Morningstar | Transocean Weathers the Storm and Backlog Continues to Rise; Fair Value Estimate Unchanged
Falling in line with industry trends, no-moat Transocean posted flat revenue, although the company benefited from a $40 million bump (5% of quarterly revenue) from the inclusion of a full quarter of results from Ocean Rig, which it acquired in December. Altogether, a decrease in rig utilization was offset by a negligible increase in dayrates, as anticipated. Adjusted operating margin fell to negative 3% from negative 1% previously, owing chiefly to higher depreciation expense from the larger post-acquisition asset base. Our fair value estimate remains unchanged.Transocean continues to hold the strongest backlog of drilling contracts in the industry, following its acquisition of Ocean Rig's and Songa's fleets in 2018. While demand for new contracts and extensions continues to climb as Brent prices of around $70/bbl eclipse the sub-$40 breakevens we see for certain offshore projects, the increased interest is concentrated within certain assets. Transocean's harsh environment fleet in particular continues to build up its backlog at enviable dayrates in the industry. However, ultra deepwater and midwater floaters have not experienced the same level of demand, and we continue to see a sizable amount of stacked sixth generation ultra-deepwater assets signaling the market may still be oversaturated and potentially years away from an inflection point.
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