This is excellent work, Tommy. The dot chart really does show differentiated fleet and management for $RIG. Hopefully that argument has been put to bed - though obviously it has the leverage issues the others don't have. The softer market really seems to have made value of $RIG's efforts to high grade its fleet more visible.
Thanks, Andrew. Agree and think Transocean has done a very good job contracting. Today that benefit goes mostly directly to debt investors but shows a clear path toward deleveraging and eventual shareholder returns. Some investors are turned off by the leverage and lack of divy's/repurchase, so Noble, Valaris and Seadrill make more sense to them. Different strokes for different folks.
Thank you for posting this on Substack! I appreciate the quality of your work and how you’re always courteous when interacting with people on Twitter.
If we assume new contract dayrates and fleet utilization percentages stay where they are in 2024 (i.e. old dayrates roll off, but the market does not improve further), what would be Transocean’s net income and free cash flow?
Thanks for the comment and reading, Tian. Transocean has about ~$450mm/yr of scheduled debt maturities they must pay and it makes them cash flow neutral-ish. When they reach their leverage target they can try to have that debt pay down go to shareholders instead but it’s >18 months away. Odfjell is doing this now. A merger with Seadrill would likely accelerate that bc SDRL balance sheet strength.
Thanks for this great work Tommy. I'm fairly new to this space and am learning. Question... if we were to experience a financial downturn (similar to 2008) that temporarily drives down oil prices, would Transocean's contracting remain robust enough to continue their debt repayments? Curious about downside risks and their resiliency to market shocks. If I understand correctly, others, such as Valaris, have more recently emerged from bankruptcy. Would they be better able to weather such a storm with the benefit of cleaner balance sheets? Or is Transocean's term contracting sufficiently better than the others to reduce those risks?
Transocean has done well contracting and I believe their ability to service their debt is adequate, however conditions such as experienced in 2008 would lead to very high volatility on risk assets that would certainly impact oilfield service companies negatively, particularly leveraged companies. You should do your own due diligence on the credit in those stress scenarios.
To anyone interested in OSV's, Ed covers them very well. I sub to learn from him. OSV's are more difficult to analyze than rigs but he bridges his knowledge with the lack of OSV market transparency into quality, informative content. Also great for shipping of course.
Part of that is because Noble’s lower quality rigs didn’t have contracts. If you throw out the globetrotter and 1-2 others, utilization looks better. Also Noble had some 7G drillships rolling off contract in 2H24-2025. Some of that is just timing being unfavorable to them. Nothing wrong with Noble’s drillship fleet.
Transocean also did a really good job contracting their fleet in 2023-2024.
About time this happened!! Thanks Tommy!!!
Thank you for reading, Sheepdog. This is a better platform for longer-form content. Thanks for the comment.
This is excellent work, Tommy. The dot chart really does show differentiated fleet and management for $RIG. Hopefully that argument has been put to bed - though obviously it has the leverage issues the others don't have. The softer market really seems to have made value of $RIG's efforts to high grade its fleet more visible.
Thanks, Andrew. Agree and think Transocean has done a very good job contracting. Today that benefit goes mostly directly to debt investors but shows a clear path toward deleveraging and eventual shareholder returns. Some investors are turned off by the leverage and lack of divy's/repurchase, so Noble, Valaris and Seadrill make more sense to them. Different strokes for different folks.
Thank you for posting this on Substack! I appreciate the quality of your work and how you’re always courteous when interacting with people on Twitter.
If we assume new contract dayrates and fleet utilization percentages stay where they are in 2024 (i.e. old dayrates roll off, but the market does not improve further), what would be Transocean’s net income and free cash flow?
Thanks for the comment and reading, Tian. Transocean has about ~$450mm/yr of scheduled debt maturities they must pay and it makes them cash flow neutral-ish. When they reach their leverage target they can try to have that debt pay down go to shareholders instead but it’s >18 months away. Odfjell is doing this now. A merger with Seadrill would likely accelerate that bc SDRL balance sheet strength.
Thanks for this great work Tommy. I'm fairly new to this space and am learning. Question... if we were to experience a financial downturn (similar to 2008) that temporarily drives down oil prices, would Transocean's contracting remain robust enough to continue their debt repayments? Curious about downside risks and their resiliency to market shocks. If I understand correctly, others, such as Valaris, have more recently emerged from bankruptcy. Would they be better able to weather such a storm with the benefit of cleaner balance sheets? Or is Transocean's term contracting sufficiently better than the others to reduce those risks?
Transocean has done well contracting and I believe their ability to service their debt is adequate, however conditions such as experienced in 2008 would lead to very high volatility on risk assets that would certainly impact oilfield service companies negatively, particularly leveraged companies. You should do your own due diligence on the credit in those stress scenarios.
Glad you're here! Always appreciate your work!
Thanks Peter. Likewise, I appreciate the feedback.
Keep it coming Tommy! 🤩
To anyone interested in OSV's, Ed covers them very well. I sub to learn from him. OSV's are more difficult to analyze than rigs but he bridges his knowledge with the lack of OSV market transparency into quality, informative content. Also great for shipping of course.
Per the dayrate & utilization chart, why does NE have significantly lower utilization vs. RIG?
Part of that is because Noble’s lower quality rigs didn’t have contracts. If you throw out the globetrotter and 1-2 others, utilization looks better. Also Noble had some 7G drillships rolling off contract in 2H24-2025. Some of that is just timing being unfavorable to them. Nothing wrong with Noble’s drillship fleet.
Transocean also did a really good job contracting their fleet in 2023-2024.
I like your matrix better as a rig count vs. a percentage. But great update as always
Thank you for the constructive feedback!
I just started looking into the industry and I must say that this is really well-written and helpful in understanding important factors.
If I may, on the rate vs utilization chart, what are the 13 dots for each company representing?