Transocean Reports Second Quarter 2005 Results
Transocean Inc. (NYSE: RIG) reported net income for the three months ended June 30, 2005 of $301.8 million, or $0.90 per diluted share, on revenues of $727.4 million. The results compare to net income of $48.0 million, or $0.15 per diluted share, on revenues of $633.2 million for the corresponding three months in 2004. Net income adjusted(1) for the May 2005 TODCO public offering, June 2005 sale of TODCO common stock and gains associated with the sale of the jackup rig Transocean Jupiter and Land Rig 34 was $127.7 million, or $0.38 per diluted share, for the three months ended June 30, 2005. This compares to net income of $26.4 million, or $0.08 per diluted share, for the corresponding three months in 2004, after adjustment for the sale of the semisubmersible rig Sedco 602.
For the six months ended June 30, 2005, net income totaled $393.6 million, or $1.18 per diluted share, on revenues of $1,357.9 million, compared to net income of $70.7 million, or $0.22 per diluted share, on revenues of $1,285.2 million for the six months ended June 30, 2004. Net income adjusted for the May 2005 TODCO public offering and June 2005 sale of TODCO common stock, gains associated with the sales of the semisubmersible rig Sedco 600, the Transocean Jupiter and Land Rig 34 and for a loss on the early retirement of debt was $207.4 million, or $0.63 per diluted share, for the six months ended June 30, 2005. For the six months ended June 30, 2004, net income adjusted for the sale of the Sedco 602, a loss on the early retirement of debt and TODCO initial public offering (IPO)-related items was $75.9 million, or $0.23 per diluted share.
Robert L. Long, President and Chief Executive Officer of Transocean Inc., commented, "The fundamental outlook for our business is better than at any time in my 30 years in this industry. Our most significant challenge at present is managing our industry-leading portfolio of deepwater assets to satisfy as many of our customers' needs as possible. Our revenue backlog(2) of approximately $5.8 billion is unprecedented for the company, with continued backlog expansion anticipated. Within our fleet of 32 High-Specification Floaters, possible contracts for six rigs are in advanced stages of discussion with expected durations of six months to approximately 48 months and expected dayrates ranging from $205,000 to $395,000."
"In addition, we have remained focused on our efforts to divest non-strategic assets and reduce debt. We completed our divestiture of TODCO with final transactions in May and June, resulting in net proceeds during the second quarter of approximately $271.9 million. Following the July 2005 completion of a tender offer for our 6.625% Notes due in 2011, our total debt at face value has declined to approximately $1.6 billion and our cash flow generation continues to accelerate as contracts with higher dayrates commence. We are currently evaluating contract opportunities which would require the reactivation or upgrade of existing rigs in our fleet. These opportunities could require a significant amount of capital. However, our cash generation is expected to significantly exceed these reactivation and upgrade opportunities so we are also considering alternatives for returning cash to our shareholders."
Customer demand for Fifth-Generation Deepwater Floaters, the industry's largest and most modern rigs and which total 13 of Transocean's 32 High-Specification Floaters, has been particularly strong and continues to exceed supply. These rigs have the ability to drill technically complex wells, including wells in ultra-deep water and increasingly deeper well depths, plus provide significant well construction efficiencies for offshore development programs. Following the recent contract signings on the company's drillships Deepwater Millennium, Deepwater Discovery and Deepwater Frontier, each with a contract duration of two years, the company's percentage of Fifth-Generation Deepwater Floater fleet time presently contracted for the years 2006 and 2007 stands at 78% and 54%, respectively. The comparable figure for the company's entire High-Specification Floater fleet for 2006 is 63%.
The company's Other Floaters fleet, comprised of 23 semisubmersible rigs and one drillship, continues to benefit from improving activity levels in all regions. In the U.K. sector of the North Sea, five of the company's semisubmersible rigs have been recently contracted for durations of six months to 12 months at dayrates ranging from $140,000 to $200,000. Customer activity levels outside of the U.K. sector of the North Sea are expected to be stable to higher through 2006. The company continues to evaluate contract opportunities that could result in the reactivation of up to three of its idle rigs. Should a decision be made to reactivate any of the idle units, they are not expected to be operational before 2006. At present, approximately 47% of the company's Other Floater fleet days are contracted in 2006.
Jackup rig demand remains strong throughout Southeast Asia, India and West Africa, the primary regions of operation for the company's 25-rig fleet. Fleet utilization is expected to remain better than 90% for the remainder of 2005 and into the first half of 2006 with continued improvements in dayrates likely, although the impact of new supply in the jackup rig sector beginning in 2006 is currently unknown. The company also reported that it completed the sale of the Transocean Jupiter for net proceeds of $20 million in the second quarter of 2005. The rig had been inactive since 1998. At present, 50% of the company's Jackup rig fleet days are contracted in 2006.
Operations Review - Revenues for the three months ended June 30, 2005 improved 15% to $727.4 million, compared to revenues of $630.5 million during the three months ended March 31, 2005. The improvement was attributable to increased dayrates and activity throughout the company's fleet in addition to higher revenues from integrated services during the three months ended June 30, 2005. These improvements in revenues were partially offset by the mobilization of the semisubmersible rig Sedco Express from Brazil to West Africa and idle time due to repairs on the semisubmersible rigs Transocean Leader and Sovereign Explorer.
Operating income before general and administrative expenses(3) was $202.8 million and field operating income(3) (defined as revenues less operating and maintenance expense) was $288.5 million for the three months ended June 30, 2005. Operating income before general and administrative expenses was $161.4 million and field operating income was $241.9 million for the three months ended March 31, 2005. Improved results were primarily due to increased revenues during the second quarter of 2005, and the gain on sale of the Transocean Jupiter, partially offset by a 13% increase to $438.9 million in operating and maintenance expense in the quarter ended June 30, 2005, up from $388.6 million for the three months ended March 31, 2005. The increase in operating and maintenance expense was primarily due to increased activity during the period, with six rigs idled for all or a significant portion of the first quarter of 2005 returning to service during the second quarter of 2005, in addition to higher maintenance costs resulting from increased shipyard activity and the timing of maintenance projects. Fleet utilization during the three months ended June 30, 2005 improved to 79% from 75% during the quarter ended March 31, 2005 with improvements due primarily to the Other Deepwater Floaters and Other Floaters fleets. Average dayrates for the three months ended June 30, 2005 increased in the High Specification Floaters and Other Floaters fleets resulting in an average total drilling fleet dayrate of $103,100, up from $96,600 during the first three months of 2005. The improvements were due to new contract startups and extensions at higher dayrates.
Effective Tax Rate - The company's effective tax rate(4) for the six months ended June 30, 2005 was approximately 17%. The slight increase from an effective tax rate of approximately 16% at March 31, 2005 was primarily related to a change in expected amount and geographical concentration of taxable income for the remainder of 2005. The company estimates its effective tax rate for the year to be approximately 17%.
Liquidity - Cash flow provided by operations totaled $383.1
million for the six months ended June 30, 2005. Total debt at June 30,
2005 and December 31, 2004 was $2,193.5 million and $2,481.5 million,
respectively, a 12% reduction. Net debt(5) declined 38% to $1,251.0
million at June 30, 2005 compared to $2,030.2 million at December 31,
Manages 46 Offshore Rigs
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