Transocean Misses the Mark

Motley Fool Staff
Updated

Everything seemed to be going swimmingly for deepwater drillers. Transocean (NYS: RIG) , SeaDrill (NYS: SDRL) , and Ocean Rig (NAS: ORIG) , which is majority owned by DryShips (NAS: DRYS) , are building deepwater rigs as fast as they can to keep up with demand from companies like BP (NYS: BP) and Shell (NYS: RDS.A) . But new safety regulations following the Deepwater Horizon oil spill last year are having an impact on Transocean's business.

In the third quarter, revenue fell to $2.24 billion, from $2.33 billion in the prior quarter, and revenue efficiency fell to 89.5% from 92.1%. The company blamed the need to comply with new regulations and standards as the reason for the drop in revenue.

The bottom line looked even worse, where net loss fell to $71 million, including $81 million in special items, compared to a profit of $155 million last quarter.

What's concerning for Transocean is that the poor results haven't been widespread so far for drillers. Hercules Offshore (NAS: HERO) , which focuses on less desirable shallow water, posted a lower-than-expected $0.12 loss last week and revenue was up as dayrates rose for the company.

Also concerning is an expected rise in operating and maintenance costs for Transocean, both for operating and out-of-service rigs.

It's all about the oil
The rough patch Transocean is going through could be helped by higher oil prices, which could be on their way if Europe gets its act together. But operationally speaking, the company isn't hitting on all cylinders.

We'll find out later this month if other drillers have to spend the same kind of time and money meeting regulations, but right now Transocean looks like it wasn't prepared for the regulations. There's also the cloud of a BP lawsuit hanging over Transocean, which will be costly even if the company wins. This drilling leader looks like it's lost a bit of its touch.

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At the time thisarticle was published Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.The Motley Fool owns shares of Transocean. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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