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Transocean - Strong Offshore Recovery Play

Summary

Transocean has had a difficult time watching its stock price drop by more than 80% since the start of the oil crash in mid-2014.

The company has strong growth prospects and a backlog that is expected to last more than a decade. This means the company will continue generating cash flow for many years.

For these reasons, I recommend Transocean as a strong offshore recovery play.

Introduction

Transocean Ltd. (NYSE: RIG) is one of the world's largest offshore drilling contractors and is based in Vernier, Switzerland. The company has a very respectable $3.4 billion market cap down from more than $15 billion before the start of the oil crash. However, despite this, the company owns more than 60 rigs and operations in 20 countries. This significant base of operations, as one of the world's largest offshore drilling contractors, makes Transocean one of the safer companies in the offshore drilling industry.

Transocean Drilling Ship - Offshore Energy Today

Transocean has had an incredibly difficult time since the start of the oil crash. The company saw its per-share stock price at more than $45 per share in mid-2014. However, since then the company's stock has had an incredibly difficult time. The company's stock began falling rapidly all the way to a bottom of just over $8 per share in February 2016. Since then the stock has recovered modestly to a present share price of just over $9.5 per share. However, the company still remains ways below its pre-crash highs.

Despite this challenging environment, I still think Transocean is a strong offshore recovery play. The company has low operating costs and minimal debt due in the coming years. More importantly, the company has managed to build a strong and reliable fleet with an immense backlog. This backlog and reliable fleet should help the company remain strong until a recovery in oil prices.

Challenging Offshore Market

Now that we have an overview of Transocean along with how the company's backlog and how a reliable fleet will help the company survive the crash, it is time to begin by discussing the challenging offshore market. By understanding the offshore market, we can get a better idea of the challenges that Transocean will need to face and overcome.

Commodity Markets - Transocean Investor Presentation

The above image shows recent commodity prices and how oil prices have taken an immense hit. Oil prices dropped more than 70% from their mid-2014 highs to their January 2016 lows. While oil prices have recovered significantly since then, they still remain...


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