With largest annual backlog since before 2014 woes hit industry, Transocean envisages ‘multi-year upcycle’

Offshore drilling contractor Transocean has been busy during 2022, securing the largest annual backlog since before the downturn, which hit the oil and gas industry and the offshore drilling market in 2014. As a result, the rig owner is anticipating further growth in rig demand over the coming years, which will bring higher day rates and fleet utilisation.

Back in October 2022, Transocean’s total backlog within its fleet status report, covering the period up to 13 October 2022, was around $7.3 billion. After the offshore drilling giant won new deals with an aggregate incremental backlog of approximately $1.9 billion, its total backlog was about $8.5 billion on 9 February 2023.

Transocean posted its results for the fourth quarter and full-year 2022 on Tuesday, 21 February 2023, reporting a net loss attributable to controlling interest of $350 million for the three months ended on 31 December 2022, compared to a net loss of $28 million in the third quarter of 2022. The fourth quarter results included net favourable items of $6 million, including $5 million discrete tax items and a $1 million gain on retirement of debt. Following consideration of these net favourable items, the fourth quarter of 2022 adjusted net loss was $356 million.

For the full-year 2022, the net loss attributable to controlling interest totalled $621 million, compared to a net loss of $592 million for the full-year 2021. According to Transocean, the full-year 2022 results included $27 million net favourable items of $19 million related to discrete tax items and an $8 million gain on retirement of debt. After consideration of these net favourable items, the adjusted net loss for 2022 was $648 million.

Jeremy Thigpen, Transocean’s Chief Executive Officer, remarked: “Looking back, 2022 will be remembered as a pivotal year in Transocean’s history. During the year, we continued to high-grade our fleet through the deployment of innovative technologies and the delivery of the industry’s only two 8th-generation drillships, Deepwater Atlas and Deepwater Titan. Perhaps most importantly, we secured approximately $4 billion in incremental backlog, our largest annual backlog addition since prior to the industry downturn in 2014.”

Furthermore, the firm’s total contract drilling revenues were $606 million in 4Q 2022, compared to $691 million in the third quarter of 2022 while total adjusted contract drilling revenues were $625 million in 4Q 2022, compared to $730 million in the third quarter of 2022.

Transocean highlighted that its contract drilling revenues for 4Q 2022 decreased sequentially by $85 million to $606 million, primarily due to reduced activity for five rigs that were idle in the fourth quarter, partially offset by higher revenue efficiency and revenues earned by the newbuild ultra-deepwater floater, the Deepwater Atlas drillship, which started operations in October 2022.

Transocean’s total contract drilling revenues for the full-year 2022 were around $2.58 billion, compared to about $2.56 billion for the full-year 2021. The company explained that the contract intangible amortization represented a non-cash revenue reduction of $19 million in 4Q 2022, compared to $39 million in the prior period. This reduction resulted from the accelerated recognition of the remaining contract intangible for the Transocean Equinox rig, following Equinor’s early termination of the drilling contract, which left the rig idle since October 2022.

Moreover, operating and maintenance expense was $423 million, compared with $411 million in the prior quarter. Based on Transocean’s statement, the sequential increase was primarily due to higher maintenance costs across its fleet and the start of operations of the newbuild Deepwater Atlas drillship, partially offset by reduced activity from rigs that became idle in the fourth quarter.

The company’s operating and maintenance expense for the full-year 2022 was circa $1.68 billion, compared to nearly $1.7 billion in 2021. The offshore drilling giant underlined that its cash provided by operating activities was $178 million in 4Q 2022, compared to $230 million in the prior quarter. The sequential decrease is primarily due to increased payments for accounts payable and income taxes, partially offset by the timing of interest payments.

Furthermore, the firm’s adjusted EBITDA was $140 million in 4Q 2022, compared to $268 million in the prior quarter. Transocean disclosed capital expenditures of $409 million in 4Q 2022, compared to $87 million in the prior quarter, primarily related to its newbuild drillships under construction, including the cash component of the final milestone payment for the delivery of the Deepwater Titan drillship in December 2022.

The drilling contractor’s total fleet utilisation in the fourth quarter of 2022 was 49.4 per cent, compared to 59.4 per cent in the third quarter of 2022 and 53.4 per cent in the fourth quarter of 2021. On the other hand, the total fleet utilisation in 2022 was 54.1 per cent, compared to 53.4 per cent in 2021. The improvement is primarily due to a slight increase in utilisation for harsh environment and ultra-deepwater floaters, which reached 64.9 and 50.1 per cent, respectively, in 2022.

Transocean’s total fleet average revenue efficiency was 98 per cent in 4Q 2022, compared to 95 per cent in the third quarter of 2022 while the total fleet average revenue efficiency for the full-year 2022 was 96.4 per cent, compared to 97 per cent in 2021. The ultra-deepwater floaters’ revenue efficiency for the full-year 2022 was 95.7 per cent, compared to 96.1 per cent in 2021. Meanwhile, the company’s harsh environment floaters recorded revenue efficiency for the full-year 2022 of 97.6 per cent, compared to 98.8 per cent during the year before.

“As an industry, it is clear that we have finally emerged from eight exceptionally challenging years and are now in the early stages of what we believe will be a multi-year upcycle. To maximise value for our shareholders during this upcycle, Transocean will continue to secure high-quality backlog, maintain our acute focus on operational excellence, exercise capital discipline, and take the necessary steps to right-size our balance sheet,” concluded Thigpen.

Other offshore drilling contractors also reaped the benefits of increased day rates and fleet utilisation while the offshore drilling market picked up speed in 2022, as confirmed by Transocean’s rival Valaris, which delivered revenue efficiency of 98 per cent in the fourth quarter of 2022 and 97 per cent for the full-year 2022. 

Additionally, Valaris landed additional contracts awards and extensions in 2023, with an associated contract backlog of approximately $230 million, including a floater contract offshore West Africa and jack-up contracts in the Middle East, Australia and Trinidad.

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