Transocean sees recent rig deals as proof of ‘sustained upcycle’ in offshore drilling market

With “an outstanding quarter” now behind it, Transocean, an offshore drilling contractor, is looking forward to further growth in the offshore drilling market, as the deals awarded to its rig fleet in the first quarter of 2023 have fuelled the firm’s hopes of increased rig demand, higher day rates and fleet utilisation over the coming years.

Transocean’s hopes of a multi-year upcycle in the offshore drilling market are bolstered by its results during 2022, when the rig owner secured its largest annual backlog since before the downturn, which hit the oil and gas industry and the offshore drilling market in 2014. This was hammered home further within its fleet status report, released in April 2023, which depicted some of its recently announced deals with an aggregate incremental backlog associated with these fixtures of around $546 million.

The company’s total backlog was approximately $8.6 billion at the time, however, the new fleet status report only disclosed deals for semi-submersible rigs, unlike the previous one, which contained both semi-sub and drillship deals.

Transocean revealed its results for the first quarter of 2023 on Monday, 1 May 2023, reporting a net loss attributable to controlling interest of $465 million for the three months ended on 31 March 2023, compared to $350 million for the fourth quarter of 2022. The results for the first quarter of 2023 included net favourable items of $190 million, including a $169 million loss on disposal of assets and a $32 million loss on retirement of debt.

These unfavourable items were partially offset by $11 million discrete tax items, thus, after consideration of these net unfavourable items, the first quarter of 2023 adjusted net loss was $275 million, compared to the fourth quarter of 2022 adjusted net loss of $356 million. The firm’s adjusted EBITDA was $217 million in 1Q 2023, compared to $140 million in the prior quarter.

Moreover, the rig owner’s total contract drilling revenues were $649 million, compared to $606 million in the fourth quarter of 2022 while the total adjusted contract drilling revenues were $667 million in 1Q 2023, compared to $625 million in the fourth quarter of 2022. This shows an increase sequentially by $43 million, primarily due to increased activity for rigs that returned to work after being idle in 4Q 2022 and increased day rates for two rigs, partially offset by two fewer calendar days in 1Q 2023.

Jeremy Thigpen, Transocean’s Chief Executive Officer, remarked: “The Transocean team delivered an outstanding quarter of safe, reliable and efficient operations, with an adjusted EBITDA margin of 33 per cent on adjusted revenues of $667 million. The strong performance is the result of excellent revenue efficiency of nearly 98 per cent and exemplifies our commitment to operational excellence.”

Furthermore, Transocean’s total fleet average revenue efficiency was 97.8 per cent, compared to 98 per cent in the prior quarter. The ultra-deepwater floaters’ revenue efficiency for 1Q 2023 was 97.4 per cent, compared to 97.8 per cent in 4Q 2022 and 94.9 per cent in 1Q 2022. On the other hand, the company’s harsh environment floaters recorded revenue efficiency for 1Q 2023 of 98.7 per cent, compared to 98.4 per cent during the previous quarter and 95 per cent during 1Q 2022.

Meanwhile, the drilling contractor’s total fleet utilisation in the first quarter of 2023 was 51.9 per cent, compared to 49.4 per cent in the fourth quarter of 2022 and 52.7 per cent in the first quarter of 2022. While the ultra-deepwater floaters’ utilisation for 1Q 2023 was 52.5 per cent, compared to 47.9 per cent in 4Q 2022 and 49.8 per cent in 1Q 2022, the harsh environment floaters’ utilisation for 1Q 2023 was 50.1 per cent, compared to 53.5 per cent during the previous quarter and 60.3 per cent during 1Q 2022.

According to Transocean, the contract intangible amortization represented a non-cash revenue reduction of $18 million in 1Q 2023, compared with $19 million in the prior period while the operating and maintenance expense was $409 million, compared with $423 million in 4Q 2022. The sequential decrease was primarily due to lower in-service maintenance costs across the firm’s fleet.

The rig owner further elaborated that the net cash flows used in operating activities were $47 million in 1Q 2023, compared to net cash provided by operating activities of $178 million in the prior quarter. The company claims that the net cash used in operating activities increased sequentially primarily due to reduced collections from customers, increased payments to employees and the timing of interest payments.

In addition, the capital expenditures of $81 million in 1Q 2023, compared to $409 million in 4Q 2022, were primarily related to the cash component of the final milestone payment for the delivery of the Deepwater Titan drillship in December 2022.

“Additionally, the contracts we secured during the quarter, which were predominantly for our harsh environment fleet, complement the wave of ultra-deepwater fixtures we announced over the last several quarters, providing further evidence of a broad, sustained upcycle,” concluded Thigpen.

As a result of the global energy crisis, which brought energy security concerns to the forefront, oil and gas players were able to rake in all-time high profits in 2022, providing more business to the offshore drilling market.

Bearing this in mind, other offshore drilling contractors, aside from Transocean – Vantage Drilling, Shelf Drilling, Diamond Offshore, Noble, and Valaris – also anticipate that the upcycle the offshore drilling market is currently undergoing will be a multi-year one, ramping up rig demand, which in turn will boost day rates and fleet utilisation.

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