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Transocean’s Second-Quarter and 2018 Cost Guidance

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Cost-cutting measures

In the fourth quarter of 2017, Transocean’s (RIG) costs increased. Despite higher expenses due to increased revenues, Transocean’s drilling-to-revenue ratio fell to 64% in the first quarter from 66% in the previous quarter. In the first quarter of 2017, the ratio was also 46%.

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First-quarter drilling expenses

Transocean’s operating and maintenance expenses rose by $38 million in the first quarter to $424 million. The expenses increased due to the addition of four harsh environment semisubmersibles, and commencement of operations of the newbuild—Deepwater Poseidon.

Guidance

In Transocean’s conference call, the company provided the cost guidance for the second quarter. Transocean expects its operating and maintenance expenses to be $445 million. Transocean expects its operating and maintenance costs for 2018 to be at the top end of its previous guidance of $1.55 billion–$1.65 billion—compared to $1.38 billion in 2017.

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General and administrative costs

In the first quarter, Transocean’s G&A (general and administrative) costs were $47 million—$4 million higher than $43 million in the previous quarter. The increase was due to higher professional fees associated with the Songa acquisition.

Transocean expects its G&A costs for the second quarter to be ~$42 million. The company expects that the third and fourth quarters will have lower G&A expenses. Transocean expects its 2018 G&A costs to be $117 million—compared to $156 million in 2017.

Expense-to-revenue ratio

Transocean’s expense-to-revenue ratio dropped to 64% in the first quarter from 66% 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%.

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