Transocean: Levered Bet On Deepwater Offshore

Summary:

  • Transocean is a highly leveraged bet on expansion in offshore activity, due to both the dependence of pricing on utilization and its debt-laden balance sheet.
  • Offshore drilling is expected to pick up in coming years, and Transocean believes that this increase in activity will be relatively insensitive to oil prices.
  • Transocean’s stock could prove inexpensive if day rates increase sufficiently, but the company’s debt and the precarious state of oil markets make this a risky investment.

Vibrant Sunset Sky Behind an Offshore Oil Drilling Rig off the Coast of Orange County, California

Jeremy Poland/E+ via Getty Images

An investment in Transocean (NYSE:RIG) is a highly levered bet on expansion in offshore activity. Rig pricing is heavily dependent on utilization, and this, combined with Transocean’s debt-laden balance sheet, makes the business highly operationally and financially leveraged.


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