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Transocean Has 'Challenging' Short-Term Outlook, According To This Argus Analyst

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In a report published Thursday, Argus analyst Michael Burke maintained a Hold rating on Transocean LTD (NYSE: RIG), expressing concern over the company's exposure to the deteriorating conditions in the offshore drilling market being higher than that of its peers.

"Given the sharp decline in energy prices, E&P and integrated international energy companies have shifted their focus away from hard-to-reach deep-sea oil and gas to more cheaply accessed onshore fields," analyst Michael Burke said.

Transocean's April 2015 fleet report indicated that deepwater rigs operating under contract declined 42 percent y/y. Moreover, numerous deepwater rigs are scheduled for contract renewal in the coming year, and run the risk of becoming idled in case the new contracts are not signed.

In the report Argus noted, "We had been concerned that Transocean's newbuild program would pressure the balance sheet. However, we now expect the company to curtail or delay new projects until market conditions improve."

For investors seeking exposure to the offshore drilling market, Burke suggested investing in Noble Corp plc (NYSE: NE), which has "a higher percentage of high-spec ultra-deepwater rigs following the spinout of its standard-spec rigs."

Earlier this week, Transocean reported adjusted 1Q15 earnings from continuing operations of $398 million, or $1.10 per diluted share, down from $520 million, or $1.43 per share, in the year-ago quarter. The company recorded its EPS higher than the Argus estimate of $0.57 and the consensus forecast of $0.59.

"On May 6, the Transocean board recommended slashing the annual dividend by 80%, to $0.60 per share from a prior $3.00. The cut will save the company more than $800 million annually," the report added.

Latest Ratings for RIG

Oct 2016Scotia Howard WeilUpgradesSector PerformSector Outperform
Oct 2016Goldman SachsMaintainsSell
Sep 2016JefferiesMaintainsHold

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