Dahlman Rose Comments On Transocean Following Weaker Than Expected Earnings

Transocean's

1Q11 EPS results were weaker than expected as revenues were negatively affected by lower-than-expected utilization, particularly in the midwater and deepwater floater segments. The company remains focused on expanding its exposure to the high-spec segment. Transocean continues to increase its exposure to the high-spec segment through the sale of older, low-end assets and the addition of high-spec floaters and jackups to its fleet. The company's fleet of 139 rigs includes 47 high-spec floaters and 9 high-spec jackups, and later this year, the company will add another UDW drillship to its fleet. It also currently has three high-spec jackups under construction. Management commented that it will continue to hold strong on its policy against speculative fleet growth. While Transocean has adamantly opposed ordering rigs on spec, all of its competitors have placed orders without contract-backing. Dahlman believe that this approach may jeopardize its deepwater market share, and assuming the company doesn't place any new orders, it estimates its deepwater position could fall from 25% to 17%. Dahlman Rose has a $98 PT and Buy rating on RIG RIG is trading higher at $69.59