Earnings Beat Overshadowed
However, Transocean's earnings beat was overshadowed by the announcement that it will lose more than $500 million in revenue, and its finances will be hampered by hefty fees from a growing pile of lawsuits, as the company gets entangled in the huge oil spill accident in the Gulf of Mexico, the Deepwater Horizon.
In its quarterly filing with the U.S. Securities and Exchange Commission, the Geneva-based company warned investors regarding the risks associated with the Horizon rig disaster, including legal costs, government investigations and lost revenue.
As a reminder, on Apr 20, Transocean's ultra-deepwater Horizon drilling platform, contracted to British major BP Plc (BP: 50.99 0.00 0.00%), sank following a fire and explosion while operating in the U.S. Gulf of Mexico off Louisiana 's coast. The incident killed 11 workers and caused one of the worst oil spills in U.S. history.
Year-Over-Year Comparisons Down
Comparisons (for the reported quarter) with the year-earlier period were quite ugly, as utilization rates continue to slide. Transocean's adjusted earnings per share slumped approximately 40.8% (from $3.75 to $2.22).
Revenue
Total quarterly revenues of $2.6 billion missed the Zacks Consensus Estimate by 2.2%. It was down 16.6% year-over-year and 4.8% sequentially, mainly attributable to reduction in contract drilling sales (due to stacking of rigs) and increased rig time in shipyard/mobilizations, partially offset by contributions from newly constructed ultra-deepwater rigs.
Transocean's high-spec floaters contributed approximately 56.4% to total revenue, while mid-water floaters and jack-up rigs accounted for 20.1% and 17.1% of the total, respectively. The remaining revenue came from other rig activities, integrated services, and others.
Operating Statistics
During the quarter, the company's operating income totaled $926 million, down 7.7% sequentially. Operating and maintenance expenses were $1.2 billion, 7.7% lower than the fourth quarter of 2009, primarily reflecting reduction in maintenance costs and cost benefits resulting from the stacking of rigs, somewhat offset by the favorable impact of litigation settlement expenses in the prior quarter, increased shipyard project costs, and commencement of newbuild operations.
Dayrates & Utilization
Average dayrates increased marginally (by 0.9%) from the Dec quarter to $298,300, as high-spec floater dayrates gained 2.7% and mid-water floater dayrates were up 2.0%.
Compared to the first quarter of 2009, dayrates rose 16.3% (from $256,500 to $298,300). All types of rigs apart from high-spec jackups and standard jackups experienced increased dayrates. High-spec floater dayrates were up 11.0%, while mid-water floaters increased 5.4%.
Overall fleet utilization was 66% during the quarter, compared to 69% in the prior quarter and 91% in the year-ago quarter.
Backlog
As of Mar 31, 2010, Transocean's contracted backlog was $28.9 billion, down from $31.2 billion at the end of the preceding quarter. The decrease is a result of depressed demand for the jackups, mid-water and moored deepwater units on the back of uncertain commodity prices.
As per more recent figures of Apr 13, 2010, the backlog further fell to $28.6 billion, reflecting the $590 million lost backlog related to the drilling contract under which Transocean's ultra-deepwater floater 'Horizon' was operating.
Capital Expenditure & Balance Sheet
Capital expenditures during the quarter totaled $379 million versus $708 million in the previous quarter, with the change primarily related to lower costs associated with the construction of ultra-deepwater floaters. As of Mar 31, 2010, Transocean had cash in hand of $1.6 billion and total debt of approximately $11.4 billion (representing debt-to-capitalization ratio at approximately 35.0%.
2010 Guidance
For 2010, Transocean is guiding towards capital expenditures of approximately $1.4 billion, of which $855 million will go towards the construction of newbuild rigs. The remaining $545 million has been allocated to contractually required upgrades and sustaining capital expenses.
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