What Do Transocean’s Capex and Liquidity Forecasts Tell Us?


Nov. 20 2020, Updated 2:34 p.m. ET

Cash flow

Operating cash flow represents the cash flows from the core operations of a company. In 1Q16, Transocean (RIG) had cash flow from operations of $631 million, which was lower than the $960 million it had in 4Q15.

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Capital expenditure

Transocean’s capital expenditure, or capex, totaled $368 million in 1Q16. This was mostly related to the payments toward newbuilds. The company expects its 2016 capex to be around $1.1 billion. Of this, $1 billion will be associated with the newbuilds Deepwater Conqueror, Deepwater Pontus, and Deepwater Poseidon.

Transocean’s maintenance capex is expected to be $80 million for the remainder of 2016. In 2017, the company expects its capex to be $625 million.

Notably, Transocean has successfully deferred its uncontracted newbuilds into 2020. This has postponed major capex requirements as well.

Free cash flow

Transocean recorded $1.4 billion in free cash flow in 2015. In the first quarter, as well, the company recorded a positive free cash flow. Even after a heavy capex requirement in 2016, Wall Street analysts estimate a positive free cash flow of $18 million in 2016.

In 2015, offshore drillers (XLE) Seadrill (SDRL), Noble (NE), and Rowan Companies (RDC) posted positive free cash flow, but Diamond Offshore (DO) posted negative free cash flow.

Liquidity forecast

Based on Transocean’s current forecasts, it projects that at December 31, 2017, its liquidity will remain in the range of $4 billion–$5 billion. This projection includes $3 billion in undrawn revolving credit facility, which will remain with the company through mid-2019.

In the next and final part, we’ll examine the analyst recommendations and price targets for Transocean after 1Q16.


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