Transocean LTD (RIG): Macondo Morass

  • Secondly, the company is seeking to “fix the portfolio.” As noted, management has been unloading commodity jack-ups to the point that this shallow-water portion of its fleet has been reduced to 10 high-specification units.

Apart from its competition, Transocean has generally preferred to build its new rigs on contract, rather than speculatively. In part as a result, its current $27 billion backlog sits atop the industry.

  • Ikaheimonen described his company’s third primary objective as the implementation of a “robust long-term capital allocation philosophy, which includes growing return of capital to our shareholders.” As he said, two of the elements involve the balance sheet, about which he said, “A strong and flexible balance sheet is not just a luxury, it’s actually a bit of a necessity … for a company like Transocean that still faces uncertainties such as Macondo.”

As to returns to shareholders, management came away from a proxy fight earlier this year with a decision to initiate dividend payments of $2.24 annually per share. Ikaheimonen called it a “starting point (that) got good support from the shareholders. ”

Deeper and stronger
No presentation by an offshore drilling contractor would be complete without at least a cursory survey of market conditions. “Obviously, the recent exploration successes have been very encouraging, with high volume discoveries in different parts of the world. And it’s important to note that up to 80% of the discovered oil volume comes from the deepwater.”

Transocean’s fleet is well prepared for the continued movement into deeper waters — specifically, in the Gulf of Mexico, both East and West Africa, and eventually a return to the previously thriving Santos Basin in Brazil. Beyond that, the company also is ready for revitalized activity in those venues where jack-ups are in increasing demand.

Bottom Line
However, with continued Macondo question marks, along with the need to upgrade the fleet, and currently puny margins, I’m a believer that Transocean stock is only for those with patience and a longer-than-normal investment time horizon.

The article Transocean Is Aiming for Higher Ground originally appeared on Fool.com is written by David Smith.

Fool contributor David Smith owns shares of BP p.l.c. (ADR) and Transocean. The Motley Fool recommends Chevron and Seadrill. The Motley Fool owns shares of Seadrill and Transocean.

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