Transocean Ltd.’s first-quarter earnings exceeded analysts’ estimates by 86 percent as the offshore rig owner named new leadership, scrapped vessels and cut costs to handle a drop in drilling demand.
Excluding one-time items, the Vernier, Switzerland-based company’s $1.10 a-share profit exceeded the 59-cent average of 29 estimates compiled by Bloomberg. The results carve out $881 million worth of costs in the quarter, mainly from reducing the value of some assets, Transocean said in a statement Wednesday.
Jeremy Thigpen, 40, who became chief executive officer last month, will look to turnaround last year’s worst performer in the Standard & Poor’s 500 Index. He takes the helm as the drilling industry confronts the double whammy of a glut of new deep-water rigs and falling demand as producers reduce spending because of the collapse in oil prices.
“Costs came in lower than expectations for sure,” Andrew Cosgrove, an analyst at Bloomberg Intelligence in Skillman, New Jersey, said in a phone interview. “Everybody’s been focused on cutting costs. That’s led to a lot of the estimate beats.”
With more than 200 new floating and shallow-water rigs ordered for delivery in the next six years, the industry will have to scrap old vessels at an unprecedented pace.
Transocean is recommending shareholders next week approve a cut in the annual dividend to 60 cents a share from the current $3, which was instituted after calls from billionaire investor Carl Icahn.
Sales declined 13 percent to $2.04 billion. Costs dropped 11 percent from the first three months of 2014. The net loss of $483 million, or $1.33 a share, was Transocean’s third consecutive quarter of negative results. It compares with a profit of $456 million, or $1.25, a year earlier.
The shares fell 3.6 percent to $18.31 at the close in New York, following the downward trend among most oil companies Thursday as Brent crude, the global benchmark, dropped 3.3 percent to $65.54. Transocean has two buy, 14 holds and 23 sell ratings from analysts.
While onshore producers are preparing for the prospect of bringing more drilling rigs back in the second half of the year, “the worst may lie ahead” for offshore rig owners, Cosgrove and William Foiles, analysts for Bloomberg Intelligence, wrote in a report Thursday.
The global offshore industry could see the number of floating rigs active around the world drop to a range of 220 to 230, Terry Bonno, Transocean’s senior vice president of marketing, told analysts and investors today on a conference call. There were 250 active rigs as of March, while rates to lease floating rigs have dropped an average of 16.8 percent in the past six months, with the biggest discounts seen in Africa and South America, according to data compiled by Bloomberg.
“We’re kind of preparing for this lower for longer,” Thigpen told analysts and investors today on a conference call. “We’re preparing for some pretty challenging times in front of us.”