Transocean's Deepwater Drillship Invictus Wins New Contract

Offshore driller Transocean Ltd. RIG recently reported that its ultra-deepwater drillship Deepwater Invictus has received a two-year contract from a subsidiary of mining company, BHP Billiton Limited BHP. Per Transocean, the contract will begin in the second quarter of 2018.

The contract for Deepwater Invictus, which joined Transocean's fleet in 2014, includes three one-year priced options. Transocean expects the backlog related to the contract to be around $106 million. The company is yet to declare the exact dayrate for the rig. In this context, we would like to remind investors that Deepwater Invictus’ first contract with BHP in 2014 had a dayrate of $595,000.

Built in Korea's DSME shipyard, Invictus can operate in water depth of up to 12,000 feet. It can drill 40,000 feet deep wells. The drillship worked for BHP in the U.S. Gulf of Mexico and Trinidad. Invictus is presently in the Gulf of Mexico, south of Louisiana.

About the Company

Switzerland-based Transocean is one of the world’s largest offshore drilling contractors and leading provider of drilling management services. Its drilling fleet consists of 40 high-specification deepwater floaters, 6 mid-water floaters, and 10 high specification jackups. 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.

Transocean's aggressive cost reduction programs will enable it to shore up its operational performance in this volatile crude environment. As part of this strategy, the company has embarked on a policy to optimize overhead and maintenance expenses. Transocean has also set itself an ambitious target to achieve an impressive revenue efficiency of 95% through 2019.

However, Transocean conducts operations in various regions throughout the world, with a substantial portion of its total revenue and earnings coming from international markets. As such, the company is exposed to risks associated with operating in international markets. Such risks include embargoes and/or expropriation of assets, exchange rate risks, terrorism and political/civil sentiment, etc.

Price Performance

Transocean has lost 31% of its value year to date compared with 36.5% fall of its industry.

Zacks Rank and Stocks to Consider

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

Some better-ranked stocks in the oil and energy sector are JA Solar Holdings, Co., Ltd. JASO, Par Pacific Holdings, Inc. PARR and Canadian Natural Resources Ltd. CNQ. JA Solar and Par Pacific sport a Zacks Rank #1 (Strong Buy) while Canadian Natural carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

JA Solar’s earnings for the third quarter of 2017 are expected to surge 20% year over year. The partnership delivered a positive average earnings surprise of 716.7% in the last four quarters.

Par Pacific’s sales for the third quarter of 2017 are expected to increase 28.5% year over year. The company delivered a positive average earnings surprise of 9.1% in the last four quarters.

Canadian Natural’s sales for the third quarter of 2017 are expected to increase 82.3% year over year. The company delivered a positive earnings surprise of 46.9% in the second quarter of 2017.

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