With multiple upcoming deals in the bag, sea of opportunities for Transocean’s rig fleet still ‘robust’

Offshore drilling contractor Transocean has expanded its contract backlog with multiple new deals during the second quarter of 2023. This added fuel to the rig owner’s expectations of getting its hands on even higher day rates for its fleet of rigs while upping its fleet utilisation level, thanks to a boom in the offshore drilling market, which is spurring the rise in rig demand.

With the tightening of the offshore drilling market fundamentals comes an upcycle with further growth opportunities for rig owners, which are envisioning higher feet utilisation and day rates in the future. This outlook is shared by Transocean’s peers: Borr Drilling, Shelf Drilling, Diamond Offshore, Noble, Seadrill, Valaris,  Vantage Drilling, and Dolphin Drilling.

This upcycle started to make its presence known and take root in 2022. As a result, last year enabled Transocean to record its largest annual backlog since before the oil and gas industry and the offshore drilling market were hit by a downturn in 2014.

Furthermore, Transocean’s latest fleet status report from July 2023, gives the inside scoop on its fleet of offshore drilling rigs, outlining its recently secured deals with the aggregate incremental backlog associated with these fixtures of around $1.2 billion while the company’s total backlog is about $9.2 billion. While the rig owner only disclosed deals for semi-submersible rigs in its previous fleet status report, the latest one contains a drillship contract along with new semi-sub work.

Transocean’s results for the second quarter of 2023 show a net loss attributable to controlling interest of $165 million for the three months ended on 30 June 2023, compared to $465 million in the first quarter of 2023. The results for 2Q 2023 included net favourable items of $55 million, including a $53 million loss on impairment of assets and a $2 million loss for other discrete items.

After consideration of these net unfavourable items, the second quarter of 2023 adjusted net loss was $110 million, compared to the first quarter of 2023 adjusted net loss of $275 million. The firm’s adjusted EBITDA was $237 million in 2Q 2023, compared to $217 million in the prior quarter. In addition, the capital expenditures of $76 million in 2Q 2023 decreased from $81 million in 1Q 2023, primarily due to reduced spending for its newbuild rigs under construction.

Furthermore, the rig owner’s total contract drilling revenues were $729 million in 2Q 2023, compared to $649 million in the first quarter of 2023 while the total adjusted contract drilling revenues were $748 million in 2Q 2023, compared to $667 million in 1Q 2023.

This shows an increase sequentially of $80 million to $729 million, primarily due to increased activity for rigs that returned to work after being idle in the first quarter, the commencement of operations of the newbuild Deepwater Titan drillship, and $19 million of revenues associated with the early termination of the Transocean Endurance and Transocean Barents rigs, partially offset by reduced activity for two rigs that were idle in the second quarter of 2023.

At the start of December 2022, Transocean celebrated its newest eighth-generation drillship, Deepwater Titan, at the rig’s official naming ceremony in Singapore. Later that same month, Sembcorp Marine completed the delivery of the drillship to Transocean’s subsidiary, Triton Titan. This rig is capable of drilling up to 40,000 feet and operating in water depths of up to 12,000 feet. The Deepwater Titan drillship recently kicked off its inaugural five-year contract with Chevron in the U.S. Gulf of Mexico.

Moreover, Transocean’s total fleet average revenue efficiency was 97.2 per cent in 2Q 2023, compared to 97.8 per cent in the prior quarter. The ultra-deepwater floaters’ revenue efficiency for 2Q 2023 was 97.3 per cent, compared to 97.4 per cent in 1Q 2023 and 96.8 per cent in 2Q 2022. On the other hand, the company’s harsh environment floaters recorded revenue efficiency for 2Q 2023 of 96.8 per cent, compared to 98.7 per cent during the previous quarter and 99.5 per cent during 2Q 2022.

The drilling contractor’s total fleet utilisation in 2Q 2023 was 54.7 per cent, compared to 51.9 per cent in the first quarter of 2023 and 58.2 per cent in 2Q 2022. While the ultra-deepwater floaters’ utilisation for 2Q 2023 was 53.7 per cent, compared to 52.5 per cent in 1Q 2023 and 53.8 per cent in 2Q 2022, the harsh environment floaters’ utilisation for 2Q 2023 was 57.7 per cent, compared to 50.1 per cent during the previous quarter and 70 per cent during 2Q 2022.

Jeremy Thigpen, Transocean’s Chief Executive Officer, commented: “During the second quarter, we continued to benefit from increased demand for our fleet of high-specification floaters. As of our latest fleet status report, we secured an additional $1.2 billion of backlog at a weighted average day rate of approximately $456,000. 

“As evidenced by our customers contracting rigs well in advance of their programmes and committing to long-term contracts, the outlook for our high-specification assets and services remains robust. In addition to securing contracts at market-leading rates, our focus remains on the flawless execution of our offshore operations to maximise the value of our $9.2 billion backlog for our shareholders.”

According to Transocean, the contract intangible amortization represented a non-cash revenue reduction of $19 million in 2Q 2023, compared with $18 million in the prior period while the operating and maintenance expense was $484 million, compared with $409 million in 1Q 2023.

The sequential increase was primarily due to rigs that returned to work after being idle, the start of operations of the newbuild Deepwater Titan drillship and higher costs associated with two rigs undergoing contract preparation.

The rig owner further elaborated that the cash provided by operating activities was $157 million in 2Q 2023, compared to a loss of $47 million in the prior quarter. The company claims that the net cash used in operating activities increased by $204 million compared to the prior quarter, primarily due to increased collections from customers, reduced payments for payroll-related items, and reduced payments for interest.

The offshore drilling giant’s rig fleet contains 37 mobile offshore drilling units, including 28 ultra-deepwater floaters and nine harsh environment floaters. In addition, the firm holds a noncontrolling ownership interest in a company that is constructing one ultra-deepwater drillship.

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