Transocean Q3 Earnings Call Highlights

Key Points

• Valaris acquisition: Transocean has received U.S. and Brazilian regulatory approval for the deal and expects to close Dec. 1, pending shareholder and court approvals. It anticipates about $200 million in annual synergies.
• Strong contracting and fleet coverage: The company added nearly $2 billion in backlog during Q3, bringing standalone backlog to about $8 billion. Management said the active fleet is effectively booked through 2026, with nearly 95% coverage for 2027.
• Solid operations and debt reduction: Q3 adjusted EBITDA was $313 million, fleet uptime was 98%, and free cash flow was $131 million. Transocean ended the quarter with $1.3 billion in liquidity and has retired more than $2 billion of debt over the past 24 months.

Transocean NYSE: RIG said it has received all required regulatory approvals for its proposed acquisition of Valaris and expects to close the transaction on Dec. 1, subject to shareholder and court approvals later this month.

President and Chief Executive Officer Keelan Adamson said the U.S. Department of Justice and Brazil’s competition authority, CADE, approved the transaction without conditions. Shareholders of both companies are scheduled to vote on Nov. 24, followed by expected Bermuda Court approval on Nov. 26. Transocean expects to begin pursuing an estimated $200 million in annual synergies soon after closing and plans to provide 2027 guidance for the combined company with year-end results in February.

The company reported third-quarter adjusted EBITDA of $313 million, with a 33% margin, as fleet uptime reached 98% both during the quarter and year to date. Average daily revenue was approximately $463,000, Adamson said.

Backlog Growth and Fleet Coverage

Transocean added nearly $2 billion in backlog during the quarter, including about $1 billion tied to the formal approval of Equinor work for three CAT-D rigs: the Enabler, Encourage and Endurance. Year to date, the company has added more than $4 billion in contract awards, bringing its standalone backlog to approximately $8 billion.

Recent awards included a 10-well, direct-continuation contract for the Deepwater Proteus in the U.S. Gulf worth about $325 million; two direct-continuation contracts for the Deepwater Conqueror totaling $305 million; and a $300 million commitment for the Dhirubhai Deepwater KG2 with ONGC in India. The Transocean Norge received Shell work in Norway worth about $62 million, while an option for a single well on the Transocean Equinox in Australia added approximately $24 million.

Adamson said the awards have effectively sold out the company’s active fleet for the remainder of 2026. Contract coverage for 2027 increased from 81% to nearly 95%, while 2028 coverage stands at about 65%. The Deepwater Mykonos is the only drillship available to begin a term contract during the next 12 months, according to management.

Chief Commercial Officer Roddie Mackenzie said the company sees limited risk of significant idle periods for the Deepwater Atlas and Mykonos, citing available opportunities and options that remain associated with the Mykonos.

Market Outlook Centers on Tightening Utilization

Management described deepwater and harsh-environment drilling markets as constructive, supported by rising exploration and development spending, limited fleet growth and longer contracting lead times.

According to Adamson, Fearnley Offshore estimates drillship utilization is at or above 90%, with demand for sixth- and seventh-generation drillships expected to exceed 95% by the end of 2027. Drillship backlog stands at 237 rig years, or about 2.5 years per unit, which he said was the highest level in more than a decade.

Transocean expects national oil companies to remain a key source of demand as governments prioritize domestic energy production and energy security. Adamson said roughly 60% of the company’s awarded backlog year to date has come from national oil companies, which have generally pursued longer-duration contracts.

The company expects demand growth across several regions, including West Africa, Brazil, the Mediterranean, Southeast Asia and India. It sees African rig demand increasing from about 15 units currently to more than 20 over the next 18 months. In India, management said national oil companies could add as many as four drillships over the next two years under a broader effort to expand offshore production.

In Norway, Transocean said high-specification harsh-environment semisubmersible utilization remains strong through 2028. The Spitsbergen and Equinox are the company’s only harsh-environment semisubmersibles available before 2029, and Adamson said both have attracted substantial interest.

While some rigs are expected to leave the U.S. Gulf for opportunities in regions such as West Africa, the Mediterranean and Asia, management said it continues to view the Gulf’s long-term outlook positively. Adamson pointed to future Paleogene development and exploration opportunities that require high-specification assets.

Costs, Cash Flow and Debt Reduction

Chief Financial Officer Thad Vayda said third-quarter operating and maintenance expense was $590 million, below the company’s forecast due partly to reduced costs on in-service and out-of-service projects. General and administrative expense totaled $62 million, including $10 million of costs related to the pending Valaris acquisition. Excluding those costs, G&A was approximately $52 million.

Free cash flow was $131 million, or about a 14% margin, down from the prior quarter primarily because of collection timing and an approximately $20 million annual fleet insurance premium payment.

Transocean ended the quarter with about $500 million in unrestricted cash and approximately $1.3 billion in total liquidity, including its undrawn revolving credit facility. Its trailing 12-month net debt-to-EBITDA ratio was 2.9 times, one full turn lower than a year earlier.

On Oct. 1, the company retired about $200 million of 8% Deepwater Aquila senior notes, including a nearly concurrent $35 million amortization payment. Vayda said the repayment is expected to save about $22 million in interest expense through the notes’ maturity. Over the past 24 months, Transocean has retired more than $2 billion of debt.

The company also amended its revolving credit facility, expanding capacity to $750 million and extending its scheduled maturity to late 2031. The amended facility is expected to become effective when the Valaris acquisition closes.

For 2027, Transocean expects standalone O&M costs to rise by approximately $60 million year over year, driven largely by rig repositioning, periodic surveys, recertifications and equipment overhauls. Management expects cost inflation to remain in the low single digits, primarily reflecting logistics, fuel and manufactured-goods costs.

About Transocean (NYSE:RIG)

Transocean Ltd. is an offshore drilling contractor that provides drilling services to international oil and gas companies. The company specializes in ultra-deepwater and harsh-environment drilling, helping customers explore for and develop offshore energy resources.

Transocean owns and operates a fleet of mobile offshore drilling units, including ultra-deepwater drillships and semisubmersible rigs. Its services generally include contract drilling, rig operations, well-construction support, and related offshore drilling management.

With roots tracing back to the 1920s, Transocean serves customers in major offshore energy regions around the world.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.