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Transocean’s 2017 and 2018 Cost Guidance

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Cost-cutting measures

In 3Q17, Transocean (RIG) successfully reduced its costs. Despite a fall in revenue, Transocean’s drilling-to-revenue ratio fell to 46% in 3Q17 from 47% in 2Q17. In 3Q16, the ratio was also 46%.

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Drilling expenses in 3Q17

Transocean’s operating and maintenance expenses fell $10 million in 3Q17, to $323 million.

Guidance

In its 3Q17 conference call, Transocean gave its cost guidance for 4Q17. The company expects its operating and maintenance expenses to range between $380 million and $390 million. The $50 million increase from the third quarter is expected to be mainly due to reactivation and contract preparation costs. The company has not revised its cost guidance for fiscal 2017. Transocean expects its operating and maintenance costs to be 3% lower in 2018.

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General and administrative costs

In 3Q17, Transocean’s G&A (general and administrative) costs were $39 million, $4 million higher than in the previous quarter. The increase was due to the acquisition of Songa.

Transocean expects its G&A costs for 4Q17 to be ~$45 million, not including costs related to the Songa acquisition. The company expects its 2018 G&A costs to be in line with the company’s 2017 expectations.

Expense-to-revenue ratio

Since offshore drillers’ (IYE) revenue is falling, they are staying tight on their cost outlook. Transocean’s expense-to-revenue ratio fell to 46% in 3Q17 from the previous quarter’s 47%. In 3Q17, Diamond Offshore Drilling’s (DO) expense-to-revenue ratio rose to 54%. In the second quarter, Ensco’s (ESV) was ~64%, and Seadrill’s (SDRL) ratio was 39%.

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