In the past few years, Transocean (RIG, Financial) has expanded its deep-water drilling to an extraordinary gamut and continues to aim for more success.
Transocean’s Southward Journey
Once considered to be the world’s largest offshore dealer, the company has been facing a nosedive since 2014. There is a visible fall in the company’s stock price, approximately around 60%. The major reasons behind the sudden downfall of the stock are believed to be the surplus in the ultra-deepwater drilling markets and the plummeting crude oil prices. According to market experts, there will be more elbow-grease for Transocean in 2015. However, there are positive hints in favor of Transocean recovering from the downfall as the company’s debts are manageable.
Crude oil prices a catalyst in upside and downside
While the companies introduce significant capital for exploring and producing from off-shore deepwater and ultra-deepwater wells, high oil prices help recover the investment and justify the risks.
Transocean’s Intrinsics
Transocean has seen success since the 1950s for its bolt-on acquisitions and organic growth. Thus, with a blink of an eye, it turned into a global industry which radiated finesse all these years. Embarking upon two game-changing deals in the years 2000 and 2007 like the acquisition of peer R&B Falcon in a deal pegged at $17.7 billion, and merging with GlobalSantaFe (GSF, Financial) for $17 billion, it experienced soaring success. The deal with GlobalSantaFe tripled the company’s rig fleet to 146 units and escalated the combined entities’ order backlog to $33 billion. But, on the flip side, it was forced into a corner on this deal to some extent as demand for deep-water rigs has never been higher and day rates for deep-water rigs have hit an unseen low. Although the deal was pegged at the peak of its market, the demand of offshore drilling has risen since then, and Transocean had only four new rigs on order compared to the global order book of 60, which accentuated the possibilities of the company being left behind.
It has been struggling for quite some time to recover the lost glory but it seems like a distant dream as it has compromised on the quality of service and customer satisfaction for several years now. Figures suggest that the drop in quality service had adversely affected the company’s stock price. Adding to the woes have been the worsening customer appeal and the losing grip of the market, which have paved the way for the rivals to leave it far behind.
Transocean’s downfall has been among the top of the business talks, since Forbes and Zenith business magazines published articles regarding the potential reasons behind its sudden nosedive.
Takeaway
Market experts still hope that Transocean will tide over the situation and regain its lost glory in the stock market. Recently, it has reported the first quarter results of the fiscal year 2015 where the net income is around $456 million, which is a positive hint towards the recovery. While it went through a lot of troubles in the past year, this fiscal year it has achieved a 42% rise in net income due to a sudden climb in the revenues along with lower costs and taxes. From the investor’s perspective, all is not lost for Transocean yet and it has a good chance to rebound. It would be a strong hold for the Transocean stakeholders and a good buying opportunity for investors at the current beaten-down rates.
