Noble Corporation (NE), Transocean LTD (RIG)- Off-Shore Drilling Companies: Performance Review

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Transocean LTD (NYSE:RIG): deepwater horizon settlement is key

Transocean LTD (NYSE:RIG)’s most important problem is the settlement of the Deepwater Horizon oil rig accident. Estimates indicate that the accident has already cost the company $4 billion. Since 2010 its share has lost almost half of its price and has suspended its dividend which drove increasing consternation about the future of the company. But Transocean LTD (NYSE:RIG) has other problems to take care of. Although its net income improved in the first quarter of 2013 to $321 million from $10 million on the same quarter last year, the company faces increasing rig maintenance costs which escalated from $1.2 billion in the first quarter of 2012 to $1.4 billion in the same quarter 2013 mainly due to its aging fleet. It will be difficult for this company to modernize its fleet in the middle of the settlement and it will be harder to canalize investments. The best option is leaving the accident and focusing in rebuilding the operational and financial strength it used to have. Transocean is definitely not a good option for investors: it still has not solved the accident issue, it has increasing costs related to the maintenance of its old fleet, a declining stock and it has suspended the dividend.

Offshore drilling: the art of oil extraction

Although this sector is in an excellent standpoint for future growth, it is facing some headwinds especially regarding the Deepwater Horizon rig explosion in 2010 which created new regulatory pressures to offshore drilling programs. Another aspect investors should be aware of is that these companies projects are very sensitive to oil prices. Increasing US oil production from shale rock has not affected global prices yet, but analysts expect that the fracking techniques could be a game changer in the long run, driving down oil and gas prices. This technology is something investors should monitor closely as United States is taking the lead. With that said, I think that Diamond Offshore Drilling Inc (NYSE:DO) and Noble are great opportunities to take advantage of this oil revolution.


Vanina Egea has no position in any stocks mentioned. The Motley Fool owns shares of Transocean.
Vanina is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Off-Shore Drilling Companies: Performance Review originally appeared on Fool.com is written by Vanina Egea.

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