Transocean to Drop Investor Payout as Cheap Oil Saps Demand

  • Deep-sea rig operator calls special shareholder meeting
  • Moody's: Offshore drillers face at least 2 more years of pain

Transocean Ltd., the world’s top offshore rig operator, plans to halt investor payouts and book 2 billion Swiss francs ($2.1 billion) in asset impairments as an oil price crash weakens demand for its drillships.

The plan will be submitted to shareholders in an extraordinary meeting on Oct. 29, as required under Swiss law, the Vernier, Switzerland-based company said Tuesday after regular trading hours. Transocean’s U.S. shares, which have lost two-thirds of their value in a year, plunged 11 percent in after-hours trading as of 7 p.m. in New York. The company’s stock declined as much as 14 percent in Zurich trading on Wednesday.

The most severe oil-industry collapse since the 1980s has prompted explorers to curtail drilling budgets, cancel rig contracts and shelve plans to search for untapped crude fields from the Indian Ocean to the Gulf of Mexico. Transocean, which spent $1.95 billion on dividends since reviving the payouts in 2013, is husbanding cash to weather the downturn.

“I don’t think they’re quite in panic mode but I don’t think things look great either,” Rob Desai, an analyst at Edward D. Jones & Co. in St. Louis, said in an interview. The cancellation represents new Chief Executive Officer Jeremy Thigpen’s “cleaning the slate and starting from scratch.”

Dividend Yield

Transocean’s 4.9 percent implied dividend yield is the second-highest among rig operators in the Standard & Poor’s 500. Only Helmerich & Payne Inc. pays a higher return at 5.4 percent. Halting the payouts will save the company about $100 million this year, said Desai, who has a sell recommendation on the stock.

Thigpen, 40, became CEO in April. Investors will vote on his appointment to the board of directors at the October special meeting, according to the statement.

“In light of the deterioration of the offshore drilling market and concerns regarding the timing of the market’s recovery, the company is evaluating its investments in affiliates as recorded on its Swiss standalone statutory balance sheet for impairment on an interim basis,” the company said in the statement.

Transocean shares were down 9.4 percent to 11.05 Swiss francs as of 10:15 a.m. in Zurich. That brought this year’s decline to 40 percent, making the stock the worst performer on the 20-company benchmark Swiss Market Index. The 24-member STOXX 600 Oil & Gas Index fell 2.3 percent on Wednesday.

Downgrade Outlook

Moody’s Investors Service placed Transocean and 10 other deep-sea rig operators under review for a ratings cut on Monday, noting that the decline in demand for rigs slammed the industry just as a wave of newly built vessels are adding to a glut of supply.

“The review reflects Moody’s concern that offshore drilling contractors will face an extremely challenging operating environment through at least 2017,” Sajjad Alam, a Moody’s analyst, said in the statement.

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