SDLP Seadrill Partners LLC

Offshore drilling giant, Transocean Ltd. (RIG), reported better-than-expected fourth-quarter 2013 earnings on higher dayrates.

Earnings per share (excluding special items) came in at 73 cents, surpassing the Zacks Consensus Estimate by a penny.

However, the figure fell 19.8% from the year-ago adjusted profit of 91 cents per share. Decreased rig utilization along with elevated operating and maintenance costs led to the decline.

Quarterly total revenue of $2,332.0 million failed to beat the Zacks Consensus Estimate of $2,373.0 million. However, the top line was up a marginal 0.3% from $2,326.0 million reported in the year-ago period.

Transocean's high-spec floaters contributed approximately 70.2% to the total revenue, while mid-water floaters and high-spec jackup rigs accounted for 18.4% and 6.1%, respectively. The remaining revenues came from rig activities, integrated services and others.

For the year ended Dec 31, 2013, Transocean reported income (excluding non-operating items) of $4.11 per share, below the Zacks Consensus Estimate of $4.14. However, the figure came ahead of the year-ago adjusted profit of $3.95. Revenues were recorded at $9.5 billion against the year-ago number of $9.2 billion.

Operating Statistics

Transocean posted operating income of $407.0 million during the quarter, down 24.8% from $541.0 million in fourth-quarter 2012.

Total operating and maintenance expenses increased 6.5% to $1,532.0 million.

Dayrates & Utilization

Total average dayrates increased to $393,100 in the reported quarter as compared with $382,000 in the fourth quarter of 2012. The improvement can be attributed to higher dayrates from Midwater Floaters and High-Specification Jackups.

Overall fleet utilization was 75%, down from the year-ago utilization rate of 79%.

Guidance

Transocean is expected to invest roughly $2.6 billion in 2014. The company also forecasts 2014 operating and maintenance expenses in the band of $5.2−$5.4 billion.

Capital Expenditure & Balance Sheet

Capital expenditures during the quarter totaled $948.0 million.

As of Dec 31, 2013, Transocean had cash and cash equivalents of $3,243.0 million and long-term debt of $10,379.0 million (representing a debt-to-capitalization ratio of approximately 38.7%).     

Agreement

Transocean reported that it has entered into a deal with an affiliate of Singapore-based Sembcorp Marine. Per the agreement, Sembcorp Marine’s subsidiary will manufacture two dynamically positioned ultra-deepwater drillships. Transocean projects $1.24 billion of capital expenses for the construction of the drillships. The company anticipates the delivery of the two drillships by the second quarter of 2017 and first quarter of 2018, respectively.

Zacks Rating

Transocean currently carries a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider better-ranked players in the oil and gas drilling sector like Helmerich & Payne Inc. (HP), Patterson-UTI Energy Inc. (PTEN) and Seadrill Partners LLC (SDLP). All the players sport a Zacks Rank #1 (Strong Buy).

 
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