Transocean Reports Solid Earnings, Time to Short?
The same pattern we've seen in many oil service stocks played out in Transocean (RIG) yesterday. Solid earnings. Falling on deaf ears. Due to the mix of ships (they have a lot of shallow drillers who have much higher competition levels) I prefer some other names in the sector in the here and now, but for the long run RIG is bringing on the most supply of deep sea drillers which is where the real money is.
The chart is actually breaking out - unfortunately to the benefit of shorts, not longs. The 50 day moving average ($144) is quickly closing in on the 200 day ($136s) - the last thing you want to see is the 50 day to cross over and below the 200 day. This seems to be the fate unless things change quickly. For now, based on charts alone, this is a stock to be shorted/sold - not bought. In fact a very easy short with a nice stop loss over current resistance areas (I keep repeating that but many of these commodity charts look identical - i.e. broken) At $130 there is some support with March 2008 lows, but past that the next level down is $120 (January 2008 lows) and then it goes from there...
Despite providing a service that will be in demand at oil $60, $80, $100, $120, or $140 Transocean, like all the deep sea drillers simply seems to be a hostage to oil prices. In "theory" oil services should have some separation from direct Energy & Production companies, but theory only works well in the classroom. We'll keep track of the fundamentals just to keep ourself educated; also some word that cash flow is such that the company is seeking ways to return cash to shareholders (i.e. special dividend?)
Another company who provides extremely detailed earning reports. Hard to do apples to apples year over year comparisons due to the acquisition of GlobalSantaFe (GSF) last year.
- Transocean Inc (RIG), the world's largest oil and gas drilling contractor, said second-quarter profit doubled, topping Wall Street estimates, on strong demand for its offshore rigs.
- Transocean has seen rates for certain deepwater rigs top $600,000 per day as high crude oil prices prompt demand from exploration and production companies. Tight rig supplies have also helped push contract awards higher. The average daily rate paid for Transocean's drilling fleet rose 18 percent from a year earlier to $238,600 as contracts were renewed at higher rates.
- Second-quarter profit rose to $1.1 billion, or $3.45 per share, from $549 million, or $2.63 per share, a year earlier. Analysts on average had expected a profit of $3.30 per share, according to Reuters Estimates.
- Revenue more than doubled, soaring to $3.1 billion.
- Day rates increased 4% sequentially and 18% year over year. Utilization rates across all rigs was 87% (down from 91% last quarter).
Disclosure: Author has no position.
Get Seeking Alpha Free Stock Alerts by Email!
Get Free Stock Alerts by Email!
Trader Mark
About this author:
ETFs In Focus
-
Editor's Picks
-
Most Popular
- Energy Independence: It's About Demand, Not Supply
- Housing Prices: Bottom or Temporary Bear Break?
- McCainomics: What Can He Do?
- ETF Insights: The New Hard Assets Producers ETF
- Why Airline Stocks Are So Often Bad Investments
- The Chinese Oil Problem
- Full list of Editor's Picks »
- Three Reasons the Solar Sell-off May Be in the Early Innings »
- Five Reasons Steve Ballmer Thinks Apple's a Buy »
- Why Commodities May Be Nearing a Turning Point »
- What's in Store for the Fertilizer Industry? »
- Precious Metals Manipulation: Lawyers Prepare for Battle »
- Wall Street Breakfast: Must-Know News »
- Apple to Reveal Mysterious Product Transition on September 9th »
- Wall Street Breakfast: Must-Know News »
- Oil: The Inconvenient Truth »
- Wall Street Breakfast: Must-Know News »
- Sarah Palin: Wall Street's Candidate »
-
Long Ideas
-
Short Ideas
-
Cramer's Picks
- Red Hat / Qumranet Deal Adds Fuel to the Virtualization Fire
- ETF Pick of the Week: iShares MSCI Netherlands
- Altria's Last Legal Hurdle Should Be Settled This Fall
- How Wal-Mart Really Beats Expectations
- Corning: Looking Very Cheap
- Leucadia's Key to Success
- China Natural Gas: Growth Appears Certain
- Can TRW Automotive Escape the Michigan Mess?
- Things Aren't Good - Fast Money Recap (9/4/08)
- ETFs That Help You Sleep Better at Night
- Full list of Long Ideas »
- Nuance Communications: An End to Acquisitive Growth
- Short Interest Rising in Tesoro; Shorts Covering Airline Positions
- Harbinger Capital: Cut Short
- Not Much Meat on Pilgrim's Pride's Bones
- Salesforce.com: Demystifying the Force
- Should We Listen to Boone Pickens on Oil?
- Energy Conversion Devices: Ridiculously High Valuation
- Three Reasons the Solar Sell-off May Be in the Early Innings
- Is the Market Rolling Over?
- Solar and Oil, Part Deux
- Full list of Short Ideas »
- Worst Downgrades - Cramer's Stop Trading! (9/5/08)
- Pimco's Bill Gross: Jim Cramer Is 'Courageous' and 'Entertaining'
- Cramer Sees the Light - Cramer's Mad Money (9/4/08)
- Keep Buying Big Brown - Cramer's Lightning Round (9/4/08)
- Don't Buy These Bonds - Cramer's Stop Trading! (9/4/08)
- Loss of Integrity - Cramer's Mad Money Recap (9/3/08)
- Not Off the RIMM - Cramer's Lightning Round (9/3/08)
- Unbelievable Moves - Cramer's Stop Trading! (9/3/08)
- The Rally was the Real Deal - Cramer's Mad Money (9/2/08)
- Crushed Unnecessarily - Cramer's Lightning Round (9/2/08)
- Full list of Cramers Picks »
Trading Center
Hedge Fund Jobs
Job Seekers: Search jobs by category, get job alerts by email or live feed, apply online See full list of jobs »
Employers: See all recruitment options, get applications online or by email Post a job »
This article has 21 comments:
Pursley
Long and proud.
for you
I believe RIG has the most deep-drilling rigs out there. They only have "a lot of shallow drillers" because of GlobalSantaFe. I don't think that is a negative. They have both deep and shallow drilling covered. RIG might be the single best name in the entire energy world now and for years to come. Good luck to anyone who shorts it for very long.
midwestern
neighbor
n
"Despite providing a service that will be in demand at oil $60, $80, $100, $120, or $140 Transocean, like all the deep sea drillers simply seems to be a hostage to oil prices."
Once upon a time this was correct. In order to lock in longer term contracts, say 5 years, RIG has to agree to an adjustable rate. If oil falls bellow $80 for 30 days or more, rates come down drastically. The next downward adjustment would trigger around $60, then $40 etc. On the upside, oil would have to go above $180 for RIG to benefit.
A typical $600K per day lease would have a $300K minimum triggered at around $45. This is the only way that both sides of the deal can do business. This is why RIG is looking to lock in as many long term contracts as possible as $120 or $140 oil is unsustainable, as proven over the past several months.
The higher the price of oil when a rig is leased, the higher the trigger down-rate, though the starting base is so much higher (about double) than five years ago that it pays for RIG to get as many 5 year leases as possible.
If you follow the dates when new long term leases are signed and correlate the info with the average (oil) price for the last 30 days, then you can guess where the trigger-down will occur. Obviously we won't know until this happens unless RIG and all of its competitors are willing to share the sensitive info.
Very few, if any, are willing to sign non adjustable leases for over a year.
Hope this helps.
CrossProfit
Above figures are just for educational purposes and are not to be taken at face value.
RIG has just came up to theneckline and was rejected. The 1.272 extention is $60 dollars for a 1st target,
Sorry for the mistake.
The neckline is at $141
Lepoff, M.D.
Sebastian
Does anyone have any ideas on this?
fleet
unding