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.
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.
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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Strong drilling operations
Geographically diversified presence and revenue streams
Macondo well litigations
Highly competitive and cyclical business Environmental regulations
Risks associated with conducting business outside the US
Acquisition of Aker Drilling
Increasing emphasis on high-specification assets
Growth in the global offshore drilling market
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