Sunday, July 5, 2015

Seeking Alpha: Fixing Transocean Isn't Going To Be Easy

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to build rigs without contract coverage and prioritizing scale above all else, the company finds itself with a large, outdated, and difficult-to-market fleet that has sizable day-to-day maintenance costs, whether the rigs work or not.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.

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Fixing Transocean Isn't Going To Be Easy

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