It's tough enough to operate in a deeply cyclical industry, but when
management makes a series of strategic blunders that leaves the company
in an noncompetitive position, you get the situation Transocean (NYSE:RIG)
is facing today. By refusing to build rigs without contract coverage
and prioritizing scale above all else, the company finds itself with a
large, outdated, and difficult-to-market fleet that has sizable
day-to-day maintenance costs, whether the rigs work or not. Making
matters worse, the drillers seem to be looking for any twitch in oil
prices as an excuse to hold off on scrapping idle rigs.
Unless
there is a dramatic increase in oil prices before year-end or a
sustained above-average level of scrapping, the rig market may not come
back into balance for two or three years (if not longer). Transocean is
probably undervalued as a going concern, and I believe the new CEO's
pedigree speaks well to the likelihood of operating improvements, but
the company is going to burn through a lot of liquidity, and it's likely
going to be hard road for a number of years.
Follow this link for more:
Fixing Transocean Isn't Going To Be Easy
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