Transocean shows update on recent developments. New contracts and dozens of wells reveal Transocean development.
Transocean shows update on recent developments and uses another modern platform to offer US $ 600 million in senior secured bonds due 2025. Transocean 712 is awarded a 13-well contract from ConocoPhillips. The GSF I Development Driller is awarded a 13-well contract from Chevron. There have been a number of material developments at Transocean (NYSE: RIG) over the last few days, and it's time to go through them one by one.
First, the company priced an offering of US $ 600 million in senior secured bonds due 2025 at a rate of 6.125% per annum. The notes are guaranteed by Deepwater Pontus, a state-of-the-art rig that is on contract with Shell (NYSE: RDS.A) (NYSE: RDS.B) from October 2017 to October 2027, with a fee of $519,000. The company has used this trick before, using its modern platforms on long-term contracts to raise money.
The previous iteration of this strategy was the offering of US $ 750 million in senior secured bonds due 2024 at a rate of 5.875% per annum. These notes are guaranteed by Songa Enabler and Songa Encourage, which were acquired in the acquisition of Songa Offshore. The market continues to show its willingness to lend money to Transocean due to long-term contracts from its best platforms. Rates remain that way, a combination of rising interest rates elsewhere and ongoing challenges in the offshore drilling market.
In another development, Transocean recently announced a 13-well contract for the semi-submarine Transocean 712. The platform will begin service in March 2019 in the UK North Sea with ConocoPhillips (NYSE: COP). The company stated that the backlog is $$ 75 million while the duration is 580 days, calculating the daily rate at $$ 129,000. This is a very positive development for the company, as its old rig will continue to function due to the current rigidity of the North Sea market segment.
Transocean also announced an 11-well contract for the semi-submerged deepwater GSF Development Driller I. The rig will work for Chevron (NYSE: CVX) in Australia starting in the first half of 2019. The work will take 955 days with an accumulation of US $ 158 million, calculated for a daily value of US $ 159,000. Australia is currently a small market with few rigs in the region (data from InfieldRigs): one jack-up (Ensco 107) and six semi-subs – Ensco 5006, ensco DPS-1, Ensco MS-1 by Ensco (NYSE: ESV), Diamond Offshore's Ocean Monarch, Stena Drilling's Stena Clyde, and Transocean I's GSF Development Driller. This allowed Transocean to get a reasonable day (by current standards, of course) for the rig, although it shows that even the tightest segments, true recovery day-to-day is still far away.
While recent developments are certainly positive for Transocean, I doubt they will bring much more in the short term. The reason for this is that, in the case of Transocean, the most positive cash flow is already fixed in its long-term, high-margin contracts from the previous era. In this situation, the market is paying more attention to the general state of affairs in the fluctuating segment of the offshore drilling market, rather than the smaller positive changes (compared to company size) that new contracts bring.