Transocean Reports 3Q11 Results

Transocean reported a net loss attributable to controlling interest of $71 million, or $0.22 per diluted share, for the three months ended September 30, 2011. The results compare to net income attributable to controlling interest of $368 million, or $1.15 per diluted share, for the three months ended September 30, 2010.

  • Revenues decreased four percent to $2.242 billion compared to $2.334 billion in the second quarter 2011
  • Third quarter 2011 net loss attributable to controlling interest was $71 million, which included $81 million of certain net unfavorable items, compared to net income attributable to controlling interest of $155 million in the second quarter 2011, which included $36 million of certain net unfavorable items
  • Revenue efficiency was 89.5 percent, down from 92.1 percent in the second quarter 2011
  • Fleet utilization was 58 percent, up from 55 percent in the second quarter 2011
  • Operating and maintenance expenses were $1.540 billion, up from $1.492 billion in the second quarter 2011
  • Cash flows from operating activities were $492 million, up from $340 million in the second quarter 2011
  • The Annual Effective Tax Rate for 2011 has increased to 34.1 percent from 22.6 percent in the second quarter 2011
  • New contracts totaling $1.4 billion were secured in the Fleet Status Report period July 13, 2011 through October 17, 2011
  • New contracts totaling $325 million have been secured since the October 17, 2011 Fleet Status Report
  • The acquisition of Aker Drilling was completed on October 4, 2011, further strengthening Transocean's industry leadership position as well as adding approximately $900 million in backlog

Third quarter 2011 results included the following items, after tax, that resulted in a net unfavorable impact of approximately $81 million, or $0.25 per diluted share:

  • $78 million loss resulting from a forward foreign exchange contract executed to address the potential exchange rate variability associated with the company's acquisition of Aker Drilling,
  • $11 million related to impairment charges, discontinued operations, and discrete tax items,
  • $5 million of Aker Drilling acquisition costs, and
  • $13 million gain related to the sale of our equity interest in Overseas Drilling Limited, which owns the research vessel Joides Resolution.

Third quarter 2011 results also included expenses associated with the Macondo well incident of approximately $9 million, $6 million after tax, or $0.02 per diluted share. These expenses were primarily related to legal costs and other professional fees that are not expected to be recoverable from insurance.

Operations Quarterly Review

Revenues for the three months ended September 30, 2011 were $2.242 billion, compared to revenues of $2.334 billion during the three months ended June 30, 2011. Third quarter contract drilling revenues were $2.061 billion compared to $2.086 billion in the second quarter. The company reported revenue efficiency of 89.5 percent compared to 92.1 percent in the second quarter. Consistent with recent trends, revenue efficiency and out-of-service time continue to be adversely impacted by the need to comply with new well control equipment recertification requirements, higher standards for equipment condition and capacity constraints affecting our vendors. Other revenues decreased $69 million to $169 million, primarily due to lower drilling management services activity. Operating and maintenance expenses totaled $1.540 billion for the third quarter 2011, up from $1.492 billion for the prior quarter. The increase was primarily due to higher costs and expenses associated with rigs undergoing shipyard, maintenance, repair and equipment certification projects.

Cash Flow and Capital Expenditures

Cash flows from operating activities increased to $492 million for the third quarter 2011 compared to $340 million for the second quarter 2011. The increase in cash flows from operations resulted primarily from a reduction in working capital during the third quarter. Capital expenditures decreased to $137 million for the third quarter compared to $293 million in the second quarter 2011. The lower expenditures were primarily due to the timing of shipyard milestone payments associated with our newbuild construction program.

Effective Tax Rate

Transocean's third quarter Effective Tax Rate was 212.8 percent compared to 33.5 percent in the second quarter. The company's third quarter Annual Effective Tax Rate for 2011, which excludes various discrete items, was 82.6 percent compared to 25.6 percent in the second quarter. The increase in the Annual Effective Tax Rate was primarily due to reduced profitability in certain jurisdictions where activities are either taxed on a deemed profit basis or subject to lower tax rates. The third quarter amounts were also impacted by the catch-up adjustment required to reflect the change in the forecasted Annual Effective Tax Rate for the first and second quarter activities. The increase in the Effective Tax Rate was primarily due to the items noted above as well as the impact of the $78 million loss on the forward foreign exchange contact, which provides no tax benefit. Please see the accompanying schedule entitled "Supplemental Effective Tax Rate Analysis."

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