Fall 2009 – Transocean LTD

steamonlyOil and Offshore

Nov 8, 2013 (3 years and 9 months ago)

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Transocean Ltd.

William Kelly

Lesya

Kuzmyk

Ceida

Plasencia

Rodrigo
Polezel

Alex
Santos

Company Background

Transocean Ltd. is a corporation based in
Switzerland

that provides services, related equipment
and crews for

offshore drilling of oil and gas worldwide.
They are the largest international provider of offshore
contract drilling services, owning 136 offshore drilling
units.


They provide the following services:


Contracted drilling services


Drilling Management Services


Integrated Services


Oil and Gas exploration

Where RIG Operates

Transocean Ltd

Stock Price:



$86.60

Symbol:



RIG

52
-
Week High/Low:


$41.95
-

$94.44

S&P 500:



$1108.86

2008 A
2009 E
2010 E
EPS
14.38
11.73
10.65
P/E Ratio
6.3
7.6
8.6
S&P 500
$65.00
$50.00
$75.00
S&P 500 P/E
15.2
22.18
14.78
Relative P/E
0.42
0.34
0.58
Porter's 5 Forces

RIG's
Competition/New Entrants


Main Competitors: Pride International Inc., Noble Corp.,
and Diamond Offshore Drilling.


RIG has the largest drilling fleet in the industry, with a
total of 136 mobile offshore drilling units and 10 new
ultra
-
deepwater units under construction.


RIG holds 19 of 23 world records for drilling in the
deepest waters
--
drilling in 10,011 feet of water.


RIG specializes in Harsh
-
Environment Drilling
--
not many
other companies have the equipment and personnel to
do
so.


High start
-
up costs prevent new
entrants (Moat).

The Market


Transocean Ltd. (RIG)


P/E:

7.60


PEG ratio:

0.58 (5 year expected)


EPS:

11.73
(diluted)


Price to Book ratio:

1.44


Dividend Yield:

N/A


Expected share price return:

10.8%


Profit Margin:

29.98%


Market Cap:
29,196.80 (US$ m)


Rating:

Outperform (from Credit
Suisse on October 21, 2009)


Recommendation:

1.9 (1.0 strong
buy
-
5.0 sell)


Revenue:

12.09B (US$)


Diamond Offshore Drilling Inc.(DO)

P/E:

9.91

PEG ratio:

0.75
(5 year expected)

EPS:

10.024

Price to Book ratio:

3.74

Dividend Yield:

N/A

Profit Margin:

38.26%

Market Cap:

13.81B
(US$)

Rating:

Buy (from
Jesup

& Lamont on
October 23,
2009)

Recommendation:

2.7
(1.0 strong buy
-
5.0 sell)

Revenue:
3.64B
(US$)

Noble Corp. (NE)

P/E:

6.87

PEG ratio:

0.63 (5 year expected)

EPS:

6.328

Price to Book ratio:

1.72

Dividend Yield:

0.50%

Profit Margin:

45.72%

Market Cap:

11.36B (US$)

Rating:

Outperform (from RBC Capital Markets on October 26, 2009)

Recommendation:

1.9 (1.0 strong buy
-
5.0 sell)

Revenue:

3.61B (US$)

Supplier Power


RIG contracts companies specialized in the
construction of ships and offshore drilling units


Companies engaged in the development of these rigs
include Daewoo Shipbuilding and Marine Engineering
Co. Ltd. (DSME), Hyundai Heavy Industries,

Ltd., and
Samsung.


Each drilling unit costs an average of $283.5 million


Newbuilds

such as the

ultra
-
deepwater drill
ships

are

contracted for about $500,000/day





The Brand Power


Safe, effective and efficient




Known for their deep water and
harsh environment explorations


"The largest offshore driller"


Owns patented structure and



Oil from one company's rig is no
different than another's; buyers will
look for the best price and contract
terms



Dependable Buyers


Set contracts from several months
to multiple years


Contracts with 41 different
companies from the NOC, IOC and
independents such as

Shell,
Chevron, BP

Buyer Power

Average
Condition








Drilling

Ultra Deep/Harsh
Environment

Dril
ling

Buyer has more
control over
prices

RIG has more
control over
prices

More substitutes
available

Little
-
to
-
no
substitutes
available

Less dependent

Very dependent

Low brand power

Stong brand
power

Threat of Substitute Products


To access natural gas and oil resources located under the
ocean, use of drilling rigs is necessary


No viable alternative process













































Transocean specializes in and derives large bulk of revenue
from deep water rigs


Very few companies possess technology, expertise and
resources to create such specialized rigs




As a result, primary substitute product threat faced by
Transocean lies with
jackups

and medium depth rigs


Much easier for competitors to create own rigs that can
accomplish same objectives at low depths


Constitute smaller percentage of Transocean's revenue;
minimal threat faced

SWOT Analysis

Strengths



Dominant position in the ultra
-
deepwater (+4,000 feet)
industry with a 35% market share.



Stronger cash flows in following years due to lower
capex



Low debt obligations



Recent development
of technologically enhanced Enterprise
-
Class
drillships



Newbuild

program includes three rigs that reach depth 12,000
feet


Contract Backlog



Strong contract backlog of deepwater rigs, which contributes to 70% of
its revenue



Weaknesses


Small growth potential due to its large market
share in the offshore drilling industry as well as
the full usage of its deepwater rigs


Below average returns due to strong backlog


Subletting of rigs can lead to a downward
pressure to
dayrates


Stacked
jackups

accounting for 40% of the total
jackup

fleet by year end of 2009 due to
competitive rates in this sector


Opportunities


Due to the recession, investment in oil production and
exploration has experienced an overall reduction


With the likelihood of oil prices increasing within the
next few years due to sustained demand, utilization of
rigs is likely to increase


With higher oil prices, incentive explore for oil located in
the deepest, harshest territories will increase


These will increasingly require deep
-
water capable rigs,
which Transocean has an advantage in


May seek to acquire competitors, maintain
technological dominance


Threats


International laws and U.S. Coastal Laws may
hamper drilling on certain locations


Profits dependent on weather conditions,
ie
.
hurricanes, severity of winter.


Worldwide political events may impact revenue


Advancement of competitor technology could detract
from the core competence (deep water drilling)


Volatility in oil prices could seriously affect demand
for oil rigs


Alternative energy sources may reduce future
demand for oil rig utilization