Transcript Document

Transocean Ltd.
William Kelly
Lesya Kuzmyk
Ceida Plasencia
Rodrigo Polezel
Alex Santos
Company Background
Transocean Ltd. is a corporation based in
Switzerland that provides services, related equipment
and crews for offshore drilling of oil and gas worldwide.
They are the largest international provider of offshore
contract drilling services, owning 136 offshore drilling
units.
They provide the following services:
• Contracted drilling services
• Drilling Management Services
• Integrated Services
• Oil and Gas exploration
Where RIG Operates
Transocean Ltd
Stock Price:
Symbol:
52-Week High/Low:
S&P 500:
EPS
P/E Ratio
S&P 500
S&P 500 P/E
Relative P/E
2008 A
14.38
6.3
$65.00
15.2
0.42
$86.60
RIG
$41.95 - $94.44
$1108.86
2009 E
11.73
7.6
$50.00
22.18
0.34
2010 E
10.65
8.6
$75.00
14.78
0.58
Porter's 5 Forces
RIG's Competition/New Entrants
• Main Competitors: Pride International Inc., Noble Corp.,
and Diamond Offshore Drilling.
• RIG has the largest drilling fleet in the industry, with a
total of 136 mobile offshore drilling units and 10 new
ultra-deepwater units under construction.
• RIG holds 19 of 23 world records for drilling in the
deepest waters--drilling in 10,011 feet of water.
• RIG specializes in Harsh-Environment Drilling--not many
other companies have the equipment and personnel to
do so.
• High start-up costs prevent new entrants (Moat).
The Market
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Transocean Ltd. (RIG)
P/E: 7.60
PEG ratio: 0.58 (5 year expected)
EPS: 11.73 (diluted)
Price to Book ratio: 1.44
Dividend Yield: N/A
Expected share price return: 10.8%
Profit Margin: 29.98%
Market Cap: 29,196.80 (US$ m)
Rating: Outperform (from Credit
Suisse on October 21, 2009)
Recommendation: 1.9 (1.0 strong
buy-5.0 sell)
Revenue: 12.09B (US$)
Diamond Offshore Drilling Inc.(DO)
P/E: 9.91
PEG ratio: 0.75 (5 year expected)
EPS: 10.024
Price to Book ratio: 3.74
Dividend Yield: N/A
Profit Margin: 38.26%
Market Cap: 13.81B (US$)
Rating: Buy (from Jesup & Lamont on October 23, 2009)
Recommendation: 2.7 (1.0 strong buy-5.0 sell)
Revenue: 3.64B (US$)
Noble Corp. (NE)
P/E: 6.87
PEG ratio: 0.63 (5 year expected)
EPS: 6.328
Price to Book ratio: 1.72
Dividend Yield: 0.50%
Profit Margin: 45.72%
Market Cap: 11.36B (US$)
Rating: Outperform (from RBC Capital Markets on October 26, 2009)
Recommendation: 1.9 (1.0 strong buy-5.0 sell)
Revenue: 3.61B (US$)
Supplier Power
• RIG contracts companies specialized in the
construction of ships and offshore drilling units
• Companies engaged in the development of these rigs
include Daewoo Shipbuilding and Marine Engineering
Co. Ltd. (DSME), Hyundai Heavy Industries, Ltd., and
Samsung.
• Each drilling unit costs an average of $283.5 million
• Newbuilds such as the ultra-deepwater drill
ships are contracted for about $500,000/day
Buyer Power
• The Brand Power
• Safe, effective and efficient
• Known for their deep water and
harsh environment explorations
• "The largest offshore driller"
• Owns patented structure and
• Oil from one company's rig is no
different than another's; buyers will
look for the best price and contract
terms
• Dependable Buyers
• Set contracts from several months
to multiple years
• Contracts with 41 different
companies from the NOC, IOC and
independents such as Shell,
Chevron, BP
Average
Condition
Drilling
Ultra Deep/Harsh
Environment Dril
ling
Buyer has more
control over
prices
RIG has more
control over
prices
More substitutes
available
Little-to-no
substitutes
available
Less dependent Very dependent
Low brand power
Stong brand
power
Threat of Substitute Products
• To access natural gas and oil resources located under the
ocean, use of drilling rigs is necessary
• No viable alternative process
• Transocean specializes in and derives large bulk of revenue
from deep water rigs
• Very few companies possess technology, expertise and
resources to create such specialized rigs
• As a result, primary substitute product threat faced by
Transocean lies with jackups and medium depth rigs
• Much easier for competitors to create own rigs that can
accomplish same objectives at low depths
• Constitute smaller percentage of Transocean's revenue;
minimal threat faced
SWOT Analysis
Strengths
• Dominant position in the ultra-deepwater (+4,000 feet)
industry with a 35% market share.
• Stronger cash flows in following years due to lower capex
• Low debt obligations
• Recent development of technologically enhanced EnterpriseClass drillships
• Newbuild program includes three rigs that reach depth 12,000
feet
Contract Backlog
• Strong contract backlog of deepwater rigs, which contributes to 70% of
its revenue
Weaknesses
• Small growth potential due to its large market
share in the offshore drilling industry as well as
the full usage of its deepwater rigs
• Below average returns due to strong backlog
• Subletting of rigs can lead to a downward
pressure to dayrates
• Stacked jackups accounting for 40% of the total
jackup fleet by year end of 2009 due to
competitive rates in this sector
Opportunities
• Due to the recession, investment in oil production and
exploration has experienced an overall reduction
• With the likelihood of oil prices increasing within the
next few years due to sustained demand, utilization of
rigs is likely to increase
• With higher oil prices, incentive explore for oil located in
the deepest, harshest territories will increase
• These will increasingly require deep-water capable rigs,
which Transocean has an advantage in
• May seek to acquire competitors, maintain
technological dominance
Threats
• International laws and U.S. Coastal Laws may
hamper drilling on certain locations
• Profits dependent on weather conditions, ie.
hurricanes, severity of winter.
• Worldwide political events may impact revenue
• Advancement of competitor technology could detract
from the core competence (deep water drilling)
• Volatility in oil prices could seriously affect demand
for oil rigs
• Alternative energy sources may reduce future
demand for oil rig utilization