Transocean Ltd., the world’s largest offshore rig owner, rose the most in more than six years as moves by new management to slash expenses led second-quarter profit to beat estimates.
The Vernier, Switzerland-based company rose 12.2 percent to $13.84 at the close in New York, the biggest one-day gain since October 2008.
Chief Executive Officer Jeremy Thigpen, 40, took office on April 22 with the goal of turning around last year’s worst performer in the Standard & Poor’s 500 Index by reducing costs. Mark Mey, who was named chief financial officer a month after, said the company is now able to slash long-term parking costs for ultra-deepwater rigs to less than $50,000 a day from a previous range that was as high as $85,000.
“The new management team sounds very much like they understand the challenges ahead,” Trey Stolz, an analyst at Iberia Capital Partners in New Orleans who rates the shares the equivalent of a hold and owns none, said in a phone interview. “Cost cutting remains a focus, with more likely to come in the coming quarters.”
Profit of $1.11 per share, excluding certain items, was more than double the 51-cent average of 32 analysts’ estimates compiled by Bloomberg. Operating and maintenance expenses were lowered by 9 percent from the first quarter, to $985 million, the company said Wednesday. The cost target for the rest of the year was lowered to a range of $3.7 billion to $3.9 billion from a previous range that was as high as $4.1 billion.
Park or Scrap
Thigpen will have to make quick decisions on whether to scrap more rigs or swallow the cost of parking them. The company has the largest number of floating-rig contracts set to expire by the end of next year, according to a Bloomberg Intelligence report.
“A major part of their business going forward is going to be the managing of costs for these stacked and idled rigs,” said J.B. Lowe, an analyst at Cowen & Co. in New York, who rates the shares the equivalent of a hold and owns none. “They have, not only the biggest fleet, they have the biggest fleet of stacked vessels.”
Deliveries of more than 60 new floating rigs booked through the end of 2018 will only worsen the outlook for the industry.
“They executed for the drillships they still had working,” Rob Desai, an analyst at Edward Jones in St. Louis who rates the shares a sell and owns none, said Wednesday in a phone interview. “The real risk is just what happens in the future if they can’t sign contracts.”
The operating and maintenance costs that Transocean reported for the second quarter exclude $788 million in credits such as insurance proceeds and reimbursement of legal fees related to the 2010 Macondo disaster in the Gulf of Mexico, where a rig operated by the company sank.
Even as cost cuts helped Transocean post better-than-expected results, profit and sales dropped from a year earlier as the company confronts a glut of new deep-water rigs and falling demand from producers battered by the collapse of oil prices.
Second-quarter net income fell to $342 million, or 93 cents a share, from $587 million, or $1.61, a year earlier. Sales fell 19 percent to $1.88 billion.
The shares have 2 buy, 12 hold and 25 sell ratings from analysts.