Transocean, Inc. (RIG)

If I were to choose one stock - just one - this is it. RIG has more business in front of them that they can handle. Everything falls in place.

The world is demanding more energy. Alterative energy is not keeping up the pace. So oil will get tighter, even if the US falls in recesssion. Fast growing China and India will pick up the slack.

Most big oil finds are now out in the deep sea. There is a race among nations going on for mineral rights in deep sea water for a reason. Such as Russia is claiming the rights for the Antarktis.

RIG has terrific market position in deep sea drilling. Competition is not a problem, as speedy availability for their deep sea rigs is more important than (their high) pricing. RIG have a deliberate, disciplined and opportunistic expansion program, geeting out of the crowded shelf drilling business and into more profitable deep sea.
They invest on customer demand visible in the next 4 years. Their service contracts are inflation escalated from the order for a rig to a shipyard. Their new deepwater rigs cost around 750 mm$, with service fees running 500 - 600 grand a day or 180 mm$/yr or more. Payback is around 4 years, about the lenght of their initial contract terms. The rest of the lifetime of those rigs is pure fun. Rigs can be used for 30 years or so. Their total debtload ~ 17 B $ is already covered by the contracted cash flow backlog over the next years. The continuing weak $ and the extensive international exposure will help too. The stock is cheap with a terrific growth rate particularly after the integration of Global Santa Fe.

What is not to like here?

The USA will suffer tremendously and go into recession because it will not drill, it will protect the environment at any cost, it will come down hard on big oil & driller companies (example Halliburton) making it beneficial for these companies to move operations overseas (taking jobs with them) and at the same time taxing the rich people much more (causing many more American jobs to go away). The USA will also bring the troops home, and do nothing as Iran prepares for the nuclear bombing of Israel, and terrorists will grow much stronger after we leave Iraq. In the meantime, other countries like China & Russia will continue to drill for oil and consume oil to keep their economies in much better condition than ours, turning the USA into a poor country that cares more what others think of us, and how big the deficit is, and the USA will have to beg for mercy and beg for every drop of oil that we can get, because the USA is no longer the country it was back in WWII , when we as a nation could stomach losing hundreds of thousands of troops in a war, where now, we can't even stomach losing 5,000 troops in war. Companies like rig will go elsewhere (such as Brazil), and drill for other countries, while we try to save the polar bears over here, and we invest heavily in solar & wind technology so that we can become the cleanest and poorest place on the planet, hoping that someday the terrorist will just forget about us and leave us alone in peace.

RIG has half of the deep water rigs in the world. Something like nine of the seventeen in use. Don't quote me on that number. I read it recently, but forget the exact number. Anyway, easy oil is soon over. Hard oil is PBR and their find in Brazil. They need deep rigs to get that oil from their amazing find. They need RIG. Therefore, I need RIG. A nice pull back. I bought midway today at 147. Was 162 and had a big beat quarter, but street took it down. Strangely, some other deep riggers like Noble are at 52 week highs, so RIG is priced at this moment to turn up. The best in breed does not trail Noble.

The price of oil in US$ will rise as the global economy recovers and higher inflation in the US occurs due to heavy printing in Washington results in a weaker dollar. Once this is viewed as coming there will be a rush to deep water drilling in places like Brazil and Transocean should greatly benefit.

transocean will have significant EPS growth for the next 3 years. The vast majority of this EPS growth is locked in through forward contracts. Transocean contract backlock is also 20+ billion $. The 4 billion dollar buy back will also add significant value to the shares. The buyback has not been factored into the EPS growth estimates by analyst at this t ime.

My fave of all the oil services. There aren't enough rigs out their for the deep water drilling and not enough oil for our country survive. Also like the fact that RIG is also an international play.

Conversion of energy sources from carbon "mining" to renewables will take more than a generation. We will be drilling for oil until we reach the last findable drop at huge unit prices just to deal with antique legacy requirements. The largest untapped sources of oil today lie under water and RIG is the leading deepwater driller. The costs of duplicating RiG's current asset base of ships and equipment is enormous - a substantial moat for competitors. It's day rates will rise, it's earnings, already visible compared to even the recent past in the drilling industry, are becoming predictable. PE's will expand as a result. The "perfect strom" for stock price increases looks to continue for a while.

Drilling services costing 9 times future earnings ? muahahaha... outperform. Easy money, easy CAPS-points.

ps: Really. Outperform. I mean it
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Transocean, Inc. provides offshore contract drilling services for oil and gas wells. It contracts drilling rigs, related equipment, and work crews primarily on dayrate basis to drill oil and gas wells with a focus on deepwater and harsh environment drilling services. As of February 2, 2007, the company owned and operated 82 mobile offshore and barge drilling units, including 33 high-specification semisubmersibles and drillships, 20 floaters, 25 jackup rigs, and 4 other rigs. The company also provides other integrated services. Transocean primarily operates in the Far East, India, U.S. Gulf of Mexico, United Kingdom, Nigeria, the Mediterranean and Middle East, Brazil, Norway, other West African countries, Australia, Canada, the Caspian Sea, and Venezuela. The company was founded in 1953 and is based in Houston, Texas.

This is the leader in deepwater drilling. They have 17 rigs capable of operating at a water depth of 7000 ft or more and 8 of these can operate at a depth of 10000 ft or more. These deepwater rigs can demand much higher dayrates than their shallow water counterparts. Transocean tends to sign longterm contracts which is good if you believe dayrates are at a peak, and bad if you think they will continue to go up. Personally I think the dayrates might go a little bit higher for the deepwater rigs, but tying up the longterm contracts will pay off huge dividends when they drop a few years from now. Expected EPS this year is 7.35, projected growth rates are over 20% and the stock is trading for about $78. That is the definition of cheap for an industry leader.

The only potential downside of owning this stock is because it is an industry leader, it will not grow as fast as the smaller companies, and will likely not be bought out.

RIG owns the deepwater market. RIG is minting money and will continue to do so as long as oil prices stay above $40 BBL. The drillers move with the price of oil and NG, but they are not nearly as dependent on price as the oil companies. The drillers are coming out of a long slump and should do well as long as oil stabilizes at not less than $40 BBL

Also, al lthe drillers provide short-term trade opportunities into the winter. Right now oil and gas inventories are high, but is the Northeast catches a prolonged cold snap, the inventories can change quickly.

RIG like it's fellow drillers is very volatile and can also do well as stock to trade on the volatility with optios strategies.

Earth is covered by 70% water so undiscovered oil is in deep water. RIG is largest deep water driller and has $20 billion of backlog business and contracts into the next decade with some rigs at $500,000+ per day (no wonder oil is expensive!). Have rigs that do dual functions which save oil companies money. Low P/E, low PEG, great future.

The recent pullback in Transocean (RIG) shares due to a drip in crude oil (CL) presents a solid opportunity. The market is behaving as if RIG's future earnings are dependent on the spot price of crude oil, but the reality is that they have been locking up big contracts just in the past week:

15 Jul 2008: $3 billion from Petrobras for three semisubmersible rigs for Brazilian drilling: Sedco 707 (6,500 foot water depth and 25,000 foot drill depth), Sedco 710 (4,500 and 2,500), Transocean Driller (3,000 and 25,000) and the drillship Deepwater Navigator (7,200 and 25,000). Contracts are of 5-6 years and start dates range from December 2009 and March 2011, after existing contracts are completed. Dayrates are more than double the previous contract.

8 Jul 2008: $1.2 billion from Eni for the drillship Deepwater Pathfinder (10,000 and 30,000) for Gulf of Mexico drilling. This comes to a record $650,000 dayrate.

These are only in the past two weeks. Despite today's pullback in CL to about $135, presumably the cause a dent in RIG's shares, the future is bright. The current economic environment supports spectacular earnings visibility with likely more big contracts to come.

Should RIG shareholders be concerned about the near-term possibility of a major pullback in CL? I say no, for three big reasons:

1) At recent all-time highs, there is demand destruction due to global economic slowdown from the high costs of energy, and conservation efforts (ethanol boondoggle anyone?). The sweet spot for robust demand and high revenue for oil services like RIG is very likely to be in the $90-125 range for CL, which is actually $10 below current levels as of this writing.

2) Because of an industry-wide shortage of rigs, contracts are currently being signed to lucrative rates for long terms. For example, the above recent contracts last until 2015. And I doubt we won't need any more oil then.

3) Assuming oil prices moderate and demand returns to a normal growth rate, there is still the issue of supply. For example, current major fields like Saudi Arabia's gigantic Ghawar field (which accounts for 6% of global production) and Mexico's Cantarell are aging and facing declining production rates. The easy oil has largely been found and there is no more low-hanging fruit. Despite the political footballing of drilling in Alaska's ANWR, the most promising remaining places to look for major finds are in deep water, which are probably more environmentally palatable. For example, with the Arctic ice clearing up, drillships will be ordered there, I estimate within a decade.

While these factors also buoy the prospects of competitors such as Diamond Offshore, Atwood Oceanics and Oceaneering, RIG has the most comprehensive lineup of jackups, semisubmersibles and drillships for a variety of depths and conditions. Deep water drilling is the most technically demanding, and RIG is clearly the best in breed, possessing the bulk of new industry capacity coming online from shipyards in the next few years.

RIG shares have enjoyed a big runup over the last year, but lately has stalled. I attribute this to concern about its debt level, which is a result of its recent merger with Global Santa Fe, the #2 drilling company at the time. However, given its cash flow from its lucrative contracts, I think this will only be a short-term issue.

Growth in China, India, and other developing nations will ensure that demand for oil remains high. The best option for the major oil companies to meet this demand is to invest heavily in offshore drilling. Rig has the largest fleet of offshore rigs and may stand to benefit most from this situation.

Transocean (RIG) and Noble (NE) are the clear leaders of the deepwater drilling world, which is expected to see rapid growth through the end of the decade. Because of its long term contracts and substantial order backlogs, RIG is unlikely to be affected by month to month fluctions in oil & gas prices.

Since energy experts believe that the era of cheap, easy-to-find oil & gas is over, the future looks bright for deepwater drillers with limited competition, like NE & RIG. Transocean is trading today at 7.3 x estimated 08 earnings, which consensus estimates project to grow by 50+% over 2007. RIG's 5-year future earnings growth is estimated at 32%/yr, and its 07 PEG is only .35. This represents a rare buying opportunity.

While prospects for many shallow water and onshore oil service firms may rise and fall over the short term with the unpredictable turns of North American natural gas prices, the deep water drillers enjoy considerable insulation from such concerns. Few can compete with Transocean and Noble.

38.2% 5 yr growth rate (Morningstar) with expected earnings of $7.50 in 2007. Give it a moderate PE of 20 gives you a stock price of $150. Am I missing something here? (Same kind of valuation with NE, DO)

That stock moves with the price of oil... the thing is, at some point people will figure out that RIG has an enormous backlog and will keep busy until 2010 with current orders. They also shape up to be the only deep-driller in the Gulf of Mexico where a new deep-water field was just found and you got yourself a $100 stock for 70 cents on the dollar. Even if oil reaches $50 short-term, this stock will feel only short-term pain.

The Oil Service sector (especially the offshore drillers) have been sold with crude. These guys have tied in rates for multiple years that are higher than they have ever seen and new rigs are difficult to come by in the short term.

Transocean Inc. is one of the world’s largest oil and gas drilling company, primarily involved in providing offshore contract drilling services for oil and gas wells. Its fleet includes 82 mobile offshore drilling units, which comprises of 33 High-Specification semisubmersibles and drillships, 20 other Floaters, 25 Jackups and four other Rigs. The company is a leader in deep water drilling segment, with a past record of drilling wells below 5000 feet of water, and in extreme cold conditions. Transocean has a truly diversified market base, with no country specific market generating more than 20% of its revenues.

In 2006, the all time high prices of oil and gas have resulted in added flux on the drilling activities by number of oil majors. The huge demand for drilling activity and short term limited supply of the equipments like semisubmersibles and rigs, have led to day prices for drilling reach the all time high levels. Moreover, as most of the easily available land sources tapped, the players are focusing on deep sea waters for excavation. All this has created a positive impact on drilling companies, especially for company like Transocean that is highly specialized and technologically advanced in deep water drilling.

Transocean witnessed a strong performance in 2006, as revenues increased by over 30% while net income grew by 93% to $1.39 billion, as a result of rise in average daily revenue positively affecting the contract drilling segment and proper utilization of most of its fleet. Looking ahead in 2007, oil and gas prices will continue to remain at the higher levels, backed by strong household demand for heating and heavy industrial usage. Moreover, Chevron’s recent success in Gulf of Mexico’s mid water has further boost the deep water drilling, while the limited rig availability, the increased duration of contracts and growing fleet will continue to notch positive results for Transocean. Further, considering company’s impressive order book, with revenue backlog closer to $20 billion, Transocean could prove a good investment decision at current levels.

RIG – the past 5 years growth has been 37.8%, balance sheet and income statement have increased consistently from 2003-2005,

Quotes from Recent Financial Articles

Robert Long, the company's chief executive officer, said the company has $21.6 billion in backlog and stands to generate a tremendous amount of cash flow in 2007.

This rally in oil is making it so only a handful of companies can rally, with Transocean being the standout, given that PetroBras has stumbled on a huge field that would use Transocean to get the oil out.