Transocean's Earnings Delay the Reckoning

Energy

Published: November 10, 2014 7:40 am

Last Updated: April 28, 2020 8:43 am

Transocean Ltd. (NYSE: RIG) reported third-quarter 2014 results late Sunday night. The offshore oil and gas rig owner and operated posted adjusted diluted earnings per share (EPS) of $0.96 on revenues of $2.27 billion. In the same period a year ago, the company reported per ADS earnings of $1.36 on revenues of $2.328 billion. Third-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.83 and $2.2 billion in revenues.

The company was scheduled to report earnings last Friday, but instead announced a delay and a write-down of nearly $2.8 billion. On a GAAP basis, Transocean’s third quarter loss totaled $6.12 per share, or $2.22 billion, for the following items:

Non-cash impairment of goodwill of $5.29 per share, due primarily to the decline in the market valuation of the company’s contract drilling services business
Asset impairment of $1.91 per share on the Deepwater Floater asset group due to the deterioration of the market outlook
Other impairment charges totaling $0.04 per share
Offsetting benefits of $0.16 per share

The company did not refer to the fate of its 10.10% dividend yield ($0.75 per quarter), the highest among the S&P 500 index stocks.

The year-over-year decline in revenue was due primarily to lower revenue efficiency and an increase in out-of-service time, partly offset by the commencement of operations of the company’s two ultra-deepwater newbuilds, Deepwater Asgard and Deepwater Invictus.

Transocean also said that it has chosen not to proceed with the private placement of shares of Caledonia Offshore Drilling Co., a new business the company is forming to hold eight of its U.K. North Sea midwater drill rigs. The internal separation of Caledonia is “substantially complete,” according to Transocean.

For the fourth quarter the consensus estimate for EPS is $0.72 on revenues of $2.12 billion. For the full year, per-share earnings are expected to reach $4.63 on revenues of $8.99 billion. The estimates for fiscal year 2015 call for EPS of $2.68 on revenues of $8.39 billion. The shale revolution in the United States has done a lot of damage to Transocean, which had specialized in the deepwater and ultradeepwater operations that are so ferociously expensive and will be under further pressure as long as crude oil prices continue to slide.

Transocean’s shares traded up about 2.15% in Monday’s premarket session to $30.41, in a 52-week range of $27.08 to $55.74. The consensus price target for the shares was $29.00 before the report.

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