Transocean Considering Options for Divesting of Low-Spec Rigs

Transocean continues with efforts to reduce or eliminate its exposure to low-spec jackups and floaters while increasing the number of high-spec jackups and floaters in its fleet, Transocean President and CEO Steve Newman told attendees at the Barclays CEO Energy Power Conference Wednesday in New York.

Newman anticipates the move will have a significant impact on the company's revenue stream, as the majority of its revenue comes from its high spec fleet. The company continues to look for opportunities to improve its operating results, including managing out of service time of its rigs and revenue efficiency, Newman said.

While it has sold a number of these jackups through individual sales, it is considering an initial public offering (IPO), spin-off or outright sale of its jackup asset division. An IPO or spin-off would likely occur in late 2013, Newman said.

The company has realized $270 million in non-core asset sales so far this year, and is on track to meet its goal of between $500 million and $1 billion in non-core asset divestitures.

The company has sold a number of idle jackups, with only 12 idle standard jackups remaining in its fleet, but the growth in demand and improved contract terms has prompted Transocean to reactivate some rigs, Newman said.

In addition to its credit facility, the company intends to keep $3 to $4 billion in cash on hand, Newman said. The decision to keep this much cash on hand is related to uncertainties such as the company's liability in the Macondo incident. Newman described the recent claims by the Department of Justice against BP and Transocean as nothing new, but elevated rhetoric.

Newman said Transocean was disappointed in last week's ruling by a Brazilian court that banned Transocean and Chevron Corp. from operating in Brazil.

While he is optimistic the company will be able to have the injunction overturned, he is uncertain this can be accomplished within the 30-day timeline for complying with the injunction.

"Every investigation has exonerated Transocean, the rig, the people and the equipment," Newman commented. "Both Chevron and [Agencia Nacional do Petroleo] have said it's not a Transocean issue."

Transocean has 10 rigs operating in Brazil, nine of which are operating for Petrobras. Business interruption is not covered under insurance, said Barclays analyst James C. West in a Sept. 5 research note. As a result, there is no recourse to collect lost revenue if the injunction stands.

Under the worst-case scenario, the bank could freeze all 10 of Transocean's rigs as collateral against environmental damage claims and fines, West noted.

"It's safe to assume that if we have to comply [and suspend operations] that it will be noticeable in our financial results, to the Brazilian economy and to Petrobras," Newman said.

Fitch Ratings on Aug. 29 confirmed its negative outlook on the company, citing the uncertainties surrounding Transocean's potential liability exposure related to Macondo and still relatively weak operating cash flow and resulting high leverage metrics for the rating.


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