Transocean Shares Update on Recent Developments

Transocean Shows Update on Recent Developments. New Contracts and Dozens of Wells Reveal Progress at Transocean.

Transocean shows an update on recent developments and uses another modern rig to offer US$ 600 million in senior secured notes maturing in 2025. The Transocean 712 receives a contract for 13 wells from ConocoPhillips. The GSF Development Driller I receives a contract for 13 wells from Chevron. There have been a number of material developments at Transocean (NYSE: RIG) in recent days, and it’s time to go through them one by one.

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First, the company priced a US$ 600 million offering of senior secured notes maturing in 2025 at a rate of 6.125% per annum. The notes are secured by the Deepwater Pontus, a modern drillship under contract with Shell (NYSE: RDS.A) (NYSE: RDS.B) from October 2017 to October 2027, at a day rate of $519,000. The company has used this trick before, employing its modern rigs on long-term contracts to raise capital.

The previous iteration of this strategy was the US$ 750 million offering of senior secured notes maturing in 2024, at a rate of 5.875% per annum. These notes are secured by the Songa Enabler and Songa Encourage, which were acquired in the Songa Offshore acquisition. The market continues to demonstrate its willingness to lend money to Transocean due to the long-term contracts of its best rigs. Rates remain this way, a combination of rising interest rates elsewhere and ongoing challenges in the offshore drilling market.

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Transocean 712

In another development, Transocean recently announced a contract for 13 wells for the semi-submersible Transocean 712. The rig will commence operations in March 2019 in the UK North Sea with ConocoPhillips (NYSE: COP). The company stated that the backlog is US$ 75 million, while the contract duration is 580 days, calculating a day rate of US$ 129,000. This is a very positive development for the company as its older rig will continue to operate due to the current tightness in the North Sea market segment.

New Contracts

Transocean also announced an 11-well contract for the deepwater semi-submersible GSF Development Driller I. The rig will operate for Chevron (NYSE: CVX) in Australia starting in the first half of 2019. The work will last 955 days with a backlog of US$ 158 million, calculated at a day rate of US$ 159,000. Australia is currently a small market with few rigs in the region (InfieldRigs data): one jack-up (Ensco 107) and six semi-submersibles – Ensco 5006, Ensco DPS-1, Ensco MS-1 from Ensco (NYSE: ESV), Ocean Monarch from Diamond Offshore, Stena Clyde from Stena Drilling, and GSF Development Driller I from Transocean. This has allowed Transocean to secure a reasonable day rate (by current standards, of course) for the rig, although it shows that even in tighter segments, the true recovery in day rates is still far off.

While recent developments are certainly positive for Transocean, I doubt they will bring much more in the short term. The reason for this is that, in Transocean’s case, the more positive cash flows are already locked in from its long-term, high-margin contracts from the previous era. In this situation, the market is paying more attention to the overall state of affairs in the floating segment of the offshore drilling market, rather than the smaller positive changes (compared to the size of the company) that the new contracts bring.

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