Transocean: First-Quarter Results Show Increasing Dayrates Are Set To Drive Shares Higher
Our Transocean (RIG) investment thesis revolves around increasing offshore drilling activity combining with tight rig supply to drive up dayrates, boost the company’s margins, and facilitate debt reduction. First-quarter results show that our thesis is playing out.
Q1 Financial Review
Transocean’s first-quarter financial results were stronger than management’s previous guidance and market expectations. Adjusted contract revenue came in at $649 million versus guidance of $635 million. Operating expenses and G&A were lower than guidance, and Adjusted EBITDA was $217 million, well above guidance of $155 million, which was in line with analyst expectations. Management reiterated its full-year 2023 guidance.
The company refinanced $1.564 billion of debt using cash on hand and proceeds of a bond offering in January. It repaid the balance of outstanding notes maturing from 2024 through August 2025 by issuing new notes that mature in 2030. The retired notes had interest rates of 5.875%, while the newly issued notes came at a steep 8.75%.
The company also reached an agreement with a large holder of its convertible notes to convert $213 million of the notes to equity. Management is currently seeking to convert a portion of the remaining $618 million of convertible notes to equity. Unfortunately, these deals will increase the dilution to shareholders, which has been significant over the past two years.
After the debt transactions, Transocean's total long-term debt balance stood at $7.625 billion, with its earliest material debt maturity being its $866 million of 6.625% notes. As the offshore rig market continues to strengthen over the next few years, the company should have little problem refinancing its nearest maturities and paying down its debt.