Earnings Release Is Transocean Inc. A Buy?

 

Transocean Ltd. (NYSE: RIG) today reported a net loss attributable to controlling interest of $99 million, $0.16 per diluted share, for the three months ended March 31, 2021.

First quarter 2021 results included net favorable items of $18 million, or $0.03 per diluted share, as follows:

  • $51 million, $0.08 per diluted share, gain on retirement of debt; and
  • $27 million, $0.05 per diluted share, discrete tax items.

These favorable items were partially offset by:

  • $60 million, $0.10 per diluted share, loss on disposal of assets.

After consideration of these net favorable items, first quarter 2021 adjusted net loss was $117 million, $0.19 per diluted share.

Contract drilling revenues for the three months ended March 31, 2021 decreased sequentially by $37 million to $653 million, primarily due to the sale in the first quarter of one harsh environment rig previously operating in the fourth quarter 2020, two fewer calendar days in the first quarter, and reduced activities for ultra-deep water units, which were stacked or idle, in Asia and North America. These decreases were partially offset by a lower loss of revenue associated with shipyard during the quarter.

A non-cash revenue reduction of $56 million was recognized in the first quarter as a result of contract intangible amortization associated with the Songa and Ocean Rig acquisitions. This compares with $57 million in the prior quarter.

Operating and maintenance expense was $435 million, compared with $465 million in the prior quarter. The sequential decrease was primarily the result of decreased activity, lower in‑service maintenance cost, reduced shipyard activities, and lower allowance for excess materials and supplies.

General and administrative expense was $39 million, down from $50 million in the fourth quarter of 2020.  The decrease was primarily due to legal, professional and advisory fees incurred in the fourth quarter that were not repeated in the first quarter and, to a lesser extent, reduced personnel costs.

Interest expense, net of amounts capitalized, was $115 million, compared with $117 million, in the prior quarter. Interest income was $3 million, compared with $2 million in the previous quarter.

The Effective Tax Rate(2) was 17.8%, up from (147.9)% in the prior quarter. The increase was primarily due to various discrete items. The Effective Tax Rate excluding discrete items was (5.7)% compared to (39.9)% in previous quarter.

Cash flows provided by operating activities were $96 million, compared to $278 million in the prior quarter. This was primarily a result of reduced cash received from customers directly resulting from the reduced activity, combined with increased cash used due to the timing of interest payments and payroll-related payments.

First quarter 2021 capital expenditures of $59 million were primarily related to our newbuild drill ships under construction. This compares with $47 million in the previous quarter.

CWEB Analyst’s have initiated a Hold Rating for  Transocean Ltd. (NYSE: RIG)  due to the following facts of decreasing revenue and potential risk associate with asset allocations.  Total contract drilling revenues were $653 million (total adjusted contract drilling revenues of $709 million), compared with $690 million in the fourth quarter of 2020. Net loss attributable to controlling interest was $99 million, $0.16 per diluted share, compared with net loss attributable to controlling interest of $37 million, $0.06 per diluted share, in the fourth quarter of 2020.

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