There were rumours that $RIG may acquire $SDRL but as yet noth8ng has happened. Have you heard anymore on this rumour. Or has that takeover been kicked down the road given the sentiment and weaker rates. I’d be interested in your views on this
That merger made sense on paper when initially reported by Bloomberg, although since then market weakness likely has made a deal more challenging. Mostly bc RIG shares would be primary consideration to SDRL and their valuation arguably has been adversely impacted by their balance sheet leverage. I’m just an outsider though.
Agree, John. The Brazil litigation complicates M&A although Constellation noted on their most recent call they expect the dispute to be settled out of court and they believe PBR is committed to settling this matter. We’ll see how this works out but their comments eased some of my concerns.
Might be a deal that gets done in due course. $SDRL looks a lower risk option atm but with an unpriced option for a $RIG takeover once sentiment & pricing improves.
Great article--thanks! Not gonna sugar coat it: I own a ton of this shit, and for so long that I've learned to live with the danger, especially twice a year, when they ring the dinner bell LOL! We'll just have to see if the Credit Gods finally get the last laugh...
Thanks, Gordon. Patrick Pouyanne of TTE said this AM “no way” today would they activate plans to cut capex which was positive bc they are big in deepwater. The unsecureds will trade with crude prices due to sentiment but I like them based on the contract book and asset quality. You have the right attitude. Cheers
Thank you, Walker! You know I’m a bit concerned about the macro near-term but I think the floating rig market structure is faring better than doubters fear. Still more work to do though.
$500mm interest + $500mm principal amortization annually is terrifying (from the view of current shareholders). They really need everything to go perfect.
you say RIG currently has the best fleet, but as someone else said on a podcast, those two 8G ships have to do tremendous amount of lifting to compensate for the debt
if unsecured debt (partially) converts to equity, what would owning converted equity of this deleveraged company look like? How would it compare to owning VAL or NE today?
Yes, the cash flows are tight. The falling through of the Inspiration/DD3 sale doesn’t help.
I don’t agree with whomever said the 8G’s need to do all the heavy lifting to compensate for the debt. Look at their HE Semi fleet. It’s very strong. Look at the 7G+ rigs in US GoM. Strong. It’s all in their public FSR’s.
Nothing against Noble and Valaris but as of today, they do not have comparable assets. In Semis, being NCS eligible is very important. Noble and Valaris have none.
Valaris and Noble are more reliant on West Africa and LatAm on their standard 7G’s (still quality rigs), whereas Transocean has fleet capabilities for Norway and earns top rates US GoM. That’s why their contract book is good.
I don’t have a dog in this race, nor am I Transocean IR. Not my job to sell this. Just giving my independent view. Totally understand qualms with the debt levels but to me it’s clear they have best fleet.
Sorry, I did not mean to be confrontational. I highly value your opinion (that's why I am reading your blog). You are probably right.
My point was, suppose Valaris took $8 billion debt and ordered the best fleet of semis and drillships (8G+, if such thing exists). Would that make sense? As VAL shareholder I would find that idiotic.
It’s all good. I appreciate your comments and you’ve done your homework. Transocean is a controversial among investors, mainly bc their capital structure is messy. However, I think it’s a good company with good assets and strategy which is often overlooked IMO. Balance sheet is a diff story.
They didn’t file Chapter 11 like most peers so have the legacy balance sheet and have to deal with it. Valaris’ predecessor companies Ensco/Rowan/Atwood used debt to buy assets but they wiped out most debt in bankruptcy. Maybe that was the better strategy? I like all these companies by the way so not picking sides. My primary focus is on rig demand and supply modeling and I appreciate your attention
There were rumours that $RIG may acquire $SDRL but as yet noth8ng has happened. Have you heard anymore on this rumour. Or has that takeover been kicked down the road given the sentiment and weaker rates. I’d be interested in your views on this
That merger made sense on paper when initially reported by Bloomberg, although since then market weakness likely has made a deal more challenging. Mostly bc RIG shares would be primary consideration to SDRL and their valuation arguably has been adversely impacted by their balance sheet leverage. I’m just an outsider though.
In addition, it looks like SDRL has some litigation risk with PBR now that creates uncertainty and a contingent liability. Cheers John.
Agree, John. The Brazil litigation complicates M&A although Constellation noted on their most recent call they expect the dispute to be settled out of court and they believe PBR is committed to settling this matter. We’ll see how this works out but their comments eased some of my concerns.
Thanks Tommy
Might be a deal that gets done in due course. $SDRL looks a lower risk option atm but with an unpriced option for a $RIG takeover once sentiment & pricing improves.
Great article--thanks! Not gonna sugar coat it: I own a ton of this shit, and for so long that I've learned to live with the danger, especially twice a year, when they ring the dinner bell LOL! We'll just have to see if the Credit Gods finally get the last laugh...
Thanks, Gordon. Patrick Pouyanne of TTE said this AM “no way” today would they activate plans to cut capex which was positive bc they are big in deepwater. The unsecureds will trade with crude prices due to sentiment but I like them based on the contract book and asset quality. You have the right attitude. Cheers
Great coverage Tommy !
Thank you for reading and commenting, Karoline.
Terrific write-up. Maybe I didn't miss it after all?
Thank you, Walker! You know I’m a bit concerned about the macro near-term but I think the floating rig market structure is faring better than doubters fear. Still more work to do though.
$500mm interest + $500mm principal amortization annually is terrifying (from the view of current shareholders). They really need everything to go perfect.
you say RIG currently has the best fleet, but as someone else said on a podcast, those two 8G ships have to do tremendous amount of lifting to compensate for the debt
if unsecured debt (partially) converts to equity, what would owning converted equity of this deleveraged company look like? How would it compare to owning VAL or NE today?
Yes, the cash flows are tight. The falling through of the Inspiration/DD3 sale doesn’t help.
I don’t agree with whomever said the 8G’s need to do all the heavy lifting to compensate for the debt. Look at their HE Semi fleet. It’s very strong. Look at the 7G+ rigs in US GoM. Strong. It’s all in their public FSR’s.
Nothing against Noble and Valaris but as of today, they do not have comparable assets. In Semis, being NCS eligible is very important. Noble and Valaris have none.
Valaris and Noble are more reliant on West Africa and LatAm on their standard 7G’s (still quality rigs), whereas Transocean has fleet capabilities for Norway and earns top rates US GoM. That’s why their contract book is good.
I don’t have a dog in this race, nor am I Transocean IR. Not my job to sell this. Just giving my independent view. Totally understand qualms with the debt levels but to me it’s clear they have best fleet.
Sorry, I did not mean to be confrontational. I highly value your opinion (that's why I am reading your blog). You are probably right.
My point was, suppose Valaris took $8 billion debt and ordered the best fleet of semis and drillships (8G+, if such thing exists). Would that make sense? As VAL shareholder I would find that idiotic.
It’s all good. I appreciate your comments and you’ve done your homework. Transocean is a controversial among investors, mainly bc their capital structure is messy. However, I think it’s a good company with good assets and strategy which is often overlooked IMO. Balance sheet is a diff story.
They didn’t file Chapter 11 like most peers so have the legacy balance sheet and have to deal with it. Valaris’ predecessor companies Ensco/Rowan/Atwood used debt to buy assets but they wiped out most debt in bankruptcy. Maybe that was the better strategy? I like all these companies by the way so not picking sides. My primary focus is on rig demand and supply modeling and I appreciate your attention