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Transocean Issues 3Q17 and 2017 Cost Guidance

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Cost-cutting measures

In 2Q17, Transocean (RIG) successfully reduced its costs. Despite a fall in its revenue, Transocean’s drilling-to-revenue ratio rose to 47% in 2Q17 from 46% in 1Q17. In 2Q16, the ratio was 54%.

We should note that in order to withstand the current industry downturn, offshore drilling companies (OIH) have no choice but to reduce their costs as much as possible. Peers Atwood Oceanics (ATW), Diamond Offshore Drilling (DO), Seadrill (SDRL), Pacific Drilling (PACD), and Noble (NE) have also announced cost reduction plans to maintain profit margins in this challenging industry.

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2Q17 drilling expenses

Transocean’s operating and maintenance expenses were $333 million in 2Q17—down from $343 million in the previous quarter. Its 2Q17 expenses were below expectations due to the company’s cost control measures.

Guidance

In 3Q17, Transocean expects its operating and maintenance expenses to be $350 million–$360 million. For 2017, the cost is expected to be ~$1.375 billion–$1.4 billion. The company lowered its guidance due to lower jack-up costs, partially offset by reactivation costs. The 2017 cost guidance is ~25% lower than its 2016 costs.

G&A costs

Transocean’s G&A (general and administrative) costs in 2Q17 were $35 million—$4 million lower than the previous quarter.

Transocean expects its G&A costs for the third quarter to be ~$40 million. The company expects its 2017 G&A expenses to be $155 million–$160 million—almost 14% lower than its costs in 2016.

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