Global offshore drilling contractor Transocean Inc. (RIG) reported weak fourth quarter and full-year 2010 results, affected by reduced utilization rates and lower average daily revenue along with higher operating costs.
Earnings per share, excluding one-time expenses, came in at 76 cents, below the Zacks Consensus Estimate of 87 cents. In the year-ago period, the company had earned $2.21 (on an adjusted basis).
Full-year 2010 earnings, excluding one-time costs, were $6.00 per share, down 52.7% year over year and 9.5% below our projection.
Total quarterly revenue came in at $2,160 million, down 21.0% from the year-ago level of $2,733 million and lagging the Zacks Consensus Estimate of $2,299 million. The quarter performance was bruised by lower utilization resulting from idle rigs, legal charges and reduced revenue.
Transocean generated total revenue of $9,576 million in 2010 as compared with $11,556 million in 2009. The full-year revenue also failed to meet our expectation of $9,704 million.
During the quarter, Transocean’s high-spec floaters accounted for the lion’s share of total revenue with approximately 57.1%, while mid-water floaters and jackup rigs contributed about 22.1% and 14.6%, respectively. The remaining revenue came from other rig activities and integrated services.
Operating Statistics
During the quarter, operating and maintenance expenses were $1,352 million, 4.3% higher than prior-year quarter, primarily reflecting higher maintenance expense and other costs (coming from shipyard and contract preparation activity and drilling management services).
Dayrates & Utilization
Average dayrates for the total fleet decreased 6.5% year over year to $276,600, as high-spec floater dayrates lost 2.7%, mid-water floater dayrates declined 8.2% and standard jackup dayrates were down 24.9%.
However, on a sequential basis, high-spec floater dayrates increased 2.6% and high-spec jackups climbed 17.7%, driving total drilling fleet up by 2.0%.
Overall fleet utilization was 58% during the quarter, down 11% from that achieved during the fourth quarter of 2009.
Capital Expenditure & Balance Sheet
Capital expenditures during the quarter totaled $428 million (versus $857 million in the prior-year quarter) netting $1,411 million for the full year (compared with $3,052 million in 2009).
As of December 31, 2010, Transocean had $3,394 million of cash in hand and total debt of approximately $9,209 million (representing debt-to-capitalization ratio at approximately 30.1%).
Our Recommendation
Switzerland-based Transocean is characterized by a technologically-advanced and versatile offshore drilling fleet, healthy financial position and long-term drilling contracts across the globe.
However, the company is still bearing the aftereffects of the Deepwater Horizon accident in the form of litigation charges, government investigations and revenue loss. We are maintaining our long-term Neutral recommendation on the stock. Transocean, which competes with peers such as Noble Corp. (NE) and Pride International Inc. (PDE), currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
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