.
General and administrative expense was $39 million, down from $42 million in the second quarter of 2016. The decrease was due primarily to lower share-based compensation expense.
The Effective Tax Rate excluding discrete items was 21.2 percent, compared with 16.3 percent in the previous quarter. The increase was due to changes in adjusted pre-tax income, and certain operating losses where the company does not expect to realize a tax benefit. The Effective Tax Rate(4) was (3.8) percent, down from 16.2 percent in the prior quarter. The decrease was due largely to $38 million in discrete items related primarily to the recognition of tax benefits.
Interest expense, net of amounts capitalized, was $112 million, compared with $95 million in the prior quarter. The increase was due primarily to the company’s senior unsecured notes issued in July 2016, partly offset by early debt retirements. Capitalized interest increased $1 million sequentially to $41 million. Interest income was $5 million, compared with $4 million in the prior quarter.
Cash flows from operating activities increased $233 million sequentially to $440 million. The increase was associated with a release of working capital and higher operating performance.
Third quarter 2016 capital expenditures of $246 million were primarily associated with the final shipyard payment on the newbuild, ultra-deepwater drillship Deepwater Conqueror. This compares with capital expenditures of $458 million in the previous quarter.
“I am extremely pleased with the quarterly results,” said President and Chief Executive Officer Jeremy Thigpen. “Due to our unwavering commitment to maximize uptime for our customers, and the outstanding performance of our crews and shore based personnel, we delivered revenue efficiency of 100 percent.” Thigpen added, “Of note, we produced this exceptional result, while continuing to realize cost savings across the organization, which enabled us to improve our quarterly Adjusted Normalized EBITDA margin to 51 percent.”
“In October, we successfully executed on a $600 million bond secured by the newbuild drillship Deepwater Thalassa,” said Executive Vice President and Chief Financial Officer Mark Mey. “This transaction, coupled with our previous debt offering this year, further extends our liquidity runway and improves our strategic flexibility as the market recovers.” (Original Source)
Shares of Transocean closed today at $9.29, down $0.30 or -3.13%. RIG has a 1-year high of $17.11 and a 1-year low of $7.67. The stock’s 50-day moving average is $9.74 and its 200-day moving average is $10.48.
On the ratings front, Transocean has been the subject of a number of recent research reports. In a report issued on October 26, Morgan Stanley analyst Ole Slorer upgraded RIG to Hold. Separately, on October 7, Canaccord’s Alex Brooks reiterated a Hold rating on the stock and has a price target of $9.00.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Ole Slorer and Alex Brooks have a yearly average return of 3.5% and 42.2% respectively. Slorer has a success rate of 50% and is ranked #816 out of 4173 analysts, while Brooks has a success rate of 91% and is ranked #71.
The street is mostly Neutral on RIG stock. Out of 11 analysts who cover the stock, 8 suggest a Hold rating and 3 recommend to Sell the stock. The 12-month average price target assigned to the stock is $9.09, which represents a slight downside potential from current levels.
Transocean Ltd. engages in the provision of offshore contract drilling services for oil and gas wells. It specializes on global offshore drilling business with a particular focus on deepwater and harsh environment drilling services.