Transocean profit tops estimates as tax relief offsets slump

DAVID WETHE

VERNIER, Switzerland (Bloomberg) -- Transocean Ltd. posted a better profit than analysts expected as the world’s largest offshore rig owner races to slash costs to cope with falling demand for deepwater oil drilling. Lower taxes helped.

Thanks largely to a tax rate that was half the one for the previous quarter, the company’s adjusted per-share profit for the third quarter exceeded by 22 cents the 65-cent average of 31 analysts’ estimates compiled by Bloomberg. But sales tumbled 29% to $1.61 billion.

“Operationally, the quarter was average at best,” Rob Desai, an analyst at Edward Jones in St. Louis, who rates the shares the equivalent of a hold and owns none, said in a phone interview. “It really came down to the taxes for why they came in above where we were.”

In addition to an oil price slump, the offshore rig industry has been suffering from a glut of new drilling vessels continuing to enter the market. At the same time customers have been pulling back on work because of rising offshore costs.

“It’s been tough on the contracting front,” Luke Lemoine, an analyst at Capital One Southcoast in New Orleans who rates the shares the equivalent of a sell and owns none, said before the release. “The real question is what do they do with some of their idle rigs. To get costs lower, they have to do something with those.”

Lower Taxes

The effective tax rate fell to 4.9% from 10.3% in the second quarter, the Vernier, Switzerland-based rig provider said Wednesday after U.S. markets closed. Operating and maintenance costs were $880 million, slightly better than Desai’s expectation of $896 million, he said.

Net income of $321 million, or 88 cents a share, in the third quarter compared with a loss of $2.2 billion, or $6.12, a year earlier. The year-ago results included $1.9 billion in impairments as the offshore rig market began its downturn.

Through the first 10 months of the year, Transocean has added little more than 10% of the amount of new backlog that it did for the same period a year earlier, according to data compiled by William Foiles and Andrew Cosgrove, analysts at Bloomberg Intelligence. To keep pace, CEO Jeremy Thigpen has had to look for a variety of ways to cut costs further, including less spending on idled rigs, vessels under construction and dividend payouts to shareholders.

Retired Rigs

Of the 38 floating rigs that have been scrapped across the industry, Transocean has retired 21 of them, according to a September presentation. Shareholders agreed last month at a special meeting to cut the third and fourth installments of their dividend. The company also announced last month a deal with its shipbuilder and with customer Royal Dutch Shell Plc to delay delivery of two ultra-deepwater drillships under construction.

The earnings statement was released after the close of regular trading in New York. The shares, which have 2 buy ratings from analysts, 14 holds and 22 sells, rose 0.2% to $16.85 at the close in New York before the release. The company’s stock declined as much as 2.5% in Zurich on Thursday.