Transocean (RIG) has just provided its new fleet status report which is especially interesting to evaluate given current market conditions. Without further ado, let’s look at the changes that happened since the previous fleet status report was published:
- Drillship Dhirubhai Deepwater KG1 got a 180-day option in India. The rig will work for Reliance until June 2021 at a dayrate of $127,000.
- Drillship Discoverer Inspiration is idle since October 2020. The rig finished its previous contract with Talos in the U.S. Gulf of Mexico in August 2020.
- Drillship Discoverer India is stacked since July 2020 when it finished its work for Burullus in Egypt.
- Semi-sub Transocean Leader is stacked since July 2020 when it finished its contract with Premier Oil in the UK North Sea.
- Drillship Deepwater Titan is now expected to begin its work for Chevron (CVX) in the first half of 2020 and finish the contract in the first half of 2027. According to the previous estimate, the job was expected to begin in the fourth quarter of 2021.
Put simply, the company’s fleet status report looks grim. Transocean’s fleet of stacked and idle rigs continues to grow, and it will soon have to find work for drillship Deepwater Asgard, which is expected to conclude its work for Beacon Offshore in the U.S. Gulf of Mexico in November 2020.
Recently, Transocean announced cash tender offers which target bonds with near-term maturities in its continued effort to improve its debt position, but it’s hard to see how the company will avoid a comprehensive restructuring if the market situation does not improve materially.
At this point, Transocean has 9 (!) stacked modern drillships. Most of these rigs (if not all, depending on the length of the current crisis) will never make it back to the market. The fate of two idle drillships, Deepwater Orion and Discoverer Inspiration, is unclear at this point, but they are certainly at risk.
On top of the problems on the contract front, Transocean has to deal with creditors which try to threaten Transocean with default due to its recent debt exchange. Even if nothing bad happens in the court, it will be really hard for Transocean to stay afloat if it keeps putting rigs into stacked or idle state instead of finding work for them.
In my opinion, the recent stock price action is justified. The risks of bankruptcy are increasing day by day. The main problem is not a bunch of opportunistic creditors who are trying to threaten the company with a forced bankruptcy to get a better deal. The main problem is that Transocean’s active fleet is shrinking while the company’s capital structure is not designed to be supported by an ever-decreasing number of rigs.
While the company is actively trying to deal with near-term maturities to improve its runway and provide itself with a chance to wait for better times, its debt load is simply too big for the current market environment. Most likely, Transocean will have to join its peers and restructure its debt. Meanwhile, the company’s shares may have very good days from time to time as it often happens in such situations.
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