I think the main hesitation from investors is due to:
- Lack of earnings (no dividend)
- Revenues don't seem to be going in the right direction
- Lot of debt
- drilling relies on commodity pricing of oil
But something that stands out to me on the balance sheet is their tangible book value. As of the latest report (March 2022):
- Shares Outstanding: 681,100,000
- Tangible Book Value: $10,986,000,000
- Net Debt: $6,100,000,000
There is a lot of debt here but even if they were forced to liquidate and paid it off, that still leaves $4,866,000,000. If you spread that out over 681,100,000 shares, it comes out to $7.14 per share. The stock currently trades in the $2-$5 range.
The dayrates for their drilling services are expected to continue increasing:
Deepwater Rigs:
| Q2 2022 | Q3 2022 | Q4 2022 | Q1 2023 |
|---|---|---|---|
| $312,000 | $328,000 | $334,000 | $355,000 |
Harshwater Rigs :
| Q2 2022 | Q3 2022 | Q4 2022 | Q1 2023 |
|---|---|---|---|
| $386,000 | $363,000 | $426,000 | $439,000 |
Many of their deepwater rigs already operate with dayrates in the 400k+ range.
They have 2 brand new high tech deepwater rigs that are coming online (with secured contracts in place) within the next year. These were ordered way back in 2014, so it is very exciting to see them being brought online and put right to work. This should help boost their revenue and contribute to deleveraging the balance sheet.
Overall it seems like this stock really has not been impacted much with the rising oil prices. Sure it is up on the year, but it also hit these ranges last summer when oil was at $60-$70 per barrel. Now, the price of oil is doubled, supply is short, dayrates are climbing, we had to tap into our oil reserves…and the world still runs on oil. As much as we want to focus on electrification and reducing carbon emissions, we cant get there in the next decade. Biden's infrastructure law includes:
“The legislation will reauthorize surface transportation programs for five years and invest $110 billion in additional funding to repair our roads and bridges and support major, transformational projects.”
The heavy machinery required to implement this type of rebuild project…all runs on oil. Planes all run on oil. Less than 1% of the 250 million cars, SUVs and light-duty trucks on the road in the United States are electric.
All of this leads me to believe there is no way Transocean is going out of business any time soon, and it is currently prices well below the value of just its raw assets. If they can start generating earnings and effectively show reduction in debt…the sky is the limit IMO.
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