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.
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.
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.