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Transocean Secures Quadrant Energy Contract in Australia

Offshore driller Transocean Ltd. RIG recently entered into a contract with Quadrant Energy for drilling in the Phoenix South-3 well, which is located in the Bedout basin offshore Western Australia. The details of the deal are yet to be disclosed.

Drilling is expected to commence between Feb 1 and Apr 1, 2018. Transocean will use the semi-submersible drilling rig named GSF Development Driller-1 for this contract. The GSF Development Driller-1, built in 2006, is cold stacked in Spain at present. It is a sixth generation semi-submersible that can carry out dual rig activities.

While reactivating the rig will increase costs for Transocean, there could be two possible reasons for the move. Either the divesture of 15 jack-up drilling rigs to the Norwegian offshore drilling contractor Borr Drilling has forced the company to bring back one of its cold stacked rigs or Transocean targets potential investments in Australia.

Companies like Transocean, SeaDrill, Ensco, Noble Corporation and other offshore drillers took a hit after the oil price crash of 2014 as a number of drilling contracts went down rapidly. This recent contract for Transocean confirms that the market is slowly coming back on track as SeaDrill and Ensco have also received new drilling contracts in Brazil and West Africa, respectively.

Phoenix South-3 Well

Quadrant owns 80% operating interest in the Phoenix South-3 well while the remaining 20% is owned by Carnarvon Petroleum Ltd. We would like to remind investors that this well is being designed as a re-drill of the Phoenix South-2 well, which contains gas and condensate at the top of the Caley interval. The Phoenix South Caley structure contains 143 million barrels of oil equivalent (BOE) that includes 57 million barrels of associated condensate and 489 billion standard cubic feet (Bscf). The well is located about 160 kilometers northeast of Port Hedland at a water depth of approximately 100 meters.

The purpose of drilling the Phoenix South-3 well is to evaluate the Caley interval properly, which the Phoenix South-2 well could not accomplish as it was created to estimate the range of reservoir intervals. The operations in Phoenix South-2 well were completed in Jan 2017 with the help of Ocean Monarch semi-sub of Diamond Offshore Drilling, Inc. DO.

Price Performance

Transocean belongs to the Zacks categorized Oil and Gas – Drilling industry. In the last six months, the company mirrored the industry’s performance as its stock fell 39.8%, while the industry witnessed a decrease of 39.5%.

About the Company

Switzerland-based Transocean is one of the world’s largest offshore drilling contractors and leading providers of drilling management services. Transocean's fleet is considered one of the most modern and versatile in the world due to its emphasis on technically demanding segments of the offshore drilling business. Its fleet can be broadly divided into three distinct groups based on drilling capabilities: high-specification floaters (semi-submersibles and drill ships), mid-water floaters, and jack-up rigs. The remaining sales come from other rigs, contract intangible revenues, and revenues derived from drilling management services, integrated services, oil and gas properties etc.

However, Transocean’s top line continues to remain under pressure. Like other players in the offshore rig leasing industry, Transocean's revenues have been dropping sequentially as its old contracts have expired. Due to this, the company has either had to stack those rigs or accept much lower dayrates resulting in a decline in revenues. Continued pressure on commodity prices is the primarily reason for a decrease in revenues. While the company is undertaking cost savings initiatives to boost its top line, it will take some time to witness a rebound.

Zacks Rank and Stocks to Consider

Transocean presently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the oil and energy sector include Braskem S.A. BAK and Enbridge Energy, L.P. EEP. Both these companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Braskem’s sales for 2017 are expected to increase 11% year over year. The company’s earnings for the second quarter of 2017 are expected to increase 197%.

Enbridge Energy’s sales for the second quarter of 2017 are expected to increase 13.2% year over year. The partnership delivered an average positive earnings surprise of 38.22% in the last four quarters.

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