COMPANY DESCRIPTION

Transocean is a provider of offshore contract drilling services for oil and gas wells. Co. focuses on deepwater and harsh environment drilling services. Co. contracts its drilling rigs, related equipment and work crews on a day rate basis to drill oil and gas wells. Co. also provides oil and gas drilling management services, drilling engineering and drilling project management services primarily in the North Sea, through Advanced Drilling Technology International Limited (ADTI), its wholly-owned U.K. subsidiary. ADTI conducts drilling management services primarily either on a dayrate or on a completed-project, fixed-price or turnkey basis.

 

ECONOMIC MOAT

In our opinion RIG does not have an economic moat.  RIG does not have any special advantages over the rest of the offshore drilling industry.   ansocean does retain one of the largest deep-water and ultra-deep-water fleets, but peers like Seadrill, Noble, and Ensco have sizeable and capable fleets as well.  Without a moat RIG relies on superior execution for success.

 

OUTLOOK

RIG will be tested in 2015.  RIG has retired or idled rigs, cut costs, and delayed construction on newer rigs.   Transocean has 20 rigs that are set to roll off contract this year, and likely to be scrapped or idled. The driller is asking shareholders for an 80% cut to its dividend at the annual meeting. The company is also grappling with $2 billion in debt payments over the next 18 months. The stock has decent longer-term recovery potential for buy-and-hold accounts.

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STRENGTHS

  • Strong drilling operations

  • Geographically diversified presence and revenue streams

  • Technological Innovation 

WEAKNESSES

  • Macondo well litigations 

     

THREATS

  • Highly competitive and cyclical business Environmental regulations

  • Risks associated with conducting business outside the US

  • Price fluctuations 

OPPORTUNITIES

  • Acquisition of Aker Drilling

  • Increasing emphasis on high-specification assets

  • Growth in the global offshore drilling market 

The above report is for information purposes only, and is not a solicitation or offer to buy or sell any securities. Past performance is no guarantee of future performance. Neither diversification nor asset allocation ensures a profit or guarantees against loss. Before investing, investors should consider their risk tolerance, investment objectives, time horizon, available capital, and charges and expenses.  

 

The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.

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