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Transocean: Aggressive in Rig Scrapping and Expansion

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Dec. 4 2020, Updated 10:53 a.m. ET

Total fleet

Transocean (RIG) operates a fleet of 62 mobile offshore drilling units consisting of 27 ultra-deepwater floaters, seven harsh environment semisubmersibles, six deepwater floaters, 12 mid-water semisubmersibles, and ten high specification jackups.

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Scrapping

Transocean has many older rigs in its fleet. The average age of its fleet is 19 years. In this highly oversupplied rig market, customers generally prefer younger, more efficient rigs over the older ones.

In this scenario, many offshore drillers (IYE) such as Diamond Offshore (DO), Ensco (ESV), Noble (NE), Rowan Companies (RDC), Seadrill (SDRL), Pacific Drilling (PACD), Atwood Oceanics (ATW), and Ocean Rig (ORIG) have scrapped their older rigs to reduce costs. Although scrapping rigs reduces costs, it also negatively impacts the earnings potential of the company.

Transocean’s dispositions

Before September 2015, Transocean (RIG) had indicated its intent to scrap 22 floaters. From the start of the year until September 2015, the company has sold ten lower specification units for scrap value.

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Fleet expansion

  • Transocean has seven ultra-deepwater drillships and five high specification jackups under construction.
  • In September, the company took delivery of Deepwater Thalassa. The rig will commence its initial ten-year contract with Shell in the Gulf of Mexico.
  • The Deepwater Proteus is on schedule to be delivered near the end of this year. It will go on contract with Shell in the first half of 2016.
  • The company postponed delivery of two drillships—Pontus and Poseidon. The company successfully negotiated with customers to delay the contracts on these drillships without any changes to the day rate or duration of the contract.
  • The other two drillships are expected to be delivered in the second quarter of 2019 and the first quarter of 2020.
  • One of the newbuild jackups is expected to be delivered in the first quarter of 2018. The remaining four jackups are expected to be delivered at six-month intervals thereafter.

The good part of Transocean’s newbuilds is that most newbuild deliveries are after 2017, when the offshore drilling market is expected to revive. But with 12 newbuilds, the company has a huge cash requirement to fund its capex (capital expenditures), which can be a troublesome situation in this industry downturn. In the next article, we’ll look at Transocean’s capex projections.

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