Transocean Stock is Ready to Awaken Here

Offshore oil and gas drilling giant Transocean NYSE: RIG stock is starting to awaken after years of brutal selling from a high of $163 in 2015 to lows of $0.65 in 2020. The global decarbonization movement and migration towards clean energy solutions has not been a favorable environment for the oil drillers. In fact, many drillers have shut down or gone bankrupt amid falling day rates. Transocean has survived despite a heavy debt-load in a war of attrition that enables it to recover as rates recover. Crude oil prices continue to rally, and gas prices continue to rise as the re-opening continues. As airplanes, ships, trucks, and cars resume the return to normal, the move towards electrification also continues to accelerate. The death of fossil fuels and drilling may have been overplayed as the used car market is seeing unprecedented prices and surging demand even as the pandemic is farther away in the rear view mirror thanks to the acceleration of COVID-19 vaccinations. Prudent investors seeking exposure in the oil drillers can watch for opportunistic pullbacks in Transocean shares for exposure.

Q1 FY2021 Earnings Release

On May 3, 2021, Transocean released its fiscal first-quarter 2021 results for the quarter ending March 2021. The Company reported an earnings-per-share (EPS) loss of (-$0.19) versus consensus analyst estimates for (-$0.17), a (-$0.02) miss. Revenues fell (-14%) year-over-year (YoY) to $653 million slightly missing analyst estimates for $653.71 million. Revenue efficiency was 97.4% compared to 97.2% prior quarter. Adjusted EBITDA was $245 million versus $210 prior quarter. Contract backlog was $7.4 billion as of the April 2021 Fleet Status Report. Net favorable items were $0.03 per diluted share offset by $0.10 for loss on disposal of assets. Contract drilling revenues fell by (-$37 million) sequentially due to the sale of one harsh environment rig that was operating in Q4 2020 in addition to two fewer calendar says in the Q1 and reduced activities for ultra-deep water units. Operating expenses fell to $435 million from $465 million in prior quarter due to decreased activity, lower in-service maintenance, reduced shipyard activities and lower allowance for excess materials and supplies.

Conference Call Takeaways

Transocean CEO, Jeremy Thigpen, set the tone, “Despite the many challenges over the part year, we have continued to deliver best-in-class operations for our customers picking up in 2021, essentially where we left off in 2020. As you may remember from our last call, we delivered the best overall annual performance in Transocean history. This performance continued into the first quarter 2021, as we delivered over 97% uptime across our global team, achieving one of the strongest operation quarters in Company history in both uptime and safety performance.” He went on to detail new contracts and the uptick in market conditions evidenced by day rates rising with two recent fixtures to $240,000 and a third well with managed pressure drilling priced at $280,000 per day in the U.S. Gulf of Mexico. The Company continues to negotiate its contract with Petrobras in Brazil. The Transocean Norge was awarded a on well extension by Equinor at $297,000 per day with bonus in Norway.

Stability and Growth

CEO Thigpen stated, “Looking forward, we are encouraged by the relative stability in oil prices, as they remain persistently above $60 per barrel since February. As the COVID-19 vaccines are distributed around the world, we expect the global demand for hydrocarbons will continue to recover. And as global oil inventories declines, prices are likely to push even higher.” He summed it up, “Most importantly, we believe our customers also subscribe to this view. Their competence and improving oil market fundamentals has resulted in accelerated planning for new or previously delayed projects, may of which are expected to commence later this year.” He underscored that all the Gulf of Mexico fleet of active rigs could be sold out later this year with the anticipated awards expected later this year which is, “… something that the industry hasn’t even contemplated since 2014, and clearly supports a meaningful inflections in day rates from current levels.”  

RIG Price Trajectories

Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for RIG stock. The monthly rifle chart is uptrending with a rising 5-period moving average (MA) at $3.52 and the monthly 15-period MA at the $2.13 Fibonacci (fib) level. The monthly stochastic emerged out of a two-year sub 20-band oversold level in January 2021 and continued to rise through the 50-band. The monthly upper Bollinger Bands (BBs) are at $7.07. The weekly rifle chart initially peaked its uptrend at the $4.78 fib to for a weekly market structure high (MSH) trigger below $3.69. The weekly stochastic is trying to cross back up to form a breakout on the weekly 5-period MA at $3.56 crossover through its 15-period MA at $3.65 towards a market structure low (MSL) buy trigger above $4.02. This targets the weekly upper BBs retest of the $4.78 fib. Prudent investors can monitor for opportunistic pullback entry levels at the $3.69 weekly MSH trigger, $3.23 fib, $2.70 level, $2.13 fib, and the $1.48 fib. Upside trajectories range from $5.40 on up to the $8 fib.