uploads/2018/02/Costs.jpg

Transocean’s Cost Guidance for 1Q18 and 2018

By

Updated

Cost-cutting measures

In 4Q17, Transocean’s (RIG) costs increased. With a fall in revenue, Transocean’s drilling-to-revenue ratio rose to 66% in 4Q17 from 46% in 3Q17. In 4Q16, the ratio was also 40%.

Article continues below advertisement

Drilling expenses in 4Q17

Transocean’s operating and maintenance expenses rose by $66 million in 4Q17 to $389 million.

Guidance

In Transocean’s 4Q17 conference call, the company provided the cost guidance for 1Q18. Transocean expects its operating and maintenance expenses to be $400 million–$415 million. Transocean expects its operating and maintenance costs for 2018 to be $1.55 billion–$1.65 billion—compared to $1.38 billion in 2017. The higher costs include 11 months of operations for the Songa rigs and forecast operating and maintenance expenses associated with the new additional contracts that the company secured.

Article continues below advertisement

General and administrative costs

In 4Q17, Transocean’s G&A (general and administrative) costs were $43 million—$4 million higher than the previous quarter. The increase was due to anticipated IT system enhancements and other corporate costs.

Transocean expects its G&A costs for 1Q18 to be ~$50 million. The company expects that the remaining three quarters of 2018 will have lower G&A expenses. Transocean expects its 2018 G&A costs to be $160 million–$170 million—compared to $156 million in 2017.

Expense-to-revenue ratio

Transocean’s expense-to-revenue ratio rose to 66% in 4Q17 from 46% the previous quarter.

Let’s discuss other offshore drillers’ (OIH) ratios. In 4Q17, Diamond Offshore Drilling’s (DO) expense-to-revenue ratio rose to 59%. In the second quarter, Ensco’s (ESV) ratio was ~64%, while Seadrill’s (SDRL) ratio was 39%.

Advertisement

More From Market Realist